2. I. Introduction
• Food prices and market functioning of large
interest in developing countries, especially since
global food crisis
• Look in this paper at cereal market
transformation and cereal prices in Ethiopia
• Important topic: 1/ cereals about three-quarters
of area planted in Ethiopia and half of consumer
expenditures; 2/ Explicit purpose of government
to stimulate market transformation
3. II. Data and methodology
• Price data: Use monthly data from the Ethiopian
Grain Trading Enterprise (EGTE); gathers prices
on wholesale markets
• Wholesale market survey: Conducted on the
biggest wholesale markets in the country (31).
Focus groups of transporters as well as for
specific cereal crops
(teff, sorghum, wheat, maize, barley): 71 focus
groups in total
5. III. Background
• Cereal consumption: 150 kgs of cereals per
person per year
• In quantity, maize most important; then
sorghum, wheat, and teff; barley least important
• Strong differences between urban and rural
areas: More maize and sorghum consumption in
rural areas; high consumption of teff in urban
areas
6. III. Background
• Policy background (in last ten years):
- 1/ Intervention by the Ethiopian Grain Trading
Enterprise (EGTE) in markets as well as food aid
by e.g. WFP for emergencies
- 2/ Issues of price inflation and efforts of the
government to control this: a/ export bans;
b/urban food rationing cards; c/ government
imports; d/ price controls
8. IV. Five drivers for structural
transformation in cereal markets
1. Economic and income growth
2. Urbanization and increase in commercial
surplus
3. Roads and transportation costs
4. Access to mobile phones
5. Cooperatives
9. Driver 1: Economic growth
• Ethiopia one of the fastest growing economies in
the world (remarkable for Africa as no oil)
Figure 4: Annual GDP growth in Ethiopia
16
14
12
10
8
GDP at constant market prices (Govt. of Ethiopia)
6
%
GDP per capita, PPP (constant 2005 international $) (World
4 Bank; World Development Indicators)
2
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-2
-4
10. Impact of economic growth on food
markets
2 factors matter:
1. Extent to which incomes of people grow and for
which type of people (urban/rural): Some
evidence of this (15% consumption growth
between 2004/05 and 2000/01; poverty reduction
from 38% to 29% between 2004/2005 and
2010/2011 (HICES, CSA))
2. How do consumers change consumption with
increasing income? Demand analysis shows that
people shift to high-value crops but also to
superior cereals, such as teff; lower demand
elasticities for sorghum and maize
11. Driver 2: Urbanization and increasing
commercial surplus
• Over 10 years: growth of urban population of
44% or 3.7 million people; using reasonable
assumptions, leading to 500,000 tons of extra
shipment of cereals to urban areas, or 65,000
truck loads of 7.5 tons (FSR truck), or 650
additional cereal trucks per year (assuming 100
complete cycles a year)
• Increasing commercial surplus of cereals
confirmed by national statistics (from CSA):
increased by 117% over the last ten years
12. Share of large and medium-scale
commercial farms in cereal
production and marketed surplus
(CSA; 2010/2011)
% share in Teff Barley Wheat Maize Sor- 5
ghum cereals
Production 0.4 0.2 5.0 5.4 3.6 3.5
Commercial 1.3 1.9 21.1 33.3 25.9 17.9
surplus
13. Changes on the production side:
Emergence of commer. producer class?
• Increase of share of “investors”: land leases
given out by government to commercial farms
Commercial surplus of maize in East Wollega
(in 1000 quintals per year)
1400
Investors
1200
Private peasant holders
1000
800
600
400
200
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
14. Driver 3: Roads and transportation
costs
1. Big investments by government in road
infrastructure
Time required (hours) to travel by truck from
16.00
Addis to major wholesale markets
14.00
12.00
Average
10.00 Hossana
8.00 Bahir Dar
Dire Dawa
6.00
Bedele
4.00
2.00
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
15. 2. Change in type of trucks being used
Importance of different types of trucks arriving
on wholesale markets (100% = all trucks)
2011
2010
2009
2008
2007 ISUZU (5-6 tons)
FSR (7-8 tons)
year
2006
Trailer (20 tons)
2005
2004
2003
2002
2001
0 20 40 60 80 100
%
16. 3. Change in transportation costs
Real transportation costs between cereal
160
wholesale markets (2011 prices; birr/quintal)
140
120
100
80
mean
60 median
40
20
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
17. Driver 4: Access to mobile phones
• Increasing access to mobile phones by traders
and brokers
Start-up year of mobile phone use by brokers and traders on
wholesale markets (Cumulative percentage over markets)
100
% of markets covered
90
50% of traders use mobile
80
100% of traders use mobile
70 50% of brokers use mobile
% of markets
60 100% of brokers use mobile
50
40
30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
18. Increasingly commercial deals done
over the mobile phone
" Are mobile "Were fixed
Use of phone by traders (% of traders; phones used phones
mean) to…"? used to…"?
