1. Prices and Quality in Urban Food Retail:
Evidence from Addis Ababa
Thomas Woldu, Girum Abebe, Indra Lamoot,
and Bart Minten
ESSP-II (IFPRI and EDRI)
Improved evidence towards better food and
agricultural policies in Ethiopia
November 02, 2012
Hilton Hotel, Addis Ababa
1

2. Introduction
• Urban food retail markets receiving increased attention
for three reasons:
1. Growing in importance because of urbanization
2. Food prices are sources of tension and draws policy
makers’ attention
3. The emergency of modern retail outlets with possible
important implications on the structure of food value
chains

3. Introduction
• Few empirical studies on the functioning of these retail
markets in developing countries
• Our study on urban food retail markets using new and
unique data for Ethiopia:
– The case of Addis Ababa
• No Foreign Direct Investment (FDI) in retail
• Price controls and interventions
• VAT on some items
– Explore quality on offer, prices charged, and turnover of food
products

4. Research questions
• Three main research questions:
1. Importance of different retail food outlets in urban
food distribution?
2. What is the quality and price at which different
outlets sell and what are determinants that drive
food price formation?
3. What are the potential implications of the emergence
of modern - public and private - retail outlets on
prices and quality of food in the market?

5. Sampling strategy
• 10 sub-cities in Addis: half of them randomly selected
(after geographical stratification)
• Choose 4 main cereals, 5 main fruits and vegetables, and
4 processed foods
• Collected census data on the importance of different
outlets in each sub-city
• Randomly selected outlets to be interviewed
• Survey was done in April – May 2012
• 1,226 retail outlets interviewed in total

7. Descriptive results
Modern retail outlet penetration
100
80
Number of shops opened
60
40
20
0
1992/93-1997/98 1997/98-2002/03 2002/03-2007/08 2007/08-2011/12 Years in GC

8. Descriptive results
1
.8
.6
.4
.2
0
Market share of retail outlets in cereals
Maize Sorghum Teff wheat
Supermarkets Consumer Cooperatives
Kebele Shops Flour Mills
Cereal Shops Modern Outlets
Others
8

9. 1
.8
.6
.4
.2
0
Market share of retail outlets in fruits and vegetables
Onion Orange Potato Tomato
Supermarkets Regular Shops
F&V Grocery Shops Micro sellers of F&V (Gulit)
Private Commercial Farms Etfruit
Modern Outlets Others

10. 1
.8
.6
.4
.2
0 Market share of retail outlets in processed foods
Berbere Edible Oil Shiro Sugar
Supermarkets Consumer Cooperatives
Kebele Shops Cereal Shops
Regular Shops Private Commercial Farms
Etfruit Baltena Shops
Modern Outlets Others

11. Quality comparisons
• Probit regressions
Cereals Fruits and Vegetables Processed Food
Cereal No Size is Quality is Packed Branded
sold is Impurities large high
white
(1) (2) (3) (4) (5) (6)
Modern retail outlet 0.91* 0.12 0.65* 0.89** 1.61*** 2.65***
Mini markets and regular 1.07*** 1.22** -0.22 0.28 1.02*** 2.15***
shops
Consumer cooperatives -0.16 0.19 -0.15 2.98***
Kebele shops -0.42 -0.52
Flour Mills -0.23 -0.68**
Cereal Shops -0.16 -0.72**
F&V grocery shop -0.55* 0.30
F&V micro- sellers -0.76 -0.86

12. Price comparisons
Price difference
Price difference
Cooperatives versus
Modern versus traditional
traditional non-cooperatives
Price (Birr/kg) ATT Price (Birr/kg) ATT
Teff na 11.5 vs 12.0 -0.44
Wheat 16.0 vs 9.10 6.62*** 9.25 vs 9.37 -0.13
Maize 35.1 vs 6.04 29.0*** 6.24 vs 6.02 0.21
Potato 8,46 vs 7.50 0.95* - -
Tomato 12.0 vs 10.6 1.40** - -
Banana 8.62 vs 8.36 0.23 8.00 vs 8.52 -0.53***
Onion 9.94 vs 9.43 -0.50 - -
Orange 17.4 vs 18.0 -0.62 - -
Edible oil 77.7 vs 62.7 14.9*** 24.4 vs 28.9 -4.57***
Shiro 56.5 vs 39.1 17.4*** 20.3 vs 25.1 -4.90
Berbere 98.9 vs 75.2 23.7*** 74.1 vs 75.3 -1.17
Sugar 15.0 vs 14.5 0.45 14.2 vs 14.7 -0.47***

13. Effect of price controls
• In case of controls, products are delivered at cheaper
prices. However, there are some typical rationing
issues, especially with sugar and palm oil (as prices
are not playing their allocation roles).
Sugar Palm oil Wheat
% of outlets that run out of stock 58% 53% 23%
in the last 12 months
% of time that outlets were 36% 39% 25%
unable to sell this product
because of lack of supplies
% of shops that had large 30% 30% 12%
queues (more than 10 people)
waiting to get this product

14. Summary of the findings
• A large amalgam of food retail outlets. The
importance differs significantly by food type:
– Cereals Mills/cereal shops
– Fruits and vegetables Micro-sellers-
grocery shops
– Processed foods Traditional shops-
Public retail
• A domestic private modern retail sector is quickly
emerging. Share is still small. Is yet to enter the
cereal sector
• The share of public modern retail rapidly growing.
Important for those products where supply chains are
controlled by the government.

15. Summary of the findings
• Domestic private modern retail outlets deliver high
quality products at significantly higher prices (ceteris
paribus)
• Cooperative modern retail outlets delivers low-quality
food at significantly lower prices (ceteris paribus)
• Shops that pay Value Added Tax (VAT) charge
significantly higher prices (ceteris paribus). However,
only 7% of the retail outlets pay VAT.

16. Policy implications
• Consumer cooperatives deliver food at cheaper prices.
However, rationing problem and hence efficiency
concerns. Explore other ways to get food cheaply to
poorer consumers (e.g. targeted food subsidies).
• The impact of the expansion of VAT on food prices
should be better understood.
• Potential benefits (e.g. increased consumer choice,
more efficient supply chains) and costs (e.g.
employment effects traditional retailers) of stimulating
an up-scaling of the modern retail sector (e.g. through
FDI) should be seriously examined.