Ethiopia’s value chains on the move: The case of teff (work in progress)

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International Food Policy Research Institute (IFPRI) and Ethiopian Development Research Institute (EDRI) Seminar Series. March 19, 2013. EDRI Meeting Room

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Ethiopia’s value chains on the move: The case of teff (work in progress)

  1. 1. ETHIOPIAN DEVELOPMENTRESEARCH INSTITUTEEthiopia’s value chains on the move:The case of teff (work in progress)Bart Minten, Seneshaw Tamiru, Ermias Engeda,and Tadesse KumaIFPRI-ESSP-EDRIMarch 19th, 2013EDRI, Addis Ababa2
  2. 2. 31. Introduction• Major changes happening in food markets worldwide andespecially in developing countries:- Supermarket revolution- Share of high-value crops increasing- Quality demands on the rise- Food safety requirement export countries- Vertical integration- Up-scaling, dis-intermediation, and branding• No clear to what extent value chains are transforming inAfrica and/or Ethiopia, often because of a lack of goodprimary data. This is the purpose of the analysis.
  3. 3. 42. Background Teff in Ethiopia• Teff (Eragrostis tef) is major staple food in Ethiopia.• Research on improved teff varieties since the mid-50s,only a small number of improved varieties have beenreleased (20 in total)• Teff used to prepare enjera; also valued for its fine straw,used for animal feed, as well as mixed with mud forbuilding purposes.• Quality in teff market mostly related to the color of thegrain: magna, white, mixed, and red.• Other factors matter as well such as origin. However, moredifficult to measure objectively.
  4. 4. 52. Background Teff in Ethiopia• Teff is a major crop in Ethiopia:- 20% of all cultivated area, covering 2.7 million hectaresand grown by 6.3 million farmers (second most importantcrop is maize with 15% of cultivated area)- Given relatively low yields, total national production (3.5million tons) in quantity is lower than maize and sorghum.- Value of production in 2011/12 was 1.6 billion USD, themost important crop in the country.- Value of commercial surplus (CS) 2011/12: 464 millionUSD, as important as sorghum, maize, and wheatcombined; one-quarter less than coffee (600 million USD)
  5. 5. 62. Background Teff in Ethiopia• Consumption of teff in Ethiopia:- Urban areas: 61 kgs per capita- Rural areas: 20 kgs per capita- Income elasticity of teff 1.1 for urban areas and 1.2 forrural areas; teff is an economically superior good- Teff has prices on average double the price of the cheapestcereal (maize)
  6. 6. • Purpose of the study is to understand major value chainsfrom rural producers in major production zones to Addis,the major city in the country.• Organization of surveys: 1/ Interviews with key informantsSeptember – October 2012; 2/ Fielding of surveys inNovember – December 2012.• Surveys with producers and communities upstream; ruraland urban wholesalers and truckers midstream; cerealshops, mills, and cooperative retail downstream3. Data and methodology
  7. 7. • Stratified random samples at each level:1. Upstream: 1,200 farmers in five major teff productionzones. These five zones represent 38% of national teff areaand 42% of the commercial surplus.2. Midstream: 200 rural wholesalers (that ship teff to Addis);75 urban wholesalers (2/3th on Ashwa Meda; 1/3rd on EhilBeranda); 90 truck drivers3. Downstream: 282 retail outlets (83% mills; 10% cerealshops; 7% consumer cooperatives)3. Data and methodology
  8. 8. • Changes in production factors (few changes)4. Teff upstream in the value chainUnit Number of 10 years Nowobservations agoTraditional productionfactorsNumber of tillings number 1200 4.1 4.5Seed use:Magna kgs/ha 91 45.5 44.9White kgs/ha 593 44.9 44.5Mixed kgs/ha 141 40.5 43.2Red/Black kgs/ha 380 46.1 50.2Number of weedings number 1199 1.5 1.3
