The Future of Smallholder Farming in Eastern Africa - Uganda ...

city was probably less than one third of its current size) and inadequate storage seem to have
contributed to the high charges. Sellers may decide to sell their grain at any price rather than
incur such additional costs. Wholesalers seem to have the advantage of buying at low prices
(given the weak bargaining power of sellers), but they may be constrained by lack of capital
and storage. Moreover, many retailers and other buyers do not seem to use the services of
wholesalers, but rather buy directly from the trucks parked at the central market. A number of
final consumers also buy from farmers (who came from surrounding areas of the city) who
sell grain in the small markets located throughout the city. The chain in the supply of grain
seems to be complex and inefficient. There is a need for a rigorous evaluation of the manner
in which the Addis Ababa central grain market operates.
1.2. Grain market studies in Ethiopia
A few studies have looked into the performance of Ethiopia’s grain marketing system after
the market liberalization of the 1990. Lirenso (1993) conducted a small-scale survey of
farmers and traders in Chilalo, Ada, and Addis Ababa and showed that marketing margins
generally declined after the deregulation of grain markets. The study revealed that the returns
to trade were lower than other businesses given the risks of transporting grain over space and
storing it over time. Lack of working capital and financial credit was among the major
barriers to entry, according to the study.
Amha (1994) analyzed the marketing system in southern Ethiopia using the industrial
organization model. He concluded that private grain trade has become competitive and more
efficient and that grain markets at local and national levels have become more integrated
following the deregulation of the grain market. He reported, however, that spatial price
spreads were higher compared with the estimated transfer costs and that the cost of
transporting grain from rural to urban markets was particularly high for small trucks.
Seasonal price differences were high compared with the estimated storage costs.
KUAWAB Business Consultants (1994) carried out a survey of nonrandomly selected
farmers, traders, and institutions in both grain-surplus and -deficit areas of the country. The
study showed that although the degree of competitiveness varied from place to place, the
markets generally appeared to be more competitive. It also concluded that the returns to
transport and storage were about normal, suggesting that transport and storage functions were
carried out with reasonable efficiency.
Sinke and Demeke (1995) analyzed market integration after the 1990 reform using secondary
and primary data from a survey of rural markets in the Arssi zone. The results showed that
food grain marketing efficiency needs to be improved through a combination of policy
measures including improving infrastructure, particularly rural roads; providing rural-based
price information; checking the activity of unlicensed intermediaries; and re-evaluating the
price stabilization scheme of the government.
Based on secondary price and other data, Negassa and Jayne (1997) concluded that cereal
price spreads (the difference between wholesale prices in major regional markets) in Ethiopia
have generally declined since liberalization in 1990. The correlation between wholesale
market prices has risen in 17 of the 24 market pairs examined. Similarly, volatility, as
measured by standard deviation of grain price levels, declined in 11 of 16 cases examined,
while the volatility in price spreads declined in 23 of the 24 market pairs examined. The
study concluded that while liberalization may have improved allocative efficiency and