ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

Ethiopia’s value chains on the move: The case of teff

Bart Minten, Seneshaw Tamiru, Ermias Engeda, and Tadesse Kuma IFPRI ESSP-II EDRI

Ethiopian Economic Association ConferenceJuly 19, 2013Addis Ababa

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1. Introduction

• Major changes happening in food markets worldwide and especially in developing countries:

- Supermarket revolution- Share of high-value crops increasing - Quality demands on the rise- Food safety requirement export countries- Vertical integration- Up-scaling, dis-intermediation, and branding

• No clear to what extent value chains are transforming in Africa and/or Ethiopia, often because of a lack of good primary data. This is the purpose of the analysis.

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2. Background Teff in Ethiopia• Teff is a major crop in Ethiopia:- 20% of all cultivated area, covering 2.7 million hectares

and grown by 6.3 million farmers (second most important crop is maize with 15% of cultivated area)

- Value of production in 2011/12 was 1.6 billion USD, the most important crop in the country.

- Value of commercial surplus (CS) 2011/12: 464 million USD, as important as sorghum, maize, and wheat combined; one-quarter less than coffee (600 million USD)

• Purpose of the study is to understand major value chains from rural producers in major production zones to Addis, the major city in the country.

• Organization of surveys: 1/ Interviews with key informants September – October 2012; 2/ Fielding of surveys in November – December 2012.

• Surveys with producers and communities upstream; rural and urban wholesalers and truckers midstream; cereal shops, mills, and cooperative retail downstream

3. Data and methodology

• Stratified random samples at each level:1. Upstream: 1,200 farmers in five major teff production zones. These five zones represent 38% of national teff area and 42% of the commercial surplus.

2. Midstream: 200 rural wholesalers (that ship teff to Addis); 75 urban wholesalers (2/3th on Ashwa Meda; 1/3rd on Ehil Beranda); 90 truck drivers

3. Downstream: 282 retail outlets (83% mills; 10% cereal shops; 7% consumer cooperatives)

3. Data and methodology

• Increasing adoption of modern input use over time4. Teff upstream in the value chain

Unit Number of 10 years Now

observations ago Modern inputs Adoption of improved seed share (%) 1199 7.3 35.8Use of chemical fertilizer:DAP kgs/ha 1128 50 91urea kgs/ha 1121 34 64Adoption of herbicides share (%) 1197 31.9 65.3Adoption of pesticides share (%) 1197 4.3 13.1

• Type of teff: rapid decline of red teff; increase of white/magna

4. Teff upstream in the value chain

Unit Number of 10 years Now observations ago Type of teff Farmers' interviews:Red teff share (%) 1200 36.2 19.9Mixed teff share (%) 1200 17.6 11.7White teff share (%) 1200 40.7 54.2Magna teff share (%) 1200 5.4 14.1Community focus group interviews:Red teff share (%) 60 32.7 14.4Mixed teff share (%) 60 31.8 21.6White teff share (%) 60 26.5 40.2Magna teff share (%) 60 7.7 24.3

• Reasons for the decline of red teff:

1. Lower prices of red teff compared to white teff. Higher prices of white teff driven by: a. lower conversion ratios of red teff to enjeras; b. longer shelf life for white enjeras; c. preference of consumers

2. Higher productivity of white teff now because of availability of improved varieties; traditionally red teff would do better compared to white teff

4. Teff upstream in the value chain

• 93% of teff farmers use chemical fertilizer; 34% uses improved seeds

• Stated reasons for not using or for not using enough modern inputs:

1. Chemical fertilizer: Lack of money at the time of need

2. Improved teff seeds: Unable to find them or unable to find more

4. Teff upstream in the value chain

Dynamics in adoption of fertilizer 0

.51

1.5

quin

tals

/ha

0 50 100 150Transport costs to Addis (Birr/quintal)

DAP now DAP 10 years agourea now urea 10 years ago

Adoption of quncho (new variety)

01

02

03

04

0

Sh

are

Qun

cho

in

teff a

rea (

%)

0 50 100 150Transport costs to Addis (Birr/quintal)

• Teff retailing in Addis: 61% mills; 29% cereal shops; and 8% consumer cooperatives

• Traditionally (as seen in other towns or rural areas), mills only did milling and household typically would:

a/ buy teff on market/cereal shop; b/ clean teff at home; c/ take teff to mill; d/ prepare enjera at home

4. Teff downstream in the value chain

4. Teff downstream in the value chain

10 years ago Now

Unit No. of Value No. of Value

obs. obs.