  9. 9. • Increasing adoption of modern input use over time4. Teff upstream in the value chainUnit Number of 10 years Nowobservations agoModern inputsAdoption of improved seed share (%) 1199 7.3 35.8Use of chemical fertilizer:DAP kgs/ha 1128 50 91urea kgs/ha 1121 34 64Adoption of herbicides share (%) 1197 31.9 65.3Adoption of pesticides share (%) 1197 4.3 13.1
  10. 10. • Type of teff: rapid decline of red teff; increase ofwhite/magna4. Teff upstream in the value chainUnit Number of 10 years Nowobservations agoType of teffFarmers interviews:Red teff share (%) 1200 36.2 19.9Mixed teff share (%) 1200 17.6 11.7White teff share (%) 1200 40.7 54.2Magna teff share (%) 1200 5.4 14.1Community focus group interviews:Red teff share (%) 60 32.7 14.4Mixed teff share (%) 60 31.8 21.6White teff share (%) 60 26.5 40.2Magna teff share (%) 60 7.7 24.3
  11. 11. • Reasons for the decline of red teff:1. Lower prices of red teff compared to white teff. Higherprices of white teff driven by: a. lower conversion ratiosof red teff to enjeras; b. longer shelf life for white enjeras;c. preference of consumers2. Higher productivity of white teff now because ofavailability of improved varieties; traditionally red teffwould do better compared to white teff4. Teff upstream in the value chain
  12. 12. • Quick adoption of modern inputs• Rapid take-off of quncho (DZ-Cr-387)- 32% of teff producres ever used quncho; 24% used it inthe Meher of 2011/2012- Number of years since household uses quncho is 2- For users, 84% of white teff area is allocated to quncho• Mentioned advantages of quncho: a. Higher yields;b. Lower seed rates needed; c. Better price; d. Morefodder; e. Less lodging4. Teff upstream in the value chain
  13. 13. • 93% of teff farmers use chemical fertilizer; 34% usesimproved seeds• Stated reasons for not using or for not using enoughmodern inputs:1. Chemical fertilizer: Lack of money at the time of need2. Improved teff seeds: Unable to find them or unable tofind more4. Teff upstream in the value chain
  14. 14. Dynamics in adoption of fertilizer0.511.50 50 100 150Transport costs to Addis (Birr/quintal)DAP now DAP 10 years agourea now urea 10 years ago
  15. 15. • Quncho only started in 2010; in 2013, 32% farmers used itTake-off of quncho01020304050607080901002010 2011 2012%ofqunchoadoptersYear of adoption of quncho
  16. 16. Adoption of quncho0102030400 50 100 150Transport costs to Addis (Birr/quintal)
  17. 17. • Multi-regression framework where we control forcharacteristics of the plot as well as characteristics of thehousehold; calculate APE (Average Partial Effect ofdistances):1. Doubling of the transport costs to Addis: a. Reduction offertilizer use of 38 kg per ha; b. Share of area planted withquncho declines by 17%2. Doubling of distance to cooperative unions: a. Reductionof fertilizer use of 13 kg per ha; b. Share of area planted withquncho declines by 3%Results double-hurdle regressions
  18. 18. • Cobb-Douglas production function; use fixed and randomeffect models (control for household specific effects):1. Chemical fertilizer: Additional kg of DAP increases teffproduction by 2 kgs; additional kg of urea increases teffproduction by 2-5 kgs. Value-cost ratios (VCRs) arebetween 2.2 and 4.5.2. Quncho seeds: Quncho seeds have 10% higher productionthan traditional seeds or other improved seeds.Modern inputs and teff productivity
  19. 19. • Teff retailing in Addis: 61% mills; 29% cereal shops; and8% consumer cooperatives• Traditionally (as seen in other towns or rural areas), millsonly did milling and household typically would:a/ buy teff on market/cereal shop;b/ clean teff at home;c/ take teff to mill;d/ prepare enjera at home4. Teff downstream in the value chain
