The ‘Black-Box’ of Ethiopian Agricultural Produce Price Formation and its Determinants

In marketing studies, the following are important points to be addressed. How are prices of a commodity determined? Are the prices responsive to changes in the underlying forces of demand and supply? Who ‘sets’ the produce price? How is the produce price affected by the intermediaries’ market power, and the risk and uncertainties in the output price? How about the impact of asymmetry in price transmission and market information? Do climate changes, changing policies and institutional settings affect produce price formation?

Background

Agricultural marketing plays an important role not only in stimulating production and consumption but also in accelerating the pace of economic development (Khols and Uhl, 1998). It leads to the optimization of resource use and output management, increase in farm income, growth of agro-based industries, adoption and spread of new technologies, better living and creation of utility (Ellis, 1992). The need for studying agricultural marketing in Ethiopia derives from the importance of the agricultural sector in the national economy, in terms of employment, national income, exports, food and raw materials. Agriculture employs 85% of the population and accounts for more than 90% of the export revenue. Hence, a comprehensive analysis of the performance of agricultural products marketing and the identification of its associated problems will contribute much to the economic development thereby reducing the food insecurity problem in the country.

Objectives

The major objective of this project is to assess how prices of agricultural products are determined and identify factors affecting it at different locations in the country.

The specific objectives are:

  1. Analyze why the earlier experienced fall in agricultural output price was not the case for the current increase (growth) in the agricultural outputs.
  2. Evaluate how the regional agricultural product markets are integrated with (to) the central market.
  3. Assess to what extent both positive and negative price shocks are transmitted in agricultural output markets.
  4. Examine the terms of trade between agricultural products of farm households in dry lands, and mid and high lands and factors influencing the terms of trade.
  5. Examine how the intermediaries produce pricing behavior affects producers’ and consumers’ welfare.
  6. Analyze the determinants of agricultural products market prices hike.
  7. Assess agricultural marketing contracts formation and enforcement and its impact on produce price formation.
  8. Identify the values added in the agricultural products marketing of Ethiopia and whether these added values are reasonable compared to the marketing margins in the marketing channel (chain).
  9. Assess whether the free market policy served the poor farmers.

Expected Results

The expected results from this study are the following:

  1. It explains why the earlier experienced fall in agricultural output price was not the case for the current increase (growth) in the agricultural output products.
  2. It measures the extent of agricultural product market integrations between the central and regional markets and the degree of both positive and negative price shocks transmissions.
  3. It identifies the prevailing terms of trade between agricultural products of farm households in dry lands, and mid and high lands and what factors influencing this terms of trade.
  4. It identifies whether intermediaries produce pricing behavior affects producers’ and consumers’ welfare.
  5. It identifies factors causing agricultural produce price hike in the country.
  6. It examines whether agricultural marketing contracts have an impact on produce price formation.
  7. It identifies the values added in the agricultural products marketing of Ethiopia.
  8. It compares marketing margins at different stages of the marketing channel to the added values at each stage to evaluate the fairness of the overall marketing system.
  9. It identifies whether the free market policy benefited the poor farmers.
  10. It provides relevant policy advices/strategies in relation to agricultural product marketing in Ethiopia.