Interdependence of Smallholders’ Net Market Positions in Crop and Livestock Markets:  Evidence from Ethiopia Moti Jaleta a...
Outline <ul><li>Motivation </li></ul><ul><li>Objective </li></ul><ul><li>Analytical framework </li></ul><ul><li>Data  </li...
Motivation <ul><li>Integrating smallholders into markets is essential for the sustainable development of the agricultural ...
Motivation… <ul><li>Points of argument for joint decisions:  </li></ul><ul><ul><li>Cash income from one market could be us...
Objective <ul><li>To examine how the likelihood of household’s net position in one market is affected by its net position ...
Analytical framework <ul><li>Nine possible combinations in net positions </li></ul>Net Buyer  Net seller  Position in Crop...
Analytical framework … <ul><li>We have considered only  two  possible combinations that have meaningful implications in th...
Data <ul><li>Household survey in 2009, for the 2007/08 production year. </li></ul><ul><li>1075 sample households in ten di...
Sample distribution  Region District No. PAs No. of sample households Male headed Female headed Total Tigray Atsbi Wenbert...
Methodology <ul><li>Descriptive analyses </li></ul><ul><li>Econometric estimation models </li></ul><ul><ul><li>Binary simu...
Empirical models  Structural equations Reduced form  equations
Econometric specification <ul><li>NB _C  = f ( NS _L  , X ) </li></ul><ul><li>NS _L  = f ( NB _C ,  X  ) </li></ul>Net Buy...
Results
Results <ul><li>Descriptive analyses results: </li></ul><ul><ul><li>Average value of annual crop production is Birr 16,550...
Sample distribution in market position <ul><li>No autarkic HH in crops market </li></ul><ul><li>Larger proportion of the s...
Simultaneity test results <ul><li>Household net seller position in crop market and net buyer position in live animal marke...
Hausman’s endogeneity test results of the simultaneous equations (N=1075) Explanatory variables Position in crop market Po...
Interdependence  in the net market positions
Marginal effects of the explanatory variables on the household net positions in crop markets Explanatory variables Net pos...
Marginal effects of the explanatory variables on the household net positions in live animals markets Explanatory variables...
Results ….  (interdependence) <ul><li>The probability of being a net seller in crop market increases by 6.4% for  the net ...
Conclusions and implications <ul><li>There exists interdependence in households’ net market positions, which imply: </li><...
Conclusions and implications <ul><li>Policies/strategies enhancing smallholder market participation in crop and live anima...
<ul><li>Thank You! </li></ul>
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Interdependence of smallholders’ net market positions in crop and livestock markets: Evidence from Ethiopia

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Presentation by Moti Jaleta and Berhanu Gebremedhin for an ILRI Scientific Seminar, Addis Ababa, 15 December 2010.

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Interdependence of smallholders’ net market positions in crop and livestock markets: Evidence from Ethiopia

  1. 1. Interdependence of Smallholders’ Net Market Positions in Crop and Livestock Markets: Evidence from Ethiopia Moti Jaleta and Berhanu Gebremedhin Improving Productivity and Markets Success (IPMS) of Ethiopian Farmers Project, International Livestock Research Institute (ILRI), Addis Ababa, Ethiopia.. Presented at the ILRI Scientific Seminar, Addis Ababa, 15 December 2010
  2. 2. Outline <ul><li>Motivation </li></ul><ul><li>Objective </li></ul><ul><li>Analytical framework </li></ul><ul><li>Data </li></ul><ul><li>Methodology </li></ul><ul><li>Results </li></ul><ul><li>Conclusions and implications </li></ul>
