ETHIOPIAN DEVELOPMENT                                     RESEARCH INSTITUTETransaction costs, transportationcosts and mod...
Transaction costs, transportation costs, and         modern inputs in Ethiopia1. Introduction2. Background3. Data4. Modern...
1. Introduction- Agricultural productivity increases and modern  input use high on the agenda, especially in Africa;  most...
2. Background Ethiopia- Rapid growth in agricultural productivity.  However, modern input use has contributed little to  t...
3. Data•       Sample area selected purposefully    o      Homogeneous region    o      Except for transport costs•       ...
Transport Costs•       Donkey costs (Birr/kg)    o      Cost of renting donkey    o      Weight donkey can carry•       Ec...
Average Travel Times andTransport Costs to the Market Town                          Travel Time   Transport Cost          ...
4. Modern input use and perceived                 constraints                                                 Chemical Imp...
4. Modern input use and perceived                  constraints                                                Chemical Imp...
5. Transaction costs (before acquisition)                                            Chemical improved                    ...
5. Transaction costs (before acquisition)                                                Chemical improved                ...
5. Transaction costs (acquisition)                                          Unit             2010                         ...
5. Transaction costs after acquisition     (for those that received credit)                                               ...
5. Transaction costs and late access to                modern inputs                                                      ...
6. Transportation costs                            Least                            Most                  Unit     remote ...
7. ConclusionsOur study highlights constraints with respect to threevariables for adoption of modern inputs:- Most farmers...
7. ConclusionsPolicy implications:1. Recent policy is to move away from credit provision    for modern input acquisition; ...
Transaction costs, transportation costs and modern inputs in ethiopia
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Transaction costs, transportation costs and modern inputs in ethiopia

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Ethiopian Development Research Institute and International Food Policy Research Institute (IFPRI/EDRI), Tenth International Conference on Ethiopian Economy, July 19-21, 2012. EEA Conference Hall

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Transaction costs, transportation costs and modern inputs in ethiopia

