Abstract: The book argues that risks related to yield and price variability should be taken into account when agricultural policies are designed. In this book, the production and supply response of Ethiopian agriculture (which includes not only the standard arguments like expected prices but also expected yield and price risks) are captured in a three-equation supply response model. The finding for aggregate agriculture reveals that the sector did not respond to price changes during the sample period between 1971 and 2003. However, the sector is found to be yield and price risk responsive. Crop specific supply response analysis on the other hand suggests significant difference between crops in responding for different incentive structures. To this end, maize and wheat growers did not respond to risks but responded to price changes. Teff growers on the other hand responded to yield risks but not for price changes. The implication from the findings is that a rational pricing and marketing policies, information dissemination, appropriate irrigation schemes as well as structural changes do matter for improvement of supply response in the context of poor agrarian economy.
Abstract: A rapid growth of high value crops in the international trade is becoming an incentive for a significant rise in production and export of these crops, especially in developing countries. In the Ethiopian case, given the declining export earnings from traditional exports, policy makers as well as donor agencies have shifted their attention towards diversification of export crop production for potential income growth. To this end, major rural development strategies of the country envisage significant scope for achieving greater diversification and commercialization of smallholders. The move towards high value crop production and marketing, however, requires a huge role of markets and institutions. This study investigates the Ethiopian banana market from a New Institutional Economics (NIE) perspective by using both econometric and mathematical models in order to identify intervention points that accelerate market integration. The result among others reveals that the market is characterized by existence of high transaction costs related to information and search, negoitations and bargaining, as well as monitoring and enforcements. It is learned that households with better bargaining power, better access to transporation, information, as well as members of farmers organizations are better off in terms of income generation. Result from a mathematical programming model also showed that farmers‟ current market channel choice decision is sub-optimal. Hence, enhancing high-value crops production and marketing and in turn improving the livelihood of smallholders highly depends on minimizing the market inperfections. This may require policy makers to focus on: establishing appropriate institutions, improving market information systems, developing rural infrastructure, strengthening farmers organization, resolving financial constraints through credit, enhancing value added capacity, encouraging competition, as well as encouraging investment that accelerate future vertical and horizontal integration.
Abstract: This paper empirically investigates farm-gate banana (Musa spp.) price-negotiation under asymmetric information using a bilateral bargaining model. It makes an attempt to show how memberships in cooperatives affect the bargaining power of smallholders in southern Ethiopia. A regression analysis reveals that cooperative membership positively and significantly affects the bargaining power of smallholder banana growers. The result also confirms that access to central-market-price information and past-trade relationship enables farmers to stick to their initially asked price.
Abstract: In this paper, we propose an optimal marketing decision model in the context of poor agrarian economies. We consider a risk averse banana producer who faces an optimal allocation decision on how much to sell to a cooperative vis-Ã -vis private traders. To validate the model, a numerical exercise was undertaken using farm-gate transaction data. The overall result suggests that under different risk scenarios, an optimal earning is obtained if a farmer allocates 70 to 85 percent of his produce to a cooperative and the rest in the private market. Any allocation more than 85 percent or less than 70 percent is likely to result in a sub-optimal solution given the current market structure and price setting.
Abstract: Problems such as high transaction costs, poor roads, information asymmetry, and other market imperfections are detrimental for smallholders' market integration. High transaction costs, particularly, are major obstacles for smallholder market integration. Transaction costs in the form of information and search, bargaining and negotiation, as well as monitoring and enforcement costs are likely to influence smallholders´ marketing behavior. This study hypothesizes that the level of income generated from banana sales in southern Ethiopia is strongly influenced by transaction costs. Regression analysis shows that the depth of marketing is significantly influenced by transaction costs. Results from two stages least square estimation (2SLS) show that the level of income generated from selling banana is indeed determined by the depth of marketing. The implication of the finding is that households with lower transaction costs are expected to generate higher income from banana. Hence, investments in public goods such as roads, telecommunications and appropriate institutions, as well as farmer support services in terms of input supply and marketing information, may enhance farm income by and in turn improve the livelihood of the rural poor.
Abstract: In this paper, using the new GTAP African database, we simulate the overall implication of 5 percent and 10 percent target subsidy on fruit and vegetables sector in Ethiopia. At macro level, the result reveals that the target subsidy leads to a decline in the overall trade balance. In terms of welfare, the intervention has been found to have positive impact for a 10 percent target subsidy and a slight decline for a 5 percent subsidy rate. The policy has also a positive impact on the Gross Domestic Product (GDP) both in terms of value and volume. However, the result reveals that prices particularly in the grains and other crops sector have increased following the policy. As grains and other crops take the lion’s share of the household budget in Ethiopia, export-promotion policies should be accompanied by some price stabilization policies in the other sector and consider the livelihood of the poor. The food security status of the poor should not be compromised.