  3. 3. Motivation <ul><li>Integrating smallholders into markets is essential for the sustainable development of the agricultural sector. </li></ul><ul><li>Most smallholders’ market participation analyses are done either on crop or livestock separately. </li></ul><ul><li>However, in mixed crop-livestock systems, household’s net position in one market might be affected by the other. </li></ul><ul><ul><li>Thus, net positions in crop and live animals markets might be joint than separate. </li></ul></ul>
  4. 4. Motivation… <ul><li>Points of argument for joint decisions: </li></ul><ul><ul><li>Cash income from one market could be used in the other ( for consumption, investment, or saving ). </li></ul></ul><ul><ul><li>Demand for cash in one market may necessitate the sale of commodities in the other. </li></ul></ul><ul><li>Thus, the position in one market could influence/or be influenced by the position in the other market. </li></ul>
  5. 5. Objective <ul><li>To examine how the likelihood of household’s net position in one market is affected by its net position in the other. </li></ul><ul><ul><li>Using simultaneous equation approach (joint decision) and testing the mutual interdependence in the net market positions. </li></ul></ul>
  6. 6. Analytical framework <ul><li>Nine possible combinations in net positions </li></ul>Net Buyer Net seller Position in Crop market Autarkic Net Buyer Autarkic Net seller Position in Live animals market Live animals NB A NS C r o p NB A NS
  7. 7. Analytical framework … <ul><li>We have considered only two possible combinations that have meaningful implications in the interdependence </li></ul>Net Buyer Net seller Position in Crop market Autarkic Net Buyer Autarkic Net seller Position in Live animals market <ul><li>The two combinations are where potentially the cash from one market </li></ul><ul><li>flows to the other. </li></ul>Live animals NB A NS C r o p NB A NS
  8. 8. Data <ul><li>Household survey in 2009, for the 2007/08 production year. </li></ul><ul><li>1075 sample households in ten districts (four regional states) where the IPMS project operates. </li></ul><ul><li>Annual sale and purchase of crops and live animals </li></ul><ul><li>Annual income from other sources (dairy, apiculture, off-farm/non-farm income including remittances). </li></ul><ul><li>Household and farm characteristics, etc. </li></ul>
  9. 9. Sample distribution Region District No. PAs No. of sample households Male headed Female headed Total Tigray Atsbi Wenberta 12 86 34 120 Alamata 8 91 37 128 Amhara Metema 7 65 10 75 Fogera 11 89 23 112 Bure 9 83 32 115 Oromia Ada’a 9 103 23 126 Mieso 8 77 14 91 Gomma 8 62 19 81 SNNP Alaba 10 78 33 111 Dale 10 88 28 116 Total 92 822 253 1075
  10. 10. Methodology <ul><li>Descriptive analyses </li></ul><ul><li>Econometric estimation models </li></ul><ul><ul><li>Binary simultaneous equations </li></ul></ul><ul><ul><li>Testing endogeneity of a net market position in the other (Hausman’s endogeneity test) </li></ul></ul><ul><ul><li>For a structural equation with endogenous explanatory variables, a two stage estimation procedure is followed: </li></ul></ul><ul><ul><ul><li>Get predicted probability that a household takes a given net position in a specific market (crop or live animals). </li></ul></ul></ul><ul><ul><ul><li>Use the predicted probability values in the structural equation to estimate the effects. </li></ul></ul></ul>
  11. 11. Empirical models Structural equations Reduced form equations
  12. 12. Econometric specification <ul><li>NB _C = f ( NS _L , X ) </li></ul><ul><li>NS _L = f ( NB _C , X ) </li></ul>Net Buyer (Crop) <ul><li>NS _C = f ( NB _L , X ) </li></ul><ul><li>NB _L = f ( NS _C , X ) </li></ul>Net Seller (Live animals) Net Seller (Crop) Net Buyer (Live animals) <ul><li>Identifiers: </li></ul><ul><ul><li>Shared and/or rented in land ….… for position in crop market </li></ul></ul><ul><ul><li>Loss due to death of live animals ……. for position in live animals market </li></ul></ul>X = HH characteristics, farm characteristics, farm and non-farm income
