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

Intermarket grain flow is coordinated by brokers in Addis Ababa, and the central market of
Addis Ababa serves as the national clearinghouse of grains. This market has not experienced
any improvement or expansion over the past five decades or so. It is a market where licensed
traders and brokers operate along with too many informal intermediaries (without licenses
and stalls). There is no police protection against unlicensed and illegal operators in the
market. The central market is also a place of “refuge” for a number of unemployed people
and criminals.
There is no independent grading and inspection agency that could assist both buyers and
sellers. As a result, it is common for grain judged as the best by a regional trader to be
downgraded by a broker or a buyer. In many cases, the grain is sold based on the grade
determined by a buyer. Buyers have strong bargaining power in that they can postpone their
purchase decisions and reduce the quantity purchased. For regional traders, an extended delay
in sales leads to a lack of cash to continue buying grain from farmers, as well as additional
costs of transport, handling, and storage. A shortage of capital has weakened the bargaining
power of regional traders.
There is no single price in the market, and each transaction involves negotiation over the
price and quality of grain. Informed buyers with good negotiation experience buy at lower
prices, whereas uninformed and inexperienced ones buy at higher prices.
In cases where brokers fail to get a target price, they sell on credit to retailers and the retailers
in turn sell on credit to final consumers. The importance of credit sales increases when there
is glut in the market. Credit sales, however, present a huge risk. Many brokers, retailers, and
regional traders had lost money over the preceding three years when clients who bought on
credit failed to pay back. Creditors could not take defaulters to court because they had no
written evidence, and the court system was too slow even if contracts had been documented.
Trading relationships were essentially based on mutual trust, which has rapidly eroded in
recent years. The most common ways of settling disputes were peer pressure and frequent
visits and appeals to borrowers.
The empirical evidence reveals that there is no significant trading margin in the wholesale
and retail markets of Addis Ababa. The presence of too many traders (licensed as well as
unlicensed) has reduced trading margins. It has become impossible to benefit from scale
economies in wholesaling and retailing.
Seasonality in supply and marketing are the main features of agricultural products in
Ethiopia. Wholesale prices have been less variable during the postharvest period than during
lean periods. Crop prices tend to decline during harvest because of an increase in supply and
to increase during lean periods. It has been found that price stability is high when crop prices
are low and vice versa. Seasonal indexes of wholesale prices are lowest during the months of
March and April and highest during June and July. Seasonality indexes of all crop types have
also shown an increasing trend over time, reaching their lowest point during peak periods and
their highest point during lean periods.