1. Vertical and Spatial
Integration of Live animal and
Meat Markets in Ethiopia
By
Tadesse Kuma (EDRI) &
Seneshaw Beyene (ESSP-II)
Paper presented on the ESSP-II/EDRI Workshop on :
Taking Stock of the Economy of the Livestock Sector in Ethiopia
Jupiter International Hotel, Addis Ababa
November 4, 2011

2. Outline
1. Background
2. Domestic meat demand
3. Brief Description of the Model
4. Results and observations
5. Summary and Conclusion

3. I. Background
Why market integrations?
 Integration of agricultural commodity and rural
and urban food markets is a precondition for
effective reform ; without integration price
signals will not be transmitted;
 Market based policies for poverty alleviation
and food security could be more effective if
markets are integrated;
 Knowledge of market integration also allows
monitoring of price movements, forecast prices;

4. Background (2)
 Current policy measures and infrastructure development
by the government envisaged to bring clear improvement
on market integration;
 Benefiting producers by improving transmission of price
signals between markets remained concern;
 Livestock production and trading are the principal
economic activities (30% agr. GDP);
 Towards this end, this study aims to investigate at 3
levels.

5. Domestic meat demand (1)
 Despite the largest livestock population in Africa, Ethiopia’s
consumption of animal source food in general remained low.
Table 1: Annual per capita meat consumption (kg/hd/year), 2003
Botswana
Tanzania
Ethiopia
Sudan
Kenya
South
Africa
Egypt
Type
Bovine 4 6 9 8 9 8 134
Mutton and goat meat 1 1 2 4 7 1 3
Poultry & Pork - 1 1 3 0 9 25
Total meat (kg/capita) 5 8 12 15 16 18 42
Estimated GDP/capita (USD) 346 500 800 7000 1500 2000 5700
Cattle equivalent /capita 0.7 0.5 0.4 1.4 1.5 0.1 0.4
Source: FAOStat; World Bank; IMF; Negassa and Jabbar (2008), adopted from GebreMariam et al. (2010).

6. Domestic meat demand (2)
 Pronounced differences have been identified
between rural and urban patterns of meat
consumption (beef: 1.7 kg vs. 7.0 kg/PC/Yr);
 Annual beef population per head of cattle (i.e.,
8kg Eth, 11 in Sudan, 14 in Kenya, 51 in
Australia, and 79 in the USA);
 The current average meat production per cattle
(carcass weight: World 212 kg, , Africa156kg,
and East Africa stands 143kg/head, Ethiopia
110kg)

7. Meat export performance
Source: FEWS NET, 2011

8. The TAR Model – Market Integration (1)
Research Objectives:
 Study there exists vertical integration between producer and
retail bull prices, and between retail price of bull and meat
price within in selected zones.
 Check the level and speed of integration, if they are
integrated.
Models of Market Integration (1)
 Correlation analysis, Cointegration analysis, PBM(
Baulch,1997), Threshold Autoregressive Models

9. The TAR Model – Market Integration (2)
 Consider
 Symmetric assumption (instant adjustment)  Ignores
presence of transaction costs
 Doesn’t capture non-linearities due to reversals in
direction of trade flow

10. The TAR Model – Market Integration (3)
 But it has been noted that:
dt-1 > Ө ij, dt-1 <- Өij, and |dt-1|< Өij
the Band [-Ө ij , Ө ij]
 Where:
 the price differences should exceed TC (Ө)
before initiating an arbitrage for rational traders
to engage in arbitrage

11. The TAR Model – Market Integration (4)
  out dt 1   t : dt 1  

dt   in dt 1   t :    dt 1  
  d 
 out t 1 t : d t 1  
 Ө estimated by a grid search
 Assumes constant threshold/transaction cost (θ )
 TCs (Ө ) could vary depending on season,
direction of trade, quality of roads and fuel prices

12. The TAR Model – Market Integ (5)
 Following Van Campenhout (2007)
 The thresholds and adjustment parameters to vary
with time, t.
 out dt 1   .t.dt 1   t : dt 1  t
'
out

dt   t :  t  dt 1  t
  d   ' .t.d  
 out t 1 out t 1 t : dt 1   t
 Half-life: is the solution for T in dt+T=dt/2 and it is
calculated as T= ln (0.5)/ln(1+ ρ )

13. Results of TAR Analysis
 50 zones from 8 regions were originally considered
 Following requirement by the model for the prices to be non-
stationary in level terms, 8 Stationary price (in level terms)
series are dropped
 for VPT analysis:
 42 Producer-Retail pairs of zonal markets
considered;
 36 Retail-Meat pairs zonal price levels were chosen
 for SPT analysis:
 37 Retail – Retail pairs of spatially separated zonal markets,