  13. 13. Results
  14. 14. Results <ul><li>Descriptive analyses results: </li></ul><ul><ul><li>Average value of annual crop production is Birr 16,550 per HH, cash income from crop sale is Birr8,140 per HH, and crop purchased costs Birr1,510 per HH. </li></ul></ul><ul><ul><li>On average, cash income from live animals sale is Birr1,940, and Birr 580 is spent on live animals purchase per annum. </li></ul></ul><ul><ul><li>Net balance, average inflow of Birr 6,630 from crop and Birr1,360 from live animals markets. </li></ul></ul>Average (N=1075) (per Household) Production Sale (Birr) Purchase (Birr) Net balance (Birr) Crop 16,550 8,140 1,510 6,630 Live animals 6.5 TLU (Average inventory) 1,940 580 1,360
  15. 15. Sample distribution in market position <ul><li>No autarkic HH in crops market </li></ul><ul><li>Larger proportion of the sample HHs are net sellers in both. </li></ul>Net position in live animals market Net position in crop market Total Net buyer Autarkic Net seller Net buyer 22 (2.0) 0 (0.0) 96 (8.9) 118 (11.0) Autarkic 68 (6.3) 0 (0.0) 172 (16.0) 240 (22.3) Net seller 220 (20.5) 0 (0.0) 497 (46.2) 717 (66.7) Total 310 (28.8) 0 (0.0) 765 (71.2) 1075 (100.0)
  16. 16. Simultaneity test results <ul><li>Household net seller position in crop market and net buyer position in live animal market are simultaneously determined </li></ul>But, Net Buyer (Live animals) Net Seller (Crop) Net Buyer (Crop) Net Seller (Live animals) <ul><li>Household net buyer position in crop market and net seller position in live animal market are not determined simultaneously. </li></ul>
  17. 17. Hausman’s endogeneity test results of the simultaneous equations (N=1075) Explanatory variables Position in crop market Position in live animal market Net buyer Net seller Net buyer Net seller Coef. Std. Err. Coef. Std. Err. Coef. Std. Err. Coef. Std. Err. Age of household head (years) 0.008* 0.005 -0.018*** 0.007 -0.016*** 0.006 0.001 0.004 Sex of household head (1=male; 0=female) -0.177 0.118 0.219* 0.119 -0.143 0.146 0.105 0.113 Education of household head (1=literate; 0=illiterate) 0.037 0.108 -0.146 0.121 -0.156 0.124 0.012 0.097 Family size (persons) 0.054** 0.026 -0.034 0.028 0.078** 0.030 -0.042* 0.024 Family labor available for agriculture (persons) -0.107*** 0.035 0.123*** 0.035 -0.037 0.041 0.051 0.032 Land owned (ha) -0.045 0.042 0.041 0.041 -0.010 0.048 -0.045 0.036 Animals owned (TLU) -0.009 0.016 0.006 0.013 -0.043*** 0.015 0.070*** 0.012 Value of crop production (1000Birr) -0.054*** 0.004 0.056*** 0.004 -0.003 0.004 -0.006** 0.002 Income from honey and its products (1000Birr) -0.033 0.061 0.060 0.060 0.029 0.046 -0.002 0.042 Off and non-farm income (1000Birr) 0.021** 0.009 -0.029*** 0.010 -0.017 0.015 0.010 0.006 Income from dairy products sale (1000Birr) 0.036** 0.017 -0.032* 0.016 0.016 0.015 -0.007 0.013 Dummy_ land rented or shared in (1=Yes; 0=No) -0.306*** 0.102 0.281*** 0.102 Animals lost due to death (TLU) 0.147*** 0.054 -0.031 0.049 Net seller in live animal (1=Yes; 0=No) 0.216** 0.102 Net seller in live animals (predicted value) -0.695 0.604 Net buyer in live animals (1=Yes; 0=No) 0.296* 0.161 Net buyer in live animal (predicted value) -3.816** 1.720 Net seller in crop (1=Yes; 0=No) 0.091 0.158 Net seller in crop (predicted value) 1.476*** 0.537 Net buyer in crop (1=Yes; 0=No) 0.133 0.114 Net buyer in crop (predicted value) 0.528 0.375 Constant 0.265 0.429 0.719* 0.399 -1.626*** 0.386 -0.034 0.242
  18. 18. Interdependence in the net market positions
