ETHIOPIAN DEVELOPMENT  RESEARCH INSTITUTESpatial Integration of Cereal markets in                Ethiopia                 ...
1. OBJECTIVESResearch Objectives:• Study whether regional cereal markets are integrated with  with the central (Addis Abab...
2. INTRODUCTIONKnowledge of price patterns and market integration isuseful to make:• Better production decisions• Better m...
3. BACKGROUNDAccording to CSA’s 2010/11 Agricultural Sample Survey:oCereals constitute 82% of the total grain crop area   ...
3.1. Production    Trends in Annual Production (2003/04-2011/12): Meher season peasant holdings   60,000                  ...
3.2. Grain Utilization                                      HH Consump.                 Seed                 Sale         ...
3.3. Demand for cereals Share of major cereals and enset in total food expenditure by region, 2004/05                     ...
4. DATA4.1. Data:   – Weekly wholesale price of the Ethiopian Grain Trade     Enterprise (EGTE) from July 2001 –November 2...
4.3. Most important cereal producing zones
5. METHODOLOGY 5.1. The TAR Model       out dt 1   t : dt 1        dt   in dt 1   t :    dt 1       ...
The TAR Model….  • Following Van Campenhout (2007)  • The thresholds and adjustment parameters to vary with    time, t.   ...
Interpretation• If ρout = -1 perfect integration (100 % deviation transferred)   o adjustment is instant• If ρout =0 no in...
6. RESULTS• Teff: Mixed teffTable: Spatial Integration of Mixed Teff Markets in Ethiopia (2001-2011)                      ...
Summary of all the marketsSummary of Comparison of degree of cereal Integration between 2001 and 2011                     ...
Summary of the six most important marketsSummary of Comparison of degree of cereal Integration between 2001 and 2011      ...
7. CONCLUSION AND IMPLICATIONS7.1. Conclusion• Markets functioning much better at the end thanin the beginning of the deca...
7.2. Implications• The general improvement is good news for  Ethiopia• However, continuous investments to  improve market ...
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Spatial Integration of Cereal markets in Ethiopia

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  • Research Objectives Being part of a larger project that is aimed at examining a sector little studied this section of the study is aimed at assessing if and how regional and central markets are integrated, and Identify factors that play significant role in affecting livestock price formation and study how these factors influence livestock pricing and possibly study if and how they affect trade routesTo achieve these objectives we propose: Integration of markets is intended to be investigated using threshold autoregression model We are gathering data relevant to study price formation and surveying what econometric model to use
  • Spatial Integration of Cereal markets in Ethiopia

