Structural transformation in Ethiopia: Evidence from cereal markets

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Ethiopian Development Research Institute (EDRI) and International Food Policy Research Institute (IFPRI), Seminar Series, May 24, 2012

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Structural transformation in Ethiopia: Evidence from cereal markets

  1. 1. Structural transformation inEthiopia: Evidence from cerealmarketsBart Minten, IFPRIDavid Stifel, Lafayette CollegeSeneshaw Tamiru, ESSP
  2. 2. I. Introduction• Food prices and market functioning of large interest in developing countries, especially since global food crisis• Look in this paper at cereal market transformation and cereal prices in Ethiopia• Important topic: 1/ cereals about three-quarters of area planted in Ethiopia and half of consumer expenditures; 2/ Explicit purpose of government to stimulate market transformation
  3. 3. II. Data and methodology• Price data: Use monthly data from the Ethiopian Grain Trading Enterprise (EGTE); gathers prices on wholesale markets• Wholesale market survey: Conducted on the biggest wholesale markets in the country (31). Focus groups of transporters as well as for specific cereal crops (teff, sorghum, wheat, maize, barley): 71 focus groups in total
  4. 4. Wholesale markets surveyed
  5. 5. III. Background• Cereal consumption: 150 kgs of cereals per person per year• In quantity, maize most important; then sorghum, wheat, and teff; barley least important• Strong differences between urban and rural areas: More maize and sorghum consumption in rural areas; high consumption of teff in urban areas
  6. 6. III. Background• Policy background (in last ten years):- 1/ Intervention by the Ethiopian Grain Trading Enterprise (EGTE) in markets as well as food aid by e.g. WFP for emergencies- 2/ Issues of price inflation and efforts of the government to control this: a/ export bans; b/urban food rationing cards; c/ government imports; d/ price controls
  7. 7. Inflation (using year-to-year changes in %)100 General80 Food60 Non-Food4020 0 2011 2010 2004 2003 2005 2001 2007 2008 2002 2006 2009-20-40
  8. 8. IV. Five drivers for structuraltransformation in cereal markets1. Economic and income growth2. Urbanization and increase in commercial surplus3. Roads and transportation costs4. Access to mobile phones5. Cooperatives
  9. 9. Driver 1: Economic growth• Ethiopia one of the fastest growing economies in the world (remarkable for Africa as no oil) Figure 4: Annual GDP growth in Ethiopia 16 14 12 10 8 GDP at constant market prices (Govt. of Ethiopia) 6 % GDP per capita, PPP (constant 2005 international $) (World 4 Bank; World Development Indicators) 2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -2 -4
  10. 10. Impact of economic growth on foodmarkets2 factors matter:1. Extent to which incomes of people grow and for which type of people (urban/rural): Some evidence of this (15% consumption growth between 2004/05 and 2000/01; poverty reduction from 38% to 29% between 2004/2005 and 2010/2011 (HICES, CSA))2. How do consumers change consumption with increasing income? Demand analysis shows that people shift to high-value crops but also to superior cereals, such as teff; lower demand elasticities for sorghum and maize
  11. 11. Driver 2: Urbanization and increasingcommercial surplus• Over 10 years: growth of urban population of 44% or 3.7 million people; using reasonable assumptions, leading to 500,000 tons of extra shipment of cereals to urban areas, or 65,000 truck loads of 7.5 tons (FSR truck), or 650 additional cereal trucks per year (assuming 100 complete cycles a year)• Increasing commercial surplus of cereals confirmed by national statistics (from CSA): increased by 117% over the last ten years
  12. 12. Share of large and medium-scalecommercial farms in cerealproduction and marketed surplus(CSA; 2010/2011)% share in Teff Barley Wheat Maize Sor- 5 ghum cerealsProduction 0.4 0.2 5.0 5.4 3.6 3.5Commercial 1.3 1.9 21.1 33.3 25.9 17.9surplus
  13. 13. Changes on the production side:Emergence of commer. producer class?• Increase of share of “investors”: land leases given out by government to commercial farms Commercial surplus of maize in East Wollega (in 1000 quintals per year) 1400 Investors 1200 Private peasant holders 1000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  14. 14. Driver 3: Roads and transportationcosts1. Big investments by government in road infrastructure Time required (hours) to travel by truck from 16.00 Addis to major wholesale markets 14.00 12.00 Average 10.00 Hossana 8.00 Bahir Dar Dire Dawa 6.00 Bedele 4.00 2.00 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  15. 15. 2. Change in type of trucks being used Importance of different types of trucks arriving on wholesale markets (100% = all trucks) 2011 2010 2009 2008 2007 ISUZU (5-6 tons) FSR (7-8 tons)year 2006 Trailer (20 tons) 2005 2004 2003 2002 2001 0 20 40 60 80 100 %
  16. 16. 3. Change in transportation costs Real transportation costs between cereal 160 wholesale markets (2011 prices; birr/quintal) 140 120 100 80 mean 60 median 40 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  17. 17. Driver 4: Access to mobile phones• Increasing access to mobile phones by traders and brokers Start-up year of mobile phone use by brokers and traders on wholesale markets (Cumulative percentage over markets) 100 % of markets covered 90 50% of traders use mobile 80 100% of traders use mobile 70 50% of brokers use mobile% of markets 60 100% of brokers use mobile 50 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  18. 18. Increasingly commercial deals done over the mobile phone " Are mobile "Were fixedUse of phone by traders (% of traders; phones used phonesmean) to…"? used to…"?"… inform/transmit prices" 86 47"… agree on prices (plus quantity/quality) withsellers" 36 14"… request a show-up (quantity requested butwithout price agreements) with sellers" 38 16"… agree deals (prices and quantity) withtransporters" 40 6"… agree on prices (plus quantity/quality) withbuyers" 46 19"… follow-up payments with buyers/sellers" 81 31