14. Non Integrated zones
Summary of zones with no vertical/spatial integration
(1). Producer-Retail (2). Retail-Meat (3). Retail – Retail
(vertical) (vertical) (Spatial)
Afar Zone 03 Afar Zone 03
Afat Zone 01 Afar Zone 01
North Wollo North Wollo
North Shewa East Shewa
East Hararghe East Hararghe
Jimma Jimma Shaka-Kafa
Illubabor Borena Borena-Bale
Gamo Gofa Gedio Gedio-Sidama
West Wollega Arsi-Bale
Harari South Tigray
East Gojam
Sourth Gondar

15. Results of analysis: synthesis
 Strong spatial integration of AA and Harari with other
markets;
 Weak spatial integration in Somali and Amhara
 Zones in every region have shown strong vertical integration
of producer-Retail markets of ox except those in Amhara
 Transaction costs seem to decline (in nominal terms)
between Sept 1998 and Feb. 2011 in Tigray, Somali, and
Benishangul
 Very week vertical integration between oxen and beef
 Speed of adjustment is very slow-the fastest being in
Harari with 3 months.

16. Results of analysis: synthesis
A. Spatial Integration of oxen markets (Retail – Retail)
Thresholds
With out time trend With time trend (transaction costs)
Regions Coefficient P Hlaf life Coefficient P Initial End
Tigray -0.609 0.00 0.763 0.002 0.36 0.23 0.17
Afar -0.682 0.00 0.604 0.001 0.50 0.16 0.41
Amhara -0.449 0.04 1.404 0.000 0.54 0.21 0.23
Oromiya -0.672 0.01 0.728 0.002 0.24 0.17 0.26
Somali -0.378 0.07 1.459 0.001 0.71 0.61 0.64
Benishangul -0.523 0.01 0.938 0.001 0.59 0.13 0.23
SNNPR -0.737 0.00 0.546 0.003 0.31 0.32 0.28
AA -0.915 0.00 0.282 0.004 0.03 0.40 0.46
Harari -1.040 0.00 0.112 0.005 0.03 0.12 0.21
 AA and Harari seem to be well integrated with other markets
 Weak integration in Somali and Amhara

17. Results of analysis: synthesis
B. Vertical Integration (Producer-Retail)
Thresholds
With out time trend With time trend (transaction costs)
Regions Coefficient P Half- life Coefficient P Initial End
Tigray -0.788 0.01 0.609 0.003 0.25 0.19 0.17
Amhara -0.585 0.01 0.964 0.001 0.43 0.19 0.22
Oromiya -0.827 0.01 0.489 0.003 0.25 0.15 0.19
Somali -0.775 0.03 0.498 0.001 0.36 0.18 0.13
Benishangul -0.835 0.00 0.371 0.001 0.37 0.15 0.10
SNNPR -0.866 0.01 0.440 0.004 0.25 0.19 0.35
 Strong vertical integration between Producer and Retail prices except markets in Amhara;
 Lesser transaction costs (in nominal terms) in February 2011 as compared to Sept.1998
in Markets in Tigray, Somali, and Benishangul

18. Results of analysis: synthesis
C. Vertical Integration (Retail-Meat)
With out time trend With time trend
Regions Coef. P Half life Coef. P
Tigray -0.043 0.01 16.528 0.000 0.34
Amhara -0.030 0.04 25.073 0.000 0.39
Oromiya -0.051 0.04 19.807 0.000 0.40
Somali -0.053 0.05 12.726 0.000 0.51
Benishangul -0.025 0.03 27.317 0.000 0.62
SNNPR -0.084 0.01 10.528 0.001 0.18
Harari -0.200 0.00 3.100 0.001 0.00
 Very week integration between beef and ox  Speed of adjustment is very slow for all
markets. The fastest being in Harari with 3 months;
 No integration in Afar

19. Summary and conclusion
 In general, live animal and meat market
development is at its infant stage with several
weaknesses;
 Virtually no vertical integration was found for oxen retail and
meat markets at regional as well as at zonal level. Speed of
adjustment is observed abnormally high;
 Markets in Afar and Somali regions in most cases are found to
be weakly vertically integrated compared to other regions;
 In most cases transaction cost has declined at the end of the
period (March 2011) compared to the initial period (January
1998).

20. Implications
 Strengthening market institution, infrastructure
and information systems;
 Strengthening producer and consumers
organization;
 Reducing transaction costs ( mainly
transportation)
The way forward
Survey based and detailed field studies on the live animal and meat value chain from
producer to final consumer covering all market actors (producer, middlemen,
retailer, abattoirs, butchers, feed lots, meat processors, exporters, etc.) are required
to obtain concrete evidence on the performance of the sector.