    1. 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTESpatial Integration of Cereal markets in Ethiopia Seneshaw Tamru EDRI/IFPRI (Ethiopia Strategy Support Program, ESSP-II) Addis Ababa 1
    2. 2. 1. OBJECTIVESResearch Objectives:• Study whether regional cereal markets are integrated with with the central (Addis Ababa) market.• Check the level and speed of price transmission, if they are integrated.
    3. 3. 2. INTRODUCTIONKnowledge of price patterns and market integration isuseful to make:• Better production decisions• Better marketing decisions as – When to buy? – How long to store? – When to sell?• Better forecasts• Food security interventions as existence and extent of malnutrition and famine in market economies is closely linked to market integration
    4. 4. 3. BACKGROUNDAccording to CSA’s 2010/11 Agricultural Sample Survey:oCereals constitute 82% of the total grain crop area • Teff - 23% • Maize - 17% • Sorghum - 16% • Wheat - 13%oContributed 87 % of the grain production. • Teff - 17% • Maize - 24% • Sorghum - 19% • Wheat - 14 %
    5. 5. 3.1. Production Trends in Annual Production (2003/04-2011/12): Meher season peasant holdings 60,000 49,861 50,000 (000 quintals) 40,000 39,325 34,835 33,368 30,000 25,430 28,557 21,756 23,145 20,000 16,773 10,000 Teff Maize Wheat Sorghum - 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2010-11• Significant growth in production (2003/04- 2010/11) – Teff (108%) and sorghum (127%) has more than doubled over the last seven years – Maize nearly doubled (96%) – Wheat also grew by about 77%
    6. 6. 3.2. Grain Utilization HH Consump. Seed Sale Others 80 74.4 73 70 65.3 61.5 57.7 60Percent utilized 51.7 50 40 28.6 30 20.2 19.6 20 16.2 11.4 10.8 10 0 Grain Cereals Teff Wheat Maize Sorghum • The biggest share of production is auto-consumed • Teff and wheat have better marketable surplus (cash crops)
    7. 7. 3.3. Demand for cereals Share of major cereals and enset in total food expenditure by region, 2004/05 Share in total food expenditure (%) Total Other Region Teff Wheat Maize Sorghum cereals Enset foods Tigray 10.2 13.1 2.7 13.7 50.4 0.0 49.6 Afar 9.6 10.0 6.3 1.4 35.8 0.0 64.2 Amhara 12.8 10.4 5.3 9.6 49.3 0.0 50.7 Oromiya 8.2 9.6 10.8 7.9 45.0 4.9 59.9 Somale 1.0 9.7 7.0 8.1 37.4 0.0 62.6 B/Gumuz 5.2 0.9 8.4 21.9 44.1 0.0 55.9 SNNP 4.0 5.5 11.9 5.7 33.1 12.1 79.0 Harari 6.0 7.0 1.9 9.4 37.6 0.0 62.4 Addis Ababa 19.6 3.4 0.5 0.1 41.2 0.1 58.9 Dire Dawa 5.8 7.4 0.7 9.2 45.3 0.0 54.7 Source: Berhane et al. (2011)• Maize and sorghum have a considerably lower share in Addis Ababa
    8. 8. 4. DATA4.1. Data: – Weekly wholesale price of the Ethiopian Grain Trade Enterprise (EGTE) from July 2001 –November 20114.2. Market Selection: – Markets in the top producing zones together with the most populous towns are selected and their level and speed of integration with Addis Ababa is examined. – Teff : • White (20 regional markets) • Mixed (19 regional markets) • Red (17 regional markets) – White wheat (12 regional markets) – Maize (16 regional markets) – White sorghum (10 regional markets)
    9. 9. 4.3. Most important cereal producing zones
    10. 10. 5. METHODOLOGY 5.1. The TAR Model  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 (Ө ) • TCs (Ө ) could vary depending on season, direction of trade, quality of roads and fuel prices
    11. 11. The TAR Model…. • 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
    12. 12. Interpretation• If ρout = -1 perfect integration (100 % deviation transferred) o adjustment is instant• If ρout =0 no integration o No adjustment in the near future• The closer ρ is to -1 o the higher degree of integration and o the lower the speed of adjustment• If ρ is positive, o markets are drifting apart o not integrated
    13. 13. 6. RESULTS• Teff: Mixed teffTable: Spatial Integration of Mixed Teff Markets in Ethiopia (2001-2011) Estimated transaction ρout (Speed of adjustment) Half life cost (θ) as %ge of average price Market Pairs July 2001 November (t1) 2011 (t504) t1 t504 t1 t504Addis Ababa-Nazreth -0.271 -0.271 2.19 2.19 5.7 10.3 (0.002)*** (0.002)***Addis Ababa-Ambo -0.264 -0.264 2.26 2.26 9.0 4.2 (0.000)*** (0.000)***Addis Ababa-Bahirdar -0.02 -0.524 34.31 0.93 16.2 3.7 -0.663(0.002)***Addis Ababa-Dessie -0.07 -0.574 9.55 0.81 2.4 1.7 -0.167(0.001)***Addis Ababa-Mekelle -0.167 -0.671 3.79 0.62 9.1 4.8 (0.071)* (0.088)*Addis Ababa-Diredawa -0.022 -0.022 31.16 31.16 5.4 14.9 -0.33(0.000)***• Considerable improvement over the last decade• Addis Ababa seems to be more integrated with high demand areas
    14. 14. Summary of all the marketsSummary of Comparison of degree of cereal Integration between 2001 and 2011 White White teff Mixed teff Red Teff White wheat Maize sorghum 2001 2011 2001 2011 2001 2011 2001 2011 2001 2011 2001 2011Total pairs 20 20 19 19 17 17 12 12 16 16 10 10Percent integrated 65 85 68 84 71 94 67 75 63 94 70 70 Improved speed of adjustment during 2011 (among integrated) - % 41 25 31 44 27 29 Same speed adjust. during 2011 (among integrated) -% 59 75 69 56 67 57 Reduced/deteriorat ed speed of adjust. during 2011 (among integrated) -% 0 0 0 0 7 14Half life (weeks) 14 10 11 6 9 5 9 6 7 4 15 13Average speed ofadjustment (amongintegrated) -0.16 -0.31 -0.14 -0.24 -0.10 -0.25 -0.17 -0.11 -0.16 -0.28 -0.08 -0.26Threshold (as %ge ofaverage price) 15 12 13 12 13 11 22 13 25 13 17 39
    15. 15. Summary of the six most important marketsSummary of Comparison of degree of cereal Integration between 2001 and 2011 White White White teff Mixed teff Red Teff wheat Maize sorghum 2001 2011 2001 2011 2001 2011 2001 2011 2001 2011 2001 2011Total pairs 6 6 6 6 6 6 6 6 6 6 4 4Percent integrated 50 83 50 100 50 100 67 83 50 100 50 50 Percent improved speed of adjustment during 2011 (among integrated) 40 67 33 40 50 50 Percent remained same during 2011 (among integrated) 60 33 67 60 50 50 Percent deteriorated during 2011 (among integrated) 0 0 0 0 0 0Half life (weeks) 4 3 12 6 9 7 11 6 6 4 28 25Average speed ofadjustment (amongintegrated) -0.09 -0.27 -0.12 -0.39 -0.06 -0.24 -0.05 -0.06 -0.06 -0.34 -0.19 -0.19Threshold (as %ge ofaverage price) 9 8 8 7 15 8 33 16 45 17 19 27
    16. 16. 7. CONCLUSION AND IMPLICATIONS7.1. Conclusion• Markets functioning much better at the end thanin the beginning of the decade• Possibly linked to structural changes over the lastten years (e.g. improvements in roads, mobilephone availability, income growth, andurbanization)• A puzzle why the sorghum market does not showimprovements over time; Possibly linked to the lowshare of sorghum in the consumption basket ofconsumers in Addis (i.e. the tested market pairsonly reflect thin markets and little effective flows).
    17. 17. 7.2. Implications• The general improvement is good news for Ethiopia• However, continuous investments to improve market integration even further are desired given the important benefits of having integrated markets for producers and consumers alike.

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