  19. 19. Marginal effects of the explanatory variables on the household net positions in crop markets Explanatory variables Net position in crop markets Net buyer Net seller dy/dx Std. Err. dy/dx Std. Err. Age of household head (years) 0.002 * 0.001 -0.002 * 0.001 Sex of household head (1=male; 0=female) -0.048 0.034 0.050 0.034 Education of household head (1=literate; 0=illiterate) 0.010 0.028 -0.008 0.028 Family size (persons) 0.014 ** 0.007 -0.016 ** 0.007 Family labor available for agriculture (persons) -0.028 *** 0.009 0.029 *** 0.009 Land owned (ha) -0.011 0.011 0.009 0.011 Animals owned (TLU) -0.002 0.004 0.005 0.003 Value of crop production (1000Birr) -0.015 *** 0.001 0.014 *** 0.001 Income from honey and its products (1000Birr) -0.009 0.016 0.007 0.016 Off and non-farm income (1000Birr) 0.005 ** 0.002 -0.005 ** 0.002 Income from dairy products sale (1000Birr) 0.009 ** 0.005 -0.009 ** 0.005 Dummy_ land rented or shared in (1=Yes; 0=No) -0.079 *** 0.027 0.077 *** 0.027 Animals lost due to death (TLU) Net seller in live animals (predicted value) -0.124 0.157 Net buyer in live animals (1=Yes; 0=No) 0.064 * 0.034
  20. 20. Marginal effects of the explanatory variables on the household net positions in live animals markets Explanatory variables Net position in live animals market Net buyer Net seller dy/dx Std. Err. dy/dx Std. Err. Age of household head (years) -0.003 *** 0.001 0.001 0.001 Sex of household head (1=male; 0=female) -0.027 0.028 0.018 0.038 Education of household head (1=literate; 0=illiterate) -0.028 0.023 0.003 0.035 Family size (persons) 0.013 *** 0.005 -0.012 0.008 Family labor available for agriculture (persons) -0.007 0.007 0.012 0.011 Land owned (ha) -0.002 0.008 -0.019 0.013 Animals owned (TLU) -0.007 *** 0.003 0.024 *** 0.004 Value of crop production (1000Birr) 0.000 0.001 -0.003 *** 0.001 Income from honey and its products (1000Birr) 0.005 0.008 -0.003 0.015 Off and non-farm income (1000Birr) -0.003 0.002 0.004 * 0.002 Income from dairy products sale (1000Birr) 0.003 0.003 -0.001 0.005 Dummy_ land rented or shared in (1=Yes; 0=No) Animals lost due to death (TLU) 0.025 *** 0.009 -0.011 0.017 Net seller in crop (predicted value) 0.279 *** 0.078 Net buyer in crop (1=Yes; 0=No) 0.077 ** 0.033
  21. 21. Results …. (interdependence) <ul><li>The probability of being a net seller in crop market increases by 6.4% for the net seller households in live animals market. </li></ul>Net Buyer (Crop) Net Seller (Live animals) Net Seller (Crop) Net Buyer (Live animals) <ul><li>The probability of being a net buyer in live animals increases by 2.79% for a 10% increase in the probability of being a net sellers in crop market. </li></ul>6.4% 2.79% / 10% 7.7% <ul><li>The probability of being a net seller in live animals increases by 7.7% for the net buyers in crops market. </li></ul>
  22. 22. Conclusions and implications <ul><li>There exists interdependence in households’ net market positions, which imply: </li></ul><ul><ul><li>Cash from crop sales is used to financed livestock purchase, </li></ul></ul><ul><ul><li>Crop deficit for domestic consumption is financed by livestock sale. </li></ul></ul><ul><li>Relatively, effect of net position in crop market on net market position in livestock is stronger than effect of net position in livestock market on net position in crop market, which implies: </li></ul><ul><ul><li>Prior to their involvement in live animal market, farm households analyze their position in crop market and their ability to meet cash requirements through crop sale. </li></ul></ul><ul><ul><li>In the case of cash surplus from crop sales, households stock live animal asset through selling surplus crops produced. </li></ul></ul><ul><ul><li>Only in the case of crop shortage for domestic consumption, households finance crop purchase through live animals sale. </li></ul></ul>
  23. 23. Conclusions and implications <ul><li>Policies/strategies enhancing smallholder market participation in crop and live animals markets in crop-livestock mixed system should pay attention to the production and marketing of both commodities simultaneously. </li></ul>
  24. 24. <ul><li>Thank You! </li></ul>

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