This thesis reports on a case study of the middle Awash cotton ..rnproducing farms conducted with the objective of assessing the economic rnperformance of Ethiopiaâ€™s state farms as well as identifying the rnfactors affecting such performance. The financial rate of return rnof the farms as calculated in the study confirms the result of rnaggregative studies conducted earlier that state farms are heavyrnfinancial loosers.However it is also the study,s finding that thernsame farms have consistently generated ret economic returns overrnthe post seven years.This is experessive of the farm,s contributionrnto the economy by meeting rat material requirements of domostincrnindustries and engaging elements of the actively job seeking ruralrnunderempoved.rn The contrast between the farms positive economic returns andrnTheir poor financial performance is mainly expiained by market disrntortions due to the government pricing policy. It also indicates rnthe conflicting nature of the objectives that the government wishesrn to attain throug!l state farms .rn It is a second finding of the study that in spite of the currentrn pricing policy: the farms I financial as well as economic rate ofrn return figures would :lave been higher ':hall is the case at presentrn with a more rational use of resources.The current farm management rnpolicy is 0ne of excessive centralization and stands in the way ofrnsuch rational use.rnThe findings of the study should not suggest that state farms rnunderstudy are necessarily be the least cost means of obtaining thernbenefits the farms are currentâ€™y generating.