  20. 20. 4. Teff downstream in the value chain10 years ago NowUnit No. of Value No. of Valueobs. obs.Technology and servicesNumber of milling machines number 100 3.05 256 2.96Number of crops sold in outlet number 106 6.16 280 7.61Share of customers that gethome delivery % 102 59 271 61Share of customers that clean athome % 96 30 254 21Share of customers that onlycome for milling % 93 30 250 24
  21. 21. 4. Teff downstream in the value chain10 years ago NowUnit No. of Value No. Valueobs. of obs.CompetitionNumber of mills in in thekebele number 92 6.11 250 9.30Number of cereal shops in thekebele number 75 2.86 202 4.10Often queuing of consumers % 102 30 276 12
  22. 22. • About 26% of teff procured by retailers in rural areas;bypassing wholesale markets4. Teff downstream in the value chain10 yearsago Now NowUnit (weighted)Procurement (share)In Addis % 82 83 74Outside Addis on temporary markets % 12 7 6Outside Addis not on temporarymarkets % 6 9 20
  23. 23. • Mixing is on the increaseMixing of teff with other cereals10 years ago NowUnit No. of Value No. of Valueobs. obs.% of teff consumers that mixteff withSorghum % 101 22 271 26Rice % 101 8 271 20Wheat % 101 1 271 0Maize % 102 8 271 12Other cereals % 102 2 271 2
  24. 24. • The poor and enjera sellers behave differentlyMixing of teff with other cerealsConsumers Enjera sellersPoorest Middle RichestWithfixedWithoutfixedincome shops shopNumber of observations 275 274 251 79 86Type of teff bought (%)Red 23 5 3 3 2Mix 64 35 5 46 70White 11 50 35 44 25Magna 2 9 57 7 2Total 100 100 100 100 100Share of customers that mix teffwith other cereals(%) 60 43 15 79 71
  25. 25. • The poor and enjera sellers behave differentlyMixing of teff with other cerealsConsumers Enjera sellersPoorest Middle RichestWithfixedWithoutfixedincome shops shopTypical composition of flour bought(%)Teff 75 83 94 75 77Sorghum 15 5 0 11 13Rice 1 9 5 10 6Maize 7 2 0 4 3Wheat 1 0 0 0 0Other 1 0 1 0 0Total 100 100 100 100 100
  26. 26. • About 20% of teff sold in Addis as prepared enjeraFoodservice industry10 years Now NowUnit ago (weighted)Type of customers for retailers (share)Consumers % 80.4 87.0 82.1Enjera wholesalers % 0.8 1.1 2.1Enjera wholesale companies % 0.3 0.1 0.1Enjera retailers with fixed shops % 4.7 3.1 4.3Enjera retailers without shops % 8.7 5.6 5.5Institutions % 0.7 0.3 0.3Restaurants % 1.9 1.2 4.2Supermarkets % 0.0 0.2 0.8Others % 0.1 0.1 0.2Total % 100.0 100.0 100.0
  27. 27. • Use prices of:1. CSA at producer level (focus on the five main productionregions)2. CSA for milling (Addis)3. EGTE for the wholesale level (Addis)4. CSA for the retail level (Addis)6. Marketing margins
  28. 28. • Milling margins dropped by half in last ten yearsRatio of milling margins over teff price00.010.020.030.040.050.06200107200202200209200305200312200407200502200509200604200611200706200801200808200903200910201005201012201107201202
  29. 29. • Trend line: drop in urban distribution margins from 13-15% in 2001 to 7-11% in 2011Share of wholesale in retail price0.750.80.850.90.951200201200206200211200304200309200402200407200412200505200510200603200608200701200706200711200804200809200902200907200912201005201010201103201108white wholesale mix wholesalered wholesale Linear (white wholesale)Linear (mix wholesale) Linear (red wholesale)
  30. 30. • Trend line: share of producers has increased from 74%-78% in 2001 to 76-86% in 2011Share of producer in retail price0.50.60.70.80.91200201200207200301200307200401200407200501200507200601200607200701200707200801200807200901200907201001201007201101201107Shareinretailpricewhite producer mix producerred producer Linear (white producer)Linear (mix producer) Linear (red producer)
  31. 31. 1. Public sector:- Less complaints about fertilizer delivery- Investment in R&D. Limited in the teff sector- However, large investments in extension system7. Drivers for change
