1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Spatial Integration of Cereal markets in
Ethiopia
Seneshaw Tamru
EDRI/IFPRI
(Ethiopia Strategy Support Program, ESSP-II)
Addis Ababa
1
2. 1. OBJECTIVES
Research Objectives:
• Study whether regional cereal markets are integrated with
with the central (Addis Ababa) market.
• Check the level and speed of price transmission, if they are
integrated.
3. 2. INTRODUCTION
Knowledge of price patterns and market integration is
useful to make:
• Better production decisions
• Better marketing decisions as
– When to buy?
– How long to store?
– When to sell?
• Better forecasts
• Food security interventions as existence and extent of
malnutrition and famine in market economies is closely
linked to market integration
4. 3. BACKGROUND
According to CSA’s 2010/11 Agricultural Sample Survey:
oCereals constitute 82% of the total grain crop area
• Teff - 23%
• Maize - 17%
• Sorghum - 16%
• Wheat - 13%
oContributed 87 % of the grain production.
• Teff - 17%
• Maize - 24%
• Sorghum - 19%
• Wheat - 14 %
5. 3.1. Production
Trends in Annual Production (2003/04-2011/12): Meher season peasant holdings
60,000
49,861
50,000
('000 quintals)
40,000 39,325
34,835
33,368
30,000 25,430
28,557
21,756 23,145
20,000
16,773
10,000
Teff Maize Wheat Sorghum
-
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2010-11
• Significant growth in production (2003/04- 2010/11)
– Teff (108%) and sorghum (127%) has more than doubled over the last seven years
– Maize nearly doubled (96%)
– Wheat also grew by about 77%
6. 3.2. Grain Utilization
HH Consump. Seed Sale Others
80 74.4 73
70 65.3
61.5
57.7
60
Percent utilized
51.7
50
40
28.6
30
20.2 19.6
20 16.2
11.4 10.8
10
0
Grain Cereals Teff Wheat Maize Sorghum
• The biggest share of production is auto-consumed
• Teff and wheat have better marketable surplus (cash crops)
7. 3.3. Demand for cereals
Share of major cereals and enset in total food expenditure by region, 2004/05
Share in total food expenditure (%)
Total Other
Region Teff Wheat Maize Sorghum cereals Enset foods
Tigray 10.2 13.1 2.7 13.7 50.4 0.0 49.6
Afar 9.6 10.0 6.3 1.4 35.8 0.0 64.2
Amhara 12.8 10.4 5.3 9.6 49.3 0.0 50.7
Oromiya 8.2 9.6 10.8 7.9 45.0 4.9 59.9
Somale 1.0 9.7 7.0 8.1 37.4 0.0 62.6
B/Gumuz 5.2 0.9 8.4 21.9 44.1 0.0 55.9
SNNP 4.0 5.5 11.9 5.7 33.1 12.1 79.0
Harari 6.0 7.0 1.9 9.4 37.6 0.0 62.4
Addis Ababa 19.6 3.4 0.5 0.1 41.2 0.1 58.9
Dire Dawa 5.8 7.4 0.7 9.2 45.3 0.0 54.7
Source: Berhane et al. (2011)
• Maize and sorghum have a considerably lower share in Addis Ababa
8. 4. DATA
4.1. Data:
– Weekly wholesale price of the Ethiopian Grain Trade
Enterprise (EGTE) from July 2001 –November 2011
4.2. Market Selection:
– Markets in the top producing zones together with the
most populous towns are selected and their level and
speed of integration with Addis Ababa is examined.
– Teff :
• White (20 regional markets)
• Mixed (19 regional markets)
• Red (17 regional markets)
– White wheat (12 regional markets)
– Maize (16 regional markets)
– White sorghum (10 regional markets)
10. 5. METHODOLOGY
5.1. The TAR Model
out dt 1 t : dt 1
dt in dt 1 t : dt 1
d
out t 1 t : d t 1
• Ө estimated by a grid search
• Assumes constant threshold/transaction cost (Ө )
• TCs (Ө ) could vary depending on season, direction of trade,
quality of roads and fuel prices
11. The TAR Model….
• Following Van Campenhout (2007)
• The thresholds and adjustment parameters to vary with
time, t.