Abstract: Despite the huge decline in the contribution of agriculture to the Sudanese exports from 73% in 1998 to only 5% in 2007 as a result of the growing share of petroleum; agriculture remain an important sector in the economy contributing 35% to GDP in 2007 and employing about 70% of the Sudanese labour force. Within the agricultural sector, traditional agriculture occupies 60% from the total cultivated land and employs 65% from the total agricultural population; nonetheless, it contributes only 16% to total agricultural GDP, attributed to the low crop productivity in the sector caused by low efficiency and less technological development beside the concurrent drought episodes. These factors have influenced food security situation in the region negatively and increased poverty rates. The objective of this paper is therefore to investigate the effects of improving the agricultural efficiency in the traditional rainfed sector of Sudan assuming additional capital allocation to the sector as well as improving skills of labour-force in the sector. These assumptions are conformed to Arab countries’ inclination to increase
investments in the Sudanese agriculture because of the recent world food crises. Besides, the paper also considers eliminating subsidies as well as imposing taxes on these sectors’ output to compensate the resulting government budget decline due to additional capital allocation to these sectors. GTAP standard model, closure, and the new GTAP Africa data base are employed with 11 regions (Sudan, Egypt, Ethiopia, Congo, Uganda, Kenya, MENA, rest of COMESA, East-Asia, EU25, and the rest of the world) to see also the implications on the neighboring African as well as MENA countries. Sectors are aggregated to 14, allowing grains-crops and oilseeds to be separate sectors representing the traditional rainfed crops in Sudan. Results show that, GDP, welfare, private income and consumption in Sudan will improve because of efficiency improvements. Moreover, output, trade balance, domestic demand, and exports of grain-crops and oilseed would apparently improve while their imports and domestic import demand will decline. Importantly, welfare levels and domestic imports demand of these sectors would also increase in both MENA and Egypt.
Abstract: In the poorest countries like Ethiopia the spillover effects of a soaring food price is unbearable. To mitigate the recent rise in food prices and the burden on urban poor consumers, different measures have been considered by policy makers. A recent shift from subsidizing oil to grain to ease the spiraling cost of food is one attempt the Ethiopian government has made so far. To this end the government has removed an $800m annual subsidy on petroleum products and uses the money to combat rising grain prices. Using the standard GTAP model and the recent GTAP Africa database this paper simulates the overall implication of 5 and 10 percent increase of subsidy on wheat. Regarding the impact on prices, the simulation result tells us that prices have indeed fall. At macro level, the result reveals subsidy on wheat leads to a decline in the overall trade balance. In terms of welfare, the intervention has been found to have positive impact.
Abstract: As in many developing countries agriculture in Ethiopia remains the dominant occupation and its well-being is crucial to the economy. Major proportions of the population still depend on the agricultural sector albeit the sector is characterized by production of traditional crops for decades. A shift from traditional crop production to high value crops is considered as an important and alternative option in increasing smallholders’ income in particular and rural development in general. Promoting smallholder production of export crops is regarded as having a positive spillover effects on input use and food crop productivity, improving market integration and access, and having valuable impacts on the food security and income of smallholder farmers. Of particular importance in the fresh fruit sector in Ethiopia is the potential of banana production and marketing. A huge demand for Banana and the market potential in the Middle East and Europe can make the sector significant compared to others. However, banana production and marketing is still traditional and faces different constraints: Lack of integration of smallholders to regional and export markets, weak bargaining power coupled with lack of appropriate marketing cooperatives, absence of competitive buyers, and entry barriers, price information asymmetry are the major marketing constraints that hinder the development of the sector. Recently, recognizing the role of marketing cooperatives, producers have started to organize themselves and are trying to penetrate the domestic central markets as well as to improve their bargaining power. This paper empirically investigates farm-gate banana price-negotiation under asymmetric information using a bilateral bargaining model. It tried to show how memberships in cooperatives affect the bargaining power of smallholders. A regression analysis reveals that cooperative membership positively and significantly affects the bargaining power of smallholder banana growers. The result also confirms that access to central market price information and past trade relationship enables farmers to stick to their initially asked price while they are less committed to their initially asked price when the merchant speaks out the transaction price first.
Abstract: As in many developing countries, agriculture in Ethiopia plays a dominant role in all aspects of the livelihood of the population. To this end, different policy packages have been undergone for the development of agriculture and for the improvement of the supply response of the sector so that ensuring food security of the rural poor can be possible. The current structural adjustment program, which assumes a positive supply response, is at the heart of the issue. But, still observations show that the country is not food self sufficient, supply response is sluggish and the average per capita income has continued to fall. All these, therefore, call for knowing the response of farmers (the sector in general) for different economic shocks and parameters of which the perception of risk takes a prominent place for rainfed and structurally rigid agriculture like Ethiopia so that it is possible to design appropriate policies and economic incentives. In Ethiopia despite there are different studies on the response of farmers, most of the studies fail to incorporate a risk parameter on their model which is assumed to affect the farming decision of peasants. The main purpose of this paper is therefore, to model the production and supply response in Ethiopian agriculture, which includes not only the standard arguments like expected prices but also expected yield and price risks. Following Ghatak and Seale (2001) we modeled supply response as a three equation model. Therefore, an attempt is made to fit the model to data for aggregate agriculture and three major cereal crops from 1971 to 2003 and estimated using seemingly unrelated (SUR) procedure. Results from three systems equations are compared to single equation estimation for both aggregate and individual crops and the estimates of the acreage response function for the major cereals also compared with results from acreage response estimates when the acreage response function of all crops considered together to capture the effect of planting one crop to the other. The finding for aggregate agriculture reveals that the price variable is insignificant in Ethiopian agriculture but Ethiopian agriculture is found to be yield and price risk responsive. Analysis of Individual crops on the other hand suggests significant difference between crops in responding for different incentive structures. To this end, maize and wheat growers were found to be price responsive but not risk responsive while Teff growers were found to be yield risk responsive but not price responsive. The implication from the findings is that a rational pricing and marketing policies, information dissemination, appropriate irrigation schemes and other structural parameters do matter for improvement of supply response.