  32. 32. 7. Drivers for changeUnit Mean/PercentContact extension agents:Received a visit of an agricultural extension agent in the last 2 years share 74In last 12 months:Number of times that farmer talked individually with extension agent on teffissues number 2.32Number of times that farmer participated in a community meeting to discussteff issues number 2.28Farmer visited a demonstration plot of teff share 37Farmer visited a government office of agriculture and discussed teff issues share 27Farmer awareness of technologies:Farmer knows the recommended fertilizer use on teff plots share 51Farmers is aware of:- broadcasting at lower seed rates share 92- row planting of teff share 77- transplanting of teff share 40- zero tillage of teff soils share 11
  33. 33. 2. Important improvements in road and communicationinfrastructure7. Drivers for changeUnit Farmers Rural Urban Urbantraders traders retailersOwners of a phoneshare(%) 28 100 100 98Year since they own a phone year - 2006 2007 2008Used mobile phone in the last marketingtransactionshare(%) 12 - 97 56If yes, agreed on a price with the traderby phone in the last transactionshare(%) 74 - 52 32
  34. 34. 3. Urbanization (1.2 million more people in Addis), incomegrowth and economic superior characteristics of teff(doubling of income, 110% increase in teff consumptionexpenditure); these factors combined might have led todoubling of commercial surplus into Addis in last 10 years4. Higher opportunity costs of time, especially of women;further impetus for foodservice industry as well as fordevelopment of a different retail sector7. Drivers for change
  35. 35. 368. ConclusionsImportant changes in the teff value chain:1. Modern inputs increasingly adopted, especially by thesefarmers living close to urban areas2. Quality demands are on the rise, important shifts fromcheap red varieties to more expensive white ones3. Increasing willingness to pay for convenience in urbanareas, as illustrated by the emergence of one-stop shopsas well as by a sizable foodservice sector4. The share of rural-urban marketing, urbandistribution, and milling margins is declining, indicatingimproved marketing efficiency
  36. 36. 378. ConclusionsDespite changes, still in early stage of agriculturaltransformation:1. Upstream:a/ Adoption of improved varieties still lowb/ Fertilizer used is below recommended levelc/ Mechanization absentd/ Vertical integration and coordination absent2. Downstream:a/ Little evidence of up-scalingb/ Small share of modern retailc/ Almost no branding
  37. 37. 388. Implications1. Despite quncho take-off, major room for improved seeddevelopment:a. lodging resistant varieties, more attention to tastepreferences (quncho suffers from drying out disadvantage),disease and pest resistant varieties.b. More sophisticated techniques of breeding2. Better knowledge on other technologies to improve teffproductivity needed, i.e. row planting, transplanting,response to fertilizers that contain zinc and copper, minimaltillage
  38. 38. 398. Implications3. Overall, investments for R&D not at appropriate levelsgiven importance of teff (e.g. total budget ag. R&D 70 millionUSD in 2008). For example, rate of return to qunchodevelopment enormous:Assumptions- 10 % higher yield 160million USD per year- 50% of teff farmers adopt 80million USD per yearScenario 1Investment inmillions USD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20-50 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80Internal rate ofreturn 160%Scenario 2Investment 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20-200 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80Internal rate ofreturn 40%
  39. 39. 408. Implications4. Further investments in roads and communication (still oneof the lowest in Africa)5. Urbanization motor for rural transformation (urbanizationalso one of lowest in Africa)

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