ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Using evidence in unraveling food supply
chains in Ethiopia:
The case of teff fro...
2
1. Introduction
• Importance of cities rapidly growing world-wide: In 1950:
30% living in cities; In 2010: 50%
• In Afri...
3
Three conventional wisdoms on food value
chains
• Perception 1: “Farmers obtain small share of final retail
price” (The ...
4
Contribution of our research:
Test validity of these perceptions
• Large surveys at each level of the value chain
• Stud...
• Purpose of the study is to understand major value chains
from rural producers in major production zones to
Addis, the ma...
• Procurement/sales by rural traders
3. Structure of the value chain
Rural traders
% bought % sold
from to
Farmers 84.9
Fa...
• Procurement/sales by urban traders/brokers
3. Structure of the value chain
% bought % sold
from to
Farmers 4.5
Farmer-tr...
• Procurement/sales by urban retailers
3. Structure of the value chain
% bought % sold
from to
Farmers 9.8
Farmer-traders ...
• Most common value chain is one with three
intermediaries between producer and consumer:
Producer
Regional trader Urban b...
• Farmers asked teff price at the time of the survey
(October- November 2012) for their most common place
of sale
• All va...
4. Price formation in value chain
(October 2012)
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
1600.0
1800.0
Magna Whit...
• Farmers obtain between 78% (red) to 86% (magna) of the
final urban retail grain price
• Average composition of margin be...
a. Understanding the transport sector
- Survey was implemented with truck drivers that
transported teff to Addis
- Questio...
Teff transport sector:
• Average distance covered in last transaction is 228 kms
• On average, transported for 2 sellers; ...
• Strong price – transportation cost relationship
• In case of white teff (most traded), producer share drops
from 90% clo...
• Regression analysis: for the 4 qualities: 1/ Use reported
prices at time of survey; 2/ Use transaction price in last 12
...
• Farmers close by more productive; Most remote farmers
drop to subsistence level
Variation in teff sales over space
0
500...
• Produce of close by farmers goes to Addis; more remote
farmers sell elsewhere or do not sell at all
Variation in teff sa...
• Storage: release smooth over the year
6. Temporal variation
0
100
200
300
400
500
600
700
800
900
N-D D-J J-F F-M M-A A-...
• Two measures of distress sales:
1. “Would you have sold the teff at this time if the price
would have been 10% lower?”: ...
• Multinomal model (0=normal; 1=distress; 2=extreme
distress):
1. Strong effect of the month of sales: More distress sales...
22
7. Conclusions
1. We find most common value chain to be rather
short, with on average 3 intermediaries between farmers
...
23
7. Conclusions
Why in contradiction with perceptions?
1. Few surveys; mostly case studies; problems of
representativity...
24
8. Implications
1. As market assessment hard (and often wrong), careful at
benefits and costs before interventions (suc...
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Using evidence in unraveling food supply chains in Ethiopia: The case of teff from major production areas to Addis Ababa

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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

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Using evidence in unraveling food supply chains in Ethiopia: The case of teff from major production areas to Addis Ababa

  1. 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE Using evidence in unraveling food supply chains in Ethiopia: The case of teff from major production areas to Addis Ababa Bart Minten, Seneshaw Tamiru, Ermias Engeda, and Tadesse Kuma IFPRI ESSP-II EDRI Ethiopian Economic Association Conference July 19, 2013 Addis Ababa 1
  2. 2. 2 1. Introduction • Importance of cities rapidly growing world-wide: In 1950: 30% living in cities; In 2010: 50% • In Africa: projected to have 60% in cities in 2050 • Rapidly growing rural-urban agricultural market flows, with important implications on urban and rural food security • Increasing dependence of African cities on imported food, blamed on uncompetitive local value chains • However, few scientific studies that look rural-urban food value chains; • This leads often to a badly informed debate
