Markets for Lemons in African agriculture Wheat in Ethiopia Gashaw - - PowerPoint PPT Presentation

Markets for Lemons in African agriculture Wheat in Ethiopia

Gashaw Abate and Tanguy Bernard November 2018, FERDI

Increased demand for ‐‐ quality ‐‐ staples

Source: Brookings, based on UN DESA (2014) Source: LSMS‐ISA survey data for Nigeria % hh having consumed food item at least once in past 7 days

Reliance on home production ?

Wheat price ($/ton) Net exports, selected commodities, 1961‐2011 Source: FAO

Issues of G&S for small‐scale staple producers

• Export crops:
• Clearly defined G&S
• Explicit quality premiums
• Compliance with G&S mandatory
• Smallholder aware and capable
• Staple crops: when they exist, G&S

based on international trade levels

• Unattainable
• Expensive to assess (given size of

transaction)

• Compliance with G&S voluntary
• Unknown

Source: 18 country diagnostic by IFPRI

2 4 6 8 10 12 14 16 18 Percent 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 Quantity of wheat produced (quintals)

Source : IFPRI Wheat survey, 2015

Fact #1 – Small producers = small transactions

Production Transactions

2 4 6 8 10 12 14 16 18 20 Percent <=1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 9-10 >10 Monthly transactions per household (quintals)

The case of wheat producers in Ethiopia

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Processors/wholesalers (incl. EGTE)/seed enterprise Consumers Cooperatives Traders

Aggregated farmers production being sold to…

Source : IFPRI Wheat survey, 2015

Fact #2 – Smallholders sell to aggregators with incomplete accounting of quality

0% 10% 20% 30% 40% 50% 60% 70% 80%

Uniformity size Uniformity color Softness / hardness Varietal mix Foreign matter Unobservable (e.g. flour yields)

Quality attributes checked before sales

65 70 75 80 85 90 95 920 930 940 950 960 970 980 990 1000 1010 1020

Flour extraction rate (approximated by test‐weight)

Price per quintal paid by miller to traders Price per quintal paid by traders to farmers

Source : Miller’s administrative data in Addis Ababa, 2015

65 70 75 80 85 90 95 400 500 600 700 800 900 1000 1100 1200 1300 1400

bandwidth = .8

Source : IFPRI Wheat survey, 2015

Fact #3 – Unobservable does not pay at bottom of value chain. Aggregation lowers average quality

5 10 15 20 25 30 35 40 45 Percent Y e s , v e r y m u c h Y e s , s

• m

e w h a t N

• ,

n

• t

v e r y m u c h N

• ,

n

• t

a t a l l

Do you trust traders’ scales?

Fact #4 – given unobservable quality, trust is important

Test : trained 540 farmers to assess validity of traders’ scales using their body‐weight

66% Found traders’ scale to under‐

estimate their body weight

3kg

by

• n average

Fact #5 – Low investments to enhance unobservable quality

East Gojam and North Shewa: poor soil quality, N  ↑ yields

10 20 30 40 50 60 70 Percent 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 Quantity of urea applied per ha (kg) truncated at 100kg 10 20 30 40 50 60 70 80 Percent 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 Quantity of urea applied per ha (kg) truncated at 100kg

Bale and Aris: good soil quality N  ↑(unobservable) quality

Reducing information asymetries

One way to fix market issues: reduce information asymetries

• Interesting case: farmers miss information about the

quality of their own product

• Quality partly depends on some factors potentially unknown to

farmers (e.g. soil quality)

• What happens when farmers learn about the quality of

their own product?

• Diffuse simple test‐weight measures through video‐mediated

extension in Ethiopia

• Collect sample fo wheat from each farmer to independently

assess quality

30.00 35.00 40.00 45.00 Percentage share

share sold low high remote less-remote

grain quality remoteness Control Quality trg

Share of wheat sold (marketed surplus)

7.00 7.25 7.50 7.75 8.00 Price per Kg

price received low high remote less-remote

grain quality remoteness Control Quality trg

Price received for wheat grain

15% farmers in treatment group did check the (unobservable) quality of their grain Farmers sell more and obtain better prices upon finding that their wheat is of higher quality (flour extraction rate). Farmers tend to sell less through cooperatives when the revealed quality of their wheat is higher (aggregation issue) Higher investments in quality enhancing inputs in following years

Would you be willing to pay « X birr » per quintal for an independent quality and weight certification service? (% yes)

Source : IFPRI Wheat survey, 2015 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 10 20 30 40 50 60 70 80 90 100 Baseline Endline

Strong reaction to a rather light‐touch intervention. Producers react strongly to quality signals and adapt their relationship to markets Increased willingness to pay for independent quality certification

?

coop trader miller

= =

Current organisation of the Wheat value chain in Ethiopia

coop trader miller

=

Independent certification

= = =

Can it be fixed?

Willingness to pay for service? Unbiased quality assessment? Pass through

• f price

premium? Level of price premium?

Conclusion

• Inclusive value chains : where small farmers can participate without

needing protection from costly trade policies

• Supply‐side intervention (inputs, extension etc.) will not work unless

clear incentive from output markets.

• “Small”  necessary aggregation  potential incentive dilution
• “Fixing” output markets for small scale farmers requires more piloting

and learning.