International Food Policy Research Institute (IFPRI) and Ethiopian Development Research Institute (EDRI) in collaboration with Ethiopian Economics Association (EEA). Eleventh International Conference on Ethiopian Economy. July 18-20, 2013

1. Urban food price margins in
Africa
(Evidence from Addis Ababa)
By Thomas Woldu, Bart Minten and
Seneshaw Tamiru

2. Introduction
Motivation of the paper:
• The importance of urban food retail markets is
rapidly increasing:
– World population to grow from 6.7 billion to 9.2
billion between 2007 and 2050
– Higher urbanization rate in developing countries
– Urban dwellers purchase food from the market and
food expenditure takes their largest expenditure
share.
• Big concern of rising food prices in the world

3. Introduction contd.
• Developing countries’ policy makers are
concerned about this food price burden and
its social and political consequences.
• In addition to the supply and demand side of
food markets, they want to understand the
food distribution system;
– Farmers ---Wholesalers--- Retailers---consumers
WS’ Margin Retailers’ margin (blamed to be
larger than what it should be)

4. Introduction contd.
• It is important to study urban food retailers’ margin for
several reasons:
1. It gives an idea on how much prices can be decreased
by government intervention in these markets
2. In cases where countries already intervene in the
retail market, it helps to understand the effect of the
intervention in these margins.
3. Margins vary depending on the product, retailers and
wholesalers. Investigating such variations provide
information on available rooms for different products
and different situations.

5. Introduction contd.
• Ethiopia is an ideal country for research on this
topic for the following very important reasons:
1. Very high inflation rate starting from 2008 with
traders being blamed for this inflation
2. Intervention in the food retail market by the
government (in the distribution of some food
products such as wheat and oil)
3. On top of urban distribution costs, urban
households incur additional processing (cleaning
and milling) cost on cereals

6. Research questions
• How much percent of the final price of food is
explained by urban food retailers’ distribution
and processing margins?
• What is the variation of these margins over
space?
• How does the distribution margin of public
distribution systems differ when compared with
the private distribution systems?
• What is the effect of the pubic distribution
intervention on the overall retailers’ distribution
margin?

7. Methodology
• Data was collected both from retailers and wholesalers at
the same period of time.
• The information collected mainly focuses on prices and quality
of food products
• Information about turnovers, retail shop and owners’
characteristics was also collected.
• Wholesale market survey
• All wholesale markets in the city and also around the city are
covered
• The main focus on the wholesale market survey was to collect
daily information about all types and varieties of the products
on market.

8. Wholesale Market
Food Category
TotalCereals F& V Processed
1. Akaki 187 105 111 403
2. Shola 94 53 557 704
3. Ehil Berenda 851 0 0 851
4. Merkato 0 0 1,022 1,022
5. Atikilt Tera 0 405 0 405
6. Ashwa Meda 518 0 0 518
Total 1,650 563 1,690 3,903
Date; wholesale market survey;
Table 2: Sample distribution

9. 9
Methodology
• Retail market survey; Sample set-up
– 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
– Survey collected detailed information on
turnover, prices, and quality of products (among other
information)

10. 10
Data; retail market survey
Food products Retail outlet type No. Obs. Sampling Remark
Cereals
Teff
Maize
Wheat
Sorghum
Fruit and Veg.
Potato
Tomato
Onion
Banana
Orange
Processed foods
Edible Oil
Sugar
Shiro
Berbere
Supermarkets 160
All in in the
sub- city
5 sub-cities out of 10
in the city
Consumer Coop. 109
Private commercial
farms
2
Kebele shops 7
Etfruit shops 29
Flour Mills 264 All in the selected
kebeles
4 kebeles out of 10
(on average) in a
sub-city
Regular shops 201 10 randomly
sampled in each
kebele
Fruits and Vegetable
grocery shops
187
Cereal shops 61 5 randomly
sampled in each
kebele
Baltena shops 99
Gulit (Micro Sellers) 107 3 in each ketene 2 ketenas out of 5 (on
average) per kebele
Total 1226

11. Methodology

12. Results; Wholesale – Retail flow of cereals
• Retailers go to
Wholesale
markets once per
month
• Transport cost
• Mostly retailers
pay it
• Some times no
transport is paid
• In few
cases, wholesale
rs cover the cost
Ehil Berenda
EGTE
Ashewa Meda
Other sources
in Addis
Out Side Addis
Flour Mills
Cereal
Shops
Consumer
Cooperatives
25%
21%
Teff
Wheat
Maize
Sorghum
51%
9%
10%
11%
11%
46%
73%
12%
12%
73%
13%
11%
Main
Wholesalers Main Retailers
>90%