  1. 1. ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTETransaction costs, transportationcosts and modern inputs in Ethiopia Bethlehem Koro, David Stifel, and Bart Minten IFPRI ESSP-II Ethiopian Economic Association Conference July 19-21, 2012 Addis Ababa 1
  2. 2. Transaction costs, transportation costs, and modern inputs in Ethiopia1. Introduction2. Background3. Data4. Modern inputs and perceived constraints5. Transaction costs6. Transportation costs7. Conclusions 2
  3. 3. 1. Introduction- Agricultural productivity increases and modern input use high on the agenda, especially in Africa; most promising way to increase agricultural production is the more widespread adoption of modern inputs- However, several constraints to adoption in Africa, most importantly related to profitability issues and lack of familiarity of farmers with new technologies- This paper looks at transaction costs and transportation costs as a constraint to adoption (adding to the profitability debate) 3
  4. 4. 2. Background Ethiopia- Rapid growth in agricultural productivity. However, modern input use has contributed little to that growth. As conventional sources of growth are running out (land), increasing use of modern inputs in Ethiopia very important- Ethiopia imported about 500,000 tons for a value of 500 million USD last year; Fertilizer distribution almost exclusively done by cooperatives; share of private sector very limited- Improved seeds low adoption rates; might possibly be addressed through new seed law that is being considered 4
  5. 5. 3. Data• Sample area selected purposefully o Homogeneous region o Except for transport costs• Households’ circumstances differ because of different transport costs...• ...not because of land characteristics, etc.
  6. 6. Transport Costs• Donkey costs (Birr/kg) o Cost of renting donkey o Weight donkey can carry• Economic transport costs o Include the opportunity cost of time
  7. 7. Average Travel Times andTransport Costs to the Market Town Travel Time Transport Cost (hours) (Birr/Quintal)Transport Cost Quintile Least Remote 1.5 18.2 Quintile 2 3.6 40.2 Quintile 3 5.2 52.5 Quintile 4 6.0 60.4 Most Remote 6.5 73.4Total 4.5 48.4
  8. 8. 4. Modern input use and perceived constraints Chemical Improved fertilizer maize seedsDid the household use… 80.2 26.0Major reason for not using modern input I lacked the money at the time of need 39.7 47.6 No need 17.0 0.0 No need because of share cropped out 14.2 5.4 Fertilizers are too expensive 12.8 8.9 I do not have enough land 5.0 2.7 I was unable to find them 5.7 10.4 There is too much hassle 2.1 2.9 I do not know how to apply them 2.1 2.3 Other 1.4 2.7 I dont grow maize 0.0 17.2 Total 100.0 100.09
  9. 9. 4. Modern input use and perceived constraints Chemical Improved fertilizer maize seedsWas farmer able to buy as much moderninputs as desired? 30.7 51.1Reason for not buying enough mod. inputs lacked the money to buy more 86.5 42.5 There is too much hassle 5.4 8.5 Lack of transportation 4.1 0.9 I was unable to find enough 3.9 47.2 The topography of the land problem 0.2 0.0 Others 0.0 0.9 Total 100.0 100.0Farmer is aware of recommended fertilizeron plot 37.1 - 10
  10. 10. 5. Transaction costs (before acquisition) Chemical improved fertilizer seedsNumber of trips made before each transaction…… before the farmer was able to pick up modern input 0 trips 34.6 37.7 1 trip 21.7 23.7 2 trips 22.1 22.8 3 trips 12.6 8.8 > 3 trips 9.0 7.0 Total 100.0 100.0 11
  11. 11. 5. Transaction costs (before acquisition) Chemical improved fertilizer seedsReasons for the unsuccessful trip:Credit issues 39.4 46.9 Form did not have signature of an official 8.4 11.2 Not enough people on the form 31.0 35.7Hassles of working with cooperative 52.4 37.1 Cooperative office not open 15.5 11.2 There was no supply of modern inputs 9.2 10.5 Too long queue 23.7 14.0 Money collector was not there 4.0 1.4 Looking for/met with committee member 4.2 5.6 Other 4.1 10.5 Total 100.0 100.0 12
  12. 12. 5. Transaction costs (acquisition) Unit 2010 Chemical Improved fertilizer seedsAverage time spent on acquisition trip:Travel there hours 3.2 2.3Time at location hours 5.5 5.0Travel back hours 3.6 2.0Was input stored between the time ofacquisition and transport % yes 42.5 8.5 13
  13. 13. 5. Transaction costs after acquisition (for those that received credit) Ch. fertilizerNumber of trips for each transaction…… before the farmer was able to pay (exclude payment trip)0 trips 66.41 trip 18.32 trips 10.23 trips 5.1Reasons for the unsuccessful trip: Form was lost 32.4 Money collector was not there 22.5 Cooperative office was not opened 21.1 Queue too long 18.3 Other 5.6 Total 100.0 14
  14. 14. 5. Transaction costs and late access to modern inputs Unit TotalPercentage of plots that the households are late inplanting due to delays in acquiring fertilizer % 13.5Were there any days in the 2010 season when anadult household member could not work on thefarm because of searching modern input % 44Lost day in search of modern inputs number 3.6 15
  15. 15. 6. Transportation costs Least Most Unit remote Quintile QuintileQuintile remote Total quintile 2 3 4 quintileModern input use:- DAP % of hh 90 84 80 67 69 78- Urea % of hh 83 65 45 47 43 56- Improvedmaize seeds % of hh 90 84 81 67 69 78- DAP kgs/ha 84.2 43.8 47.8 35.1 34.7 51.4- Urea kgs/ha 47.2 25.7 23.6 21.6 18.9 28.6- Ch. fertilizer kgs/ha 131.4 69.5 71.4 56.7 53.6 80.0- Improvedmaize seeds kgs/ha 9.9 7.3 7.1 1.2 2.7 6.1 16
  16. 16. 7. ConclusionsOur study highlights constraints with respect to threevariables for adoption of modern inputs:- Most farmers link lower use than desired to limited access to credit- Transaction costs limit the profitability of modern input use- Transportation costs important determinant in adoption (indicating that farmers respond to profitability concerns) 17
  17. 17. 7. ConclusionsPolicy implications:1. Recent policy is to move away from credit provision for modern input acquisition; will have implications on fertilizer use2. Further capacity building for cooperatives required as well as further de-licensing as to allow for a more competitive environment3. Further improved transportation infrastructure required in rural areas (12% of population in Ethiopia lives further than 10 hours from a city) 18

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