"… inform/transmit prices" 86 47
"… agree on prices (plus quantity/quality) with
sellers" 36 14
"… request a show-up (quantity requested but
without price agreements) with sellers" 38 16
"… agree deals (prices and quantity) with
transporters" 40 6
"… agree on prices (plus quantity/quality) with
buyers" 46 19
"… follow-up payments with buyers/sellers" 81 31
19. Driver 5: Cooperatives
• Agricultural cooperatives important strategy by
government but relatively less important in
cereal output markets; over the top now?
Average share of the cereals sold by cooperatives on cereal
wholesale markets (as reported by traders' focus groups)
10
8
teff (25 markets)
barley (5 markets)
6
wheat (16 markets)
%
sorghum (5 markets)
4 maize (20 markets)
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
20. Possible impact of changes in these 5
drivers on cereal price behavior
• Income growth, urbanization, cooperatives:
larger quantities traded, economies of
scale, possibly leading to lower margins (for
same distances traveled);
• Mobile phones and transport costs changes:
more efficient marketing system, leading to
lower margins;
• Changes in preferences because of income
growth: possible effect on quality premiums, if
supply changes slower than demand changes
21. Six characteristics of price behavior:
- Regressions of the form:
Log(real price of cereal i) = f(year*month, market
location, quality, grain/flour, retail/wholesale)
Discuss all of these results for different grains:
• Temporal: seasonality and yearly movements
• Spatial margins
• Quality premiums
• Retail and processing margins
- Test for structural change by comparing size of
coefficients in the period 2001-2005 versus 2006-
2011
22. V. Seasonality
• One harvest a year in general
• Price seasonality varies between 25% for maize and
10% for wheat (lowest; probably because of
smoothening of imports); Few changes in price
seasonality over time
• Large seasonality in commercial quantities being
shipped: number of trucks half in off-season
compared to harvest period; But seasonality in
aid, coming in the lean period (usually April – July);
seemingly partial shift from commercial flows to aid
flows over seasons
23. Seasonality in cereal arrivals per
market
Seasonality in arrivals of cereals on 31 wholesale markets
(average tons per week)
140
Barley Maize Sorghum
120
100 Teff Wheat
Tons per week
80
60
40
20
0
S-N 2010 D-F 2011 M-M 2011 J-A 2011 S-N 2011
24. VI. Spatial price variation
• Ethiopia very diverse agro-ecologies; spatial
specialization
• Broad generalization: Major commercial cereal
production areas in West and South of country
(maize/wheat/barley); cereal deficit areas in
North (Tigray/Mekelle) and East (e.g. Dire
Dawa)
• Because of central location of Addis, quite some
products go through it
25. Regression results
1. Addis biggest city but not highest price; mostly
found in Eastern and Northern part of the
country, i.e. the food deficit areas;
2. Price differences between markets are
declining, especially so between receiving markets
(Dire Dawa/Mekelle) and Addis (9 out of 10 tests
significant)
3. Price variation between markets is declining over
time: Difference between highest and lowest
coefficient declined by 11%, 27%,28%, and 22%.
26. However, variability of ratios
Real prices differences of maize between the wholesale
markets of Addis compared to Mekelle and Nekemt
300
200
Birr/quintal in 2011 prices
100
0
2002
2010
2003
2005
2001
2008
2011
2004
2006
2009
-100
Mekelle
-200
Nekemt
-300
27. Share of transportation costs (by
truck) in final wholesale price
Transport costs from Nekemt to Mekelle and wholesale
maize price in Mekelle over the year 2011
700
Transport costs FSR
600
Transport costs trailer
500 Mekelle
400
300
200
100
0
J F M A M J J A S O N D
28. VII. Margins
• Quality premiums are significant (white cereals
usually preferred over mixed ones; price
premiums of about 8-15%) and higher in Addis
than in rest of country; but little changes are
seen over time;
• Retail margins declining (7 out of 10 tests show
significant decline; all significant in Addis)
29. • Milling margins significantly declining over
time; dropped in half in 2010 versus 2001
• 6 out of 8 tests show significant decline of
flour/grain ratio; all significant in Addis
Real milling costs over time
(costs of milling 100 kgs of cereals; CSA data)
18
16
14
12
10
8
6
4
2
0
30. VIII. Conclusions
• Important structural changes in cereal economy in
Ethiopia in last decade:
1/ Fast economic growth, leading to demand changes;
2/ Urbanization (+44%) and increase in commercial
surplus (+117%);
3/ improved roads and drop in transportation costs
(dropped to half the costs ten years ago);
4/ universal access to mobile phones by traders and
brokers (but there was fixed phone access before);
5/ Cooperative marketing took off but might be over
the top;
31. Conclusions
• Impact on performance indicator, as measured by
prices:
1/ No changes in seasonality;
2/ No changes in quality premiums;
3/ Significant declines in margins
(retail, milling, spatial);
4/ Price levels determined by international markets
but differential effects for different regions: price rises
less in food deficit – and vulnerable areas – possibly
because of structural changes
32. Conclusions
• Room for improvement:
1/ Despite road improvements, Ethiopia has one of
the lowest road densities in the world
2/ Even with roads available, transport costs still
relatively high and more competition would help push
transport prices down
3/ Access to cellphone widespread for traders and
brokers, but penetration with farmers still relatively
small
4/Price volatility an issue, sometimes linked with ad
hoc policy decisions