  3. 3. 3 Three conventional wisdoms on food value chains • Perception 1: “Farmers obtain small share of final retail price” (The Economist: “… too few subsistence farmers get a chance to sell their produce (and usually get less than 20% of the market price)” March 2nd-8th, 2013, p.9, in Leaders) • Perception 2: “Value chains are long and there are many layers, causing inefficiency” • Perception 3: “Sales are driven by distress immediately after harvest when prices are low”
  4. 4. 4 Contribution of our research: Test validity of these perceptions • Large surveys at each level of the value chain • Study major staple in Ethiopia, i.e. teff; by value the most important crop in the country (1.6 billion USD in 2011/2012); the second most important cash crop in the country (after coffee) • Look at: a/ structure of the value chain b/ average marketing margins c/ margins over space and season d/ distress sales and seasonality in sales
  5. 5. • Purpose of the study is to understand major value chains from rural producers in major production zones to Addis, the major city in the country. • Surveys with producers and communities upstream; rural and urban wholesalers and truckers midstream; cereal shops, mills, and cooperative retail downstream 2. Data
  6. 6. • Procurement/sales by rural traders 3. Structure of the value chain Rural traders % bought % sold from to Farmers 84.9 Farmer-traders or rural assemblers 13.3 Traders in wholesale markets/wholesalers 1.3 8.1 Cooperative unions 0.3 0.0 Brokers 76.3 Mills/cereal shops 13.2 Others 0.2 2.4 Total 100.0 100.0 Percentage sold to: Addis 92.8 Rural zone where trader was interviewed 4.6 Other zone 2.4
  7. 7. • Procurement/sales by urban traders/brokers 3. Structure of the value chain % bought % sold from to Farmers 4.5 Farmer-traders or rural assemblers 2.5 Traders in wholesale markets/wholesalers 5.8 Cooperative unions 0.0 1.3 Traders located outside Addis 83.2 Traders in Addis 9.8 Enjera sellers 7.1 Institutions 1.8 Restaurants 1.4 Mills 69.8 Cereal shops 6.8 Consumers 5.7 Others 0.0 0.4 Total 100.0 100.0
  8. 8. • Procurement/sales by urban retailers 3. Structure of the value chain % bought % sold from to Farmers 9.8 Farmer-traders or rural assemblers 4.3 Cooperative unions 0.1 Traders/brokers in Addis 68.3 Traders located outside Addis 17.6 Enjera wholesalers 1.3 Enjera wholesale companies 0.0 Enjera retailers with fixed shops 4.8 Enjera retailers without fixed shops 5.2 Institutions/restaurants 2.3 Consumers 85.7 Supermarkets 0.4 Others 0.0 0.4 Total 100.0 100.0
  9. 9. • Most common value chain is one with three intermediaries between producer and consumer: Producer Regional trader Urban broker/trader Urban retailer Consumer - Sometimes shorter, e.g. 32% of teff sold by urban retailers directly obtained in rural areas - Sometime longer, e.g. 13% of procurement of rural traders from rural assemblers or farmer-traders 4. Structure of the value chain
  10. 10. • Farmers asked teff price at the time of the survey (October- November 2012) for their most common place of sale • All value chain participants asked prices for the different teff qualities at the time of the survey (rural traders: October-November; urban traders and retailers: December) • Consistent price collection on urban wholesale markets; price dropped in period 2; assumed retail, milling, and cleaning margin stayed similar for comparison • Use all these prices to get at average price composition 4. Price formation
  11. 11. 4. Price formation in value chain (October 2012) 0.0 200.0 400.0 600.0 800.0 1000.0 1200.0 1400.0 1600.0 1800.0 Magna White Mix Red Birr/quintal Milling and cleaning Urban retail Urban wholesale Rural market/town Farmgate
  12. 12. • Farmers obtain between 78% (red) to 86% (magna) of the final urban retail grain price • Average composition of margin between producer and consumers: 1/ Farmgate – rural markets: 15% 2/ Rural market – urban wholesale: 54% 3/ Urban wholesale – urban retail: 19% 4/ Milling and cleaning: 13% • Gives us average picture at time of survey; in rest of presentation look at spatial and temporal variation 4. Price formation in the value chain
  13. 13. a. Understanding the transport sector - Survey was implemented with truck drivers that transported teff to Addis - Questions on themselves, the owner, type of truck, and characteristics of the last trip b. Understanding the impact on farmers - Heterogeneity of farmers by transportation costs to Addis - Link teff prices and transport costs to Addis - Information on sales to whom by transport costs to Addis 5. Variation over space