out dt 1 .t.dt 1 t : dt 1 t
'
out
dt t : t dt 1 t
d ' .t.d
out t 1 out t 1 t : dt 1 t
12. Interpretation
• If ρout = -1 perfect integration (100 % deviation transferred)
o adjustment is instant
• If ρout =0 no integration
o No adjustment in the near future
• The closer ρ is to -1
o the higher degree of integration and
o the lower the speed of adjustment
• If ρ is positive,
o markets are drifting apart
o not integrated
13. 6. RESULTS
• Teff: Mixed teff
Table: Spatial Integration of Mixed Teff Markets in Ethiopia (2001-2011)
Estimated transaction
ρout (Speed of adjustment) Half life cost (θ) as %ge of
average price
Market Pairs
July 2001 November
(t1) 2011 (t504) t1 t504 t1 t504
Addis Ababa-Nazreth -0.271 -0.271 2.19 2.19 5.7 10.3
(0.002)*** (0.002)***
Addis Ababa-Ambo -0.264 -0.264 2.26 2.26 9.0 4.2
(0.000)*** (0.000)***
Addis Ababa-Bahirdar -0.02 -0.524 34.31 0.93 16.2 3.7
-0.663(0.002)***
Addis Ababa-Dessie -0.07 -0.574 9.55 0.81 2.4 1.7
-0.167(0.001)***
Addis Ababa-Mekelle -0.167 -0.671 3.79 0.62 9.1 4.8
(0.071)* (0.088)*
Addis Ababa-Diredawa -0.022 -0.022 31.16 31.16 5.4 14.9
-0.33(0.000)***
• Considerable improvement over the last decade
• Addis Ababa seems to be more integrated with high demand areas
14. Summary of all the markets
Summary of Comparison of degree of cereal Integration between 2001 and 2011
White
White teff Mixed teff Red Teff White wheat Maize sorghum
2001 2011 2001 2011 2001 2011 2001 2011 2001 2011 2001 2011
Total pairs 20 20 19 19 17 17 12 12 16 16 10 10
Percent integrated 65 85 68 84 71 94 67 75 63 94 70 70
Improved speed of
adjustment during
2011 (among
integrated) - % 41 25 31 44 27 29
Same speed adjust.
during 2011
(among integrated)
-% 59 75 69 56 67 57
Reduced/deteriorat
ed speed of adjust.
during 2011
(among integrated)
-% 0 0 0 0 7 14
Half life (weeks) 14 10 11 6 9 5 9 6 7 4 15 13
Average speed of
adjustment (among
integrated) -0.16 -0.31 -0.14 -0.24 -0.10 -0.25 -0.17 -0.11 -0.16 -0.28 -0.08 -0.26
Threshold (as %ge of
average price) 15 12 13 12 13 11 22 13 25 13 17 39
15. Summary of the six most important markets
Summary of Comparison of degree of cereal Integration between 2001 and 2011
White White
White teff Mixed teff Red Teff wheat Maize sorghum
2001 2011 2001 2011 2001 2011 2001 2011 2001 2011 2001 2011
Total pairs 6 6 6 6 6 6 6 6 6 6 4 4
Percent integrated 50 83 50 100 50 100 67 83 50 100 50 50
Percent improved speed
of adjustment during
2011 (among integrated) 40 67 33 40 50 50
Percent remained same
during 2011 (among
integrated) 60 33 67 60 50 50
Percent deteriorated
during 2011 (among
integrated) 0 0 0 0 0 0
Half life (weeks) 4 3 12 6 9 7 11 6 6 4 28 25
Average speed of
adjustment (among
integrated) -0.09 -0.27 -0.12 -0.39 -0.06 -0.24 -0.05 -0.06 -0.06 -0.34 -0.19 -0.19
Threshold (as %ge of
average price) 9 8 8 7 15 8 33 16 45 17 19 27
16. 7. CONCLUSION AND IMPLICATIONS
7.1. Conclusion
• Markets functioning much better at the end than
in the beginning of the decade
• Possibly linked to structural changes over the last
ten years (e.g. improvements in roads, mobile
phone availability, income growth, and
urbanization)
• A puzzle why the sorghum market does not show
improvements over time; Possibly linked to the low
share of sorghum in the consumption basket of
consumers in Addis (i.e. the tested market pairs
only reflect thin markets and little effective flows).
17. 7.2. Implications
• The general improvement is good news for
Ethiopia
• However, continuous investments to
improve market integration even further are
desired given the important benefits of
having integrated markets for producers and
consumers alike.
Editor's Notes
Research Objectives Being part of a larger project that is aimed at examining a sector little studied this section of the study is aimed at assessing if and how regional and central markets are integrated, and Identify factors that play significant role in affecting livestock price formation and study how these factors influence livestock pricing and possibly study if and how they affect trade routesTo achieve these objectives we propose: Integration of markets is intended to be investigated using threshold autoregression model We are gathering data relevant to study price formation and surveying what econometric model to use