International Food Policy Research Institute (IFPRI) and Ethiopian Development Research Institute (EDRI). Conference on "Towards what works in Rural Development in Ethiopia: Evidence on the Impact of Investments and Policies". December 13, 2013. Hilton Hotel, Addis Ababa.

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Market changes and food prices
Bart Minten, David
Stifel, Seneshaw Tamiru
IFPRI ESSP-II
December 13, 2013
Addis Ababa
1

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
2

3. II. Data and methodology
• Price data: Use monthly data from the Ethiopian Grain
Trading Enterprise (EGTE);
• 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
3

4. III. Four drivers for structural transformation
in cereal markets
1.
2.
3.
4.
Economic and income growth
Urbanization and increase in commercial surplus
Roads and transportation costs
Access to mobile phones
4

5. 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 Bank;
World Development Indicators)
4
2
0
-2
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-4
5

6. Impact of economic growth on food markets
2 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
6

7. Driver 2: Urbanization and increasing
commercial 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
7

8. Driver 3: Change in road infrastructure and
transportation costs
1. Big investments by government in road
infrastructure
Time required (hours) to travel by truck from Addis to 30 major
wholesale markets
16.00
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
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9. 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
year
2007
ISUZU (5-6 tons)
FSR (7-8 tons)
2006
Trailer (20 tons)
2005
2004
2003
2002
2001
0
10
20
30
40
50
60
70
80
90
100
%
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10. 3. Change in transportation costs
160
Real transportation costs between cereal 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
10

11. 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
% of markets
70
50% of brokers use mobile
60
100% of brokers use mobile
50
40
30
20
10
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
11

12. Increasingly commercial deals done over the
mobile phone
Use of phone by traders (% of traders)
"… inform/transmit prices"
" Are mobile
phones used
to…"?
86
"… agree on prices (plus quantity/quality) with sellers"
"… request a show-up (quantity requested but without
price agreements) with sellers"
36
"… agree deals (prices and quantity) with transporters"
40
"… agree on prices (plus quantity/quality) with buyers"
"… follow-up payments with buyers/sellers"
46
81
38
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13. Possible impact of changes in these drivers on
cereal price behavior
• Income growth and urbanization: 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;
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14. IV. Spatial price margins
1. 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
3. Price variation between markets is declining over the
last decade: Difference between highest and lowest
coefficient declined by 11%, 27%,28%, and 22%
(exception is sorghum).
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15. However, variability of ratios
Real prices differences of maize between the wholesale
markets of Addis compared to Mekelle and Nekempt
300
100
2011
2010
2009
2008
2006
2005
2004
2003
2002
0
2001
Birr/quintal in 2011 prices
200
-100
Mekelle
-200
Nekemt
-300
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16. V. Retail and milling margins
• Retail and milling margins declining over time
18
16
14
12
10
8
6
4
2
0
Real milling costs over time
(costs of milling 100 kgs of cereals; CSA data)
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17. VI. Conclusions
Important structural changes in cereal economy in
Ethiopia in last decade:
1/ Fast economic growth, leading to demand changes;
2/ Urbanization and increase in commercial surplus;
3/ Improved roads and drop in transportation costs
(dropped to half the costs ten years ago);
4/ Universal access to mobile phones by traders and
brokers (but there was fixed phone access before);
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18. VI. Conclusions
• Room for improvement:
1/ Despite road improvements, Ethiopia has one of the
lowest road densities in the world
2/ Even with roads available, transport costs still relatively
high and more competition would help push transport
prices down
3/ Access to cellphone widespread for traders and
brokers, but penetration with farmers still relatively small
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