  14. 14. Teff transport sector: • Average distance covered in last transaction is 228 kms • On average, transported for 2 sellers; sold to 3 buyers • Transport charges: 18 Birr/quintal for 100 kms or 10 USD/ton for 100 km • Regression of costs on size truck, road quality, number of buyers and sellers • Distance only significant variable • For extra 100 kms travelled, transport charges go up by 13 Birr/quintal 5. Variation over space
  15. 15. • Strong price – transportation cost relationship • In case of white teff (most traded), producer share drops from 90% close by to 80% for most remote Teff price variation over space100011001200130014001500 0 50 100 150 Transport costs to Addis (Birr/quintal) Magna White Mix Red
  16. 16. • Regression analysis: for the 4 qualities: 1/ Use reported prices at time of survey; 2/ Use transaction price in last 12 months • Independent variables: 1/ place of sales (farmgate or not); 2/ quantity sold; 3/ month of sales; 4/ transportation costs to Addis • In none of the 8 specifications can hypothesis be rejected that producer price declines in line with transportation costs Producer price variation over space
  17. 17. • Farmers close by more productive; Most remote farmers drop to subsistence level Variation in teff sales over space 0 500 10001500kgs 0 50 100 150 Transport costs to Addis (Birr/quintal) Sales per household Production per household consumption per household
  18. 18. • Produce of close by farmers goes to Addis; more remote farmers sell elsewhere or do not sell at all Variation in teff sales over space 0 100200300400500 0 50 100 150 Transport costs to Addis (Birr/quintal)
  19. 19. • Storage: release smooth over the year 6. Temporal variation 0 100 200 300 400 500 600 700 800 900 N-D D-J J-F F-M M-A A-M M-J J-J J-A A-S S-O O-N kg storage
  20. 20. • Two measures of distress sales: 1. “Would you have sold the teff at this time if the price would have been 10% lower?”: 19% of transactions (“distress”) 2. “Would you have sold the teff at this time if the price would have been 50% lower?”: 10% of transactions (“extreme distress”) • In 71% of the cases, farmers would not have accepted lower price 6. Temporal variation in sales
  21. 21. • Multinomal model (0=normal; 1=distress; 2=extreme distress): 1. Strong effect of the month of sales: More distress sales in months immediately after harvest 2. Extreme distress sales characterized by smaller quantities sold (seemingly only done to cover immediate needs) 3. Off-farm income leads to less distress and extreme distress sales 4. More remote households have more distress sales (poorer in general and play less the market) Associates of distress sales
  22. 22. 22 7. Conclusions 1. We find most common value chain to be rather short, with on average 3 intermediaries between farmers and consumers 2. The share of the farmer in final retail price is about 80 %, using different methodologies (price at time of survey; price from transactions and taking seasonality of sales into consideration); share drops when farmers live further 3. Distress sales: 19% of transactions; Extreme distress: 10% of transactions; smooth storage release These are seemingly all signs of well-functioning markets
  23. 23. 23 7. Conclusions Why in contradiction with perceptions? 1. Few surveys; mostly case studies; problems of representativity; 2. Important changes (roads; communication) have happened that people are not aware of 3. Teff unsophisticated value chain (little value addition by value chain agents) 4. Results different for perishable crops; root crops; or thin markets 5. Teff high price; e.g. maize different 6. Traders easy to blame; their importance overstated
  24. 24. 24 8. Implications 1. As market assessment hard (and often wrong), careful at benefits and costs before interventions (such as cooperative marketing, modern commodity exchanges; warehouse receipt systems; price controls) 2. Lower transportation costs lead to higher prices for producers 3. Better qualities have higher producer share 4. If objective of policy makers is to reduce consumer prices, focus on costs at the farm level (i.e. improved technologies); there is seemingly very little potential at the market level

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