Technology and services

Number of milling machines number 100 3.05 256 2.96

Number of crops sold in outlet number 106 6.16 280 7.61Share of customers that get home delivery % 102 59 271 61Share of customers that clean at home % 96 30 254 21Share of customers that only come for milling % 93 30 250 24

4. Teff downstream in the value chain

10 years ago Now

Unit No. of Value No. Value

obs. of obs.

CompetitionNumber of mills in in the kebele number 92 6.11 250 9.30Number of cereal shops in the kebele number 75 2.86 202 4.10

Often queuing of consumers % 102 30 276 12

• Trend line: drop in urban distribution margins from 13-15% in 2001 to 7-11% in 2011

5. Margins: Share wholesale in retail price

200201 200303 200405 200507 200609 200711 200901 201003 2011050.75

0.8

0.85

0.9

0.95

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white wholesale Linear (white wholesale)mix wholesale Linear (mix wholesale)Linear (mix wholesale) red wholesale

• Trend line: share of producers has increased from 74%-78% in 2001 to 76-86% in 2011

5. Margins: Share producer in retail price

200201 200303 200405 200507 200609 200711 200901 201003 2011050.5

0.550.6

0.650.7

0.750.8

0.850.9

0.951

white producer Linear (white producer)mix producer Linear (mix producer)Linear (mix producer) red producer

Shar

e in

reta

il pr

ice

6. Drivers for change Public sector: Large investments in agricultural extension system

Unit Mean/ PercentContact extension agents:Received a visit of an agricultural extension agent in the last 2 years share 74In last 12 months:Number of times that farmer talked individually with extension agent on teff issues number 2.32Number of times that farmer participated in a community meeting to discuss teff issues number 2.28Farmer visited a demonstration plot of teff share 37Farmer visited a government office of agriculture and discussed teff issues share 27Farmer awareness of technologies:Farmer knows the recommended fertilizer use on teff plots share 51

2. Important improvements in road and communication infrastructure

6. Drivers for change

Unit Farmers Rural Urban Urban traders traders retailers

Owners of a phoneshare (%) 28 100 100 98

Year since they own a phone year - 2006 2007 2008Used mobile phone in the last marketing transaction

share (%) 12 - 97 56

If yes, agreed on a price with the trader by phone in the last transaction

share (%) 74 - 52 32

3. Urbanization (1.2 million more people in Addis), income growth and economic superior characteristics of teff (doubling of income, 110% increase in teff consumption expenditure); these factors combined might have led to doubling of commercial surplus into Addis in last 10 years

4. Higher opportunity costs of time, especially of women; further impetus for foodservice industry as well as for development of a different retail sector

6. Drivers for change

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7. Conclusions Important changes in the teff value chain:1. Modern inputs increasingly adopted, especially by these

farmers living close to urban areas2. Quality demands are on the rise, important shifts from

cheap red varieties to more expensive white ones3. Increasing willingness to pay for convenience in urban

areas, as illustrated by the emergence of one-stop shops as well as by a sizable foodservice sector

4. The share of rural-urban marketing, urban distribution, and milling margins is declining, indicating improved marketing efficiency

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7. Conclusions

Despite changes, still in early stage of agricultural transformation:1. Upstream:

a/ Adoption of improved varieties still lowb/ Fertilizer used is below recommended level c/ Mechanization absent d/ Vertical integration and coordination absent

2. Downstream: a/ Little evidence of up-scaling b/ Small share of modern retail c/ Almost no branding

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7. Implications

1.Major room for improved seed development; Better knowledge on other technologies to improve teff productivity needed, i.e. row planting, transplanting, response to fertilizers that contain zinc and copper, minimal tillage

2. Further investments in roads and communication (still one of the lowest in Africa)

3. Urbanization motor for rural transformation (urbanization also one of lowest in Africa)