13. Results; Wholesale – Retail flow of vegetables
• Retailers go to
Wholesale markets
once or twice per
month depending on
the type of
vegetable
• Transport cost
• Mostly retailers
pay it
• Some times no
transport is paid
• In few
cases, wholesale
rs cover the cost
Atikilt Tera
(Vegetables street)
Other Wholesale
Market in Addis
Out Side Addis
Regular shops
F and V
Grocery shops
F and V micro
sellers (Gulit)
7%
7%
Potato
Tomato
Onion
85%
6%
8%
83%
84%
7%
7%
Main
Wholesalers Main Retailers
>90%

14. Results; Wholesale – Retail flow of fruits
• Retailers go to
Wholesale markets
once or twice per
month depending on
the type of fruit
• Transport cost
• Mostly retailers
pay it
• Some times no
transport is paid
• In few
cases, wholesale
rs cover the cost
Atikilt Tera
(Vegetables street)
ETFRUIT
Regular shops
F and V
Grocery shops
Minimarkets
Banana
Orange
98%
74%
20%
Main
Wholesalers Main Retailers
>90%

15. Results; Wholesale – Retail flow of Edible Oil and Sugar
• Retailers go to
Wholesale markets
once per month
• Transport cost
• Mostly retailers
pay it
• Some times no
transport is paid
• In few
cases, wholesale
rs cover the cost
MEWIT (Jenead)
Kebele shops
Consumer
Cooperatives
Regular shops
Etfruit
Edible Oil
Sugar
29%
18%
43%
Main
Wholesalers Main Retailers
>90%
Consumer
Cooperatives
Merkato
Etfruit
40%
13%
10%
8%
%
13%
12%
%
Other sources in
Addis

16. Results; Wholesale – Retail flow of Shiro and Berbere
• Retailers don’t
normally go to
wholesale markets in
a month
• Transport cost
• Mostly retailers
pay it
• Some times no
transport is paid
• In few cases,
wholesalers
cover the cost
Baltena
Consumer
Cooperatives
Baltena Shops
Regular shops
Shiro
Berbere
31%
31%
28%
Main sources Main Retailers
>90%
Retailers made it
by themselves
Merkato
Other sources in
Addis
30%
12%
20%
21%
%
13%

17. Results on Price Margins
• Regressions were done for each product
separately. Three types of margin regressions:
1. We estimate margins.
2. We test how the margins vary depending on
the location of the wholesale market by
including wholesale market dummies.
3. We include retailers’ location dummies to see
how the margins vary depending on the
location of the retail market.

18. Results on Price Margins
9.8***( birr 1.10/kg)
6.2%***( birr 4.28/kg)
17.1%***( birr 13.30/kg)
7.1%***( birr 5.23/litter)
39.8%***( birr 303.2/quintal)
12.5***( birr 68/quintal)
17.7%***( birr 152.3/quintal)
41.5%***( birr 569.8/quintal)
87.7%***( birr 458.2/quintal)
5.7%***( birr 56.2/quintal)
4.9%***( birr 58.2quintal)
10.2***(birr 77.4/quintal)
18.4%***(birr 99.6/quintal)
0 .2 .4 .6 .8
Retail margin
Sugar
Shiro
Redpep
Edible_oil
Tometo
Poteto
Onion
Orange
Banana
Wheat
Teff
Sorghum
Maize

19. Results on price margins in public and
private distribution systems
-0.8%
23.2%***
7.1%***
15%*
48.4%***
41.5%***
9.8%***
11.3%***
9.8%***
-9%***
7.5%***5.7%***
-.20.2.4.6
Edible_oil OrangeSugarWheat
Public Private Overall

20. Conclusions
• We study food marketing from wholesale markets
to retailers in Addis; we look at price margins
involved in distributing the food.
• Retailers go mainly
– to Ehil Berenda and Ashewa Meda for cereals. But,
EGTE is also serving considerable number of wheat
retailers mainly consumer cooperatives.
– to Atikilt Tera for fruits and vegetables. But, Etfruit
takes a considerable share in serving orange retailers.
– to larger number of retail channels for processed
foods

21. Conclusions contd.
• Margins depend on wholesale market locations and
retailer’s locations.
• Fruits and vegetables have relatively higher margins
than cereals and processed foods. The margins on
cereals and processed foods are more or less similar.
• The public distribution system shows lower margins.
But, this is not the case for sugar where we don’t see
variation in margins in public and private distribution
systems.

22. Policy implications
• The estimated price margins give an idea
about the room available to lower food prices
by intervening in the urban retail market.
– The room is smaller on cereals and processed
foods as compared to fruits and vegetables.
– If the government intervenes, there might also be
secondary effects on higher implicit prices (due to
shortages) as well as employment effects

23. Policy implications contd.
• The public distribution reduces prices and
price margins but it has its own problems with
respect to market efficiency.
– There are issues related with leaks from the public
distribution system to the private distribution
system (WFP, 2011)
– There are issues of rationing through long queues
and sometimes shortage of these publicly
distributed products (T.W Assefa and et al, 2012)