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

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Structural transformation in Ethiopia:
Evidence from cereal markets
Bart Minten, David Stifel,
Seneshaw Tamiru
IFPRI ESSP-II
Ethiopian Economic Association
Conference
July 19-21, 2012
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. Five drivers for structural transformation
in cereal markets
1. Economic and income growth
2. Urbanization and increase in commercial surplus
3. Roads and transportation costs
4. Access to mobile phones
5. Cooperatives
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;
4 World Development Indicators)
2
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-2
-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
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8. Driver 3: Change in transportation costs
Real transportation costs between cereal wholesale
160 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
8

9. 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
100
wholesale markets (Cumulative percentage over markets)
% of markets covered
90
50% of traders use mobile
80
100% of traders use mobile
70 50% of brokers use mobile
60
% of markets
100% of brokers use mobile
50
40
30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
9

10. Increasingly commercial deals done over the
mobile phone
" Are mobile "Were fixed
phones used phones used
Use of phone by traders (% of traders; mean) to…"? to…"?
"… inform/transmit prices" 86 47
"… agree on prices (plus quantity/quality) with sellers" 36 14
"… request a show-up (quantity requested but without
price agreements) with sellers" 38 16
"… agree deals (prices and quantity) with transporters" 40 6
"… agree on prices (plus quantity/quality) with buyers" 46 19
"… follow-up payments with buyers/sellers" 81 31
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11. 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
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12. Possible impact of changes in these 4 drivers on
cereal price behavior
• Income growth, urbanization, and 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
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13. Price behavior:
- Run regressions of the form:
Log(real price of cereal i) = f(year*month, market
location, quality, grain/flour, retail/wholesale)
- Test for structural change by comparing size of
coefficients in the period 2001-2005 versus 2006-2011
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14. IV. 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)
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15. Regression results
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 (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% (exception is
sorghum).
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16. However, variability of ratios
Real prices differences of maize between the wholesale
300
markets of Addis compared to Mekelle and Nekemt
200
Birr/quintal in 2011 prices
100
0
2001
2002
2003
2004
2005
2006
2008
2009
2010
2011
-100
Mekelle
-200
Nekemt
-300
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17. V. 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)
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18. • 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
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19. VI. Conclusions
• Important structural changes in cereal economy in
Ethiopia in last decade (fast economic growth;
urbanization; drop transportation costs; universal access
to mobile phones)
• Impact on performance indicator, as measured by prices
(No changes in quality premiums but significant declines
in retail, milling and spatial margins)
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20. 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
4/Price volatility an issue, sometimes linked with ad hoc
policy decisions
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