  19. 19. Driver 5: Cooperatives• Agricultural cooperatives important strategy by government but relatively less important in cereal output markets; over the top now? Average share of the cereals sold by cooperatives on cereal wholesale markets (as reported by traders focus groups) 10 8 teff (25 markets) barley (5 markets) 6 wheat (16 markets)% sorghum (5 markets) 4 maize (20 markets) 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  20. 20. Possible impact of changes in these 5drivers on cereal price behavior• Income growth, urbanization, cooperatives: larger quantities traded, economies of scale, possibly leading to lower margins (for same distances traveled);• Mobile phones and transport costs changes: more efficient marketing system, leading to lower margins;• Changes in preferences because of income growth: possible effect on quality premiums, if supply changes slower than demand changes
  21. 21. Six characteristics of price behavior:- Regressions of the form:Log(real price of cereal i) = f(year*month, marketlocation, quality, grain/flour, retail/wholesale)Discuss all of these results for different grains:• Temporal: seasonality and yearly movements• Spatial margins• Quality premiums• Retail and processing margins- Test for structural change by comparing size ofcoefficients in the period 2001-2005 versus 2006-2011
  22. 22. V. Seasonality• One harvest a year in general• Price seasonality varies between 25% for maize and 10% for wheat (lowest; probably because of smoothening of imports); Few changes in price seasonality over time• Large seasonality in commercial quantities being shipped: number of trucks half in off-season compared to harvest period; But seasonality in aid, coming in the lean period (usually April – July); seemingly partial shift from commercial flows to aid flows over seasons
  23. 23. Seasonality in cereal arrivals permarket Seasonality in arrivals of cereals on 31 wholesale markets (average tons per week) 140 Barley Maize Sorghum 120 100 Teff WheatTons per week 80 60 40 20 0 S-N 2010 D-F 2011 M-M 2011 J-A 2011 S-N 2011
  24. 24. VI. Spatial price variation• Ethiopia very diverse agro-ecologies; spatial specialization• Broad generalization: Major commercial cereal production areas in West and South of country (maize/wheat/barley); cereal deficit areas in North (Tigray/Mekelle) and East (e.g. Dire Dawa)• Because of central location of Addis, quite some products go through it
  25. 25. Regression results1. Addis biggest city but not highest price; mostly found in Eastern and Northern part of the country, i.e. the food deficit areas;2. Price differences between markets are declining, especially so between receiving markets (Dire Dawa/Mekelle) and Addis (9 out of 10 tests significant)3. Price variation between markets is declining over time: Difference between highest and lowest coefficient declined by 11%, 27%,28%, and 22%.
  26. 26. However, variability of ratios Real prices differences of maize between the wholesale markets of Addis compared to Mekelle and Nekemt 300 200Birr/quintal in 2011 prices 100 0 2002 2010 2003 2005 2001 2008 2011 2004 2006 2009 -100 Mekelle -200 Nekemt -300
  27. 27. Share of transportation costs (bytruck) in final wholesale price Transport costs from Nekemt to Mekelle and wholesale maize price in Mekelle over the year 2011700 Transport costs FSR600 Transport costs trailer500 Mekelle400300200100 0 J F M A M J J A S O N D
  28. 28. VII. Margins• Quality premiums are significant (white cereals usually preferred over mixed ones; price premiums of about 8-15%) and higher in Addis than in rest of country; but little changes are seen over time;• Retail margins declining (7 out of 10 tests show significant decline; all significant in Addis)
  29. 29. • Milling margins significantly declining over time; dropped in half in 2010 versus 2001• 6 out of 8 tests show significant decline of flour/grain ratio; all significant in Addis Real milling costs over time (costs of milling 100 kgs of cereals; CSA data) 18 16 14 12 10 8 6 4 2 0
  30. 30. VIII. Conclusions• Important structural changes in cereal economy in Ethiopia in last decade:1/ Fast economic growth, leading to demand changes;2/ Urbanization (+44%) and increase in commercialsurplus (+117%);3/ improved roads and drop in transportation costs(dropped to half the costs ten years ago);4/ universal access to mobile phones by traders andbrokers (but there was fixed phone access before);5/ Cooperative marketing took off but might be overthe top;
  31. 31. Conclusions• Impact on performance indicator, as measured by prices:1/ No changes in seasonality;2/ No changes in quality premiums;3/ Significant declines in margins(retail, milling, spatial);4/ Price levels determined by international marketsbut differential effects for different regions: price risesless in food deficit – and vulnerable areas – possiblybecause of structural changes
  32. 32. Conclusions• Room for improvement:1/ Despite road improvements, Ethiopia has one ofthe lowest road densities in the world2/ Even with roads available, transport costs stillrelatively high and more competition would help pushtransport prices down3/ Access to cellphone widespread for traders andbrokers, but penetration with farmers still relativelysmall4/Price volatility an issue, sometimes linked with adhoc policy decisions

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