ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

Ethiopia’s value chains on the move: The case of teff (work in progress)

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

March 19th, 2013 EDRI, Addis 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 (Eragrostis tef) is major staple food in Ethiopia.• Research on improved teff varieties since the mid-50s, only

a small number of improved varieties have been released (20 in total)

• Teff used to prepare enjera; also valued for its fine straw, used for animal feed, as well as mixed with mud for building purposes.

• Quality in teff market mostly related to the color of the grain: magna, white, mixed, and red.

• Other factors matter as well such as origin. However, more difficult to measure objectively.

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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)

- Given relatively low yields, total national production (3.5 million tons) in quantity is lower than maize and sorghum.

- 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)

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2. Background Teff in Ethiopia

• Consumption of teff in Ethiopia:- Urban areas: 61 kgs per capita- Rural areas: 20 kgs per capita - Income elasticity of teff 1.1 for urban areas and 1.2 for

rural areas; teff is an economically superior good- Teff has prices on average double the price of the cheapest

cereal (maize)

• 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

• Changes in production factors (few changes)4. Teff upstream in the value chain

Unit Number of 10 years Now

observations ago Traditional production factorsNumber of tillings number 1200 4.1 4.5Seed use:Magna kgs/ha 91 45.5 44.9White kgs/ha 593 44.9 44.5Mixed kgs/ha 141 40.5 43.2Red/Black kgs/ha 380 46.1 50.2Number of weedings number 1199 1.5 1.3

• 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

• Quick adoption of modern inputs

• Rapid take-off of quncho (DZ-Cr-387) - 32% of teff producres ever used quncho; 24% used it in

the Meher of 2011/2012- Number of years since household uses quncho is 2- For users, 84% of white teff area is allocated to quncho

• Mentioned advantages of quncho: a. Higher yields; b. Lower seed rates needed; c. Better price; d. More fodder; e. Less lodging

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

• Quncho only started in 2010; in 2013, 32% farmers used itTake-off of quncho

2010 2011 20120

10

20

30

40

50

60

70

80

90

100

Year of adoption of quncho

% o

f qun

cho

adop

ters

Adoption of quncho 0

10

20

30

40

Sh

are

Qun

cho

in

teff a

rea (

%)

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

• Multi-regression framework where we control for characteristics of the plot as well as characteristics of the household; calculate APE (Average Partial Effect of distances):

1. Doubling of the transport costs to Addis: a. Reduction of fertilizer use of 38 kg per ha; b. Share of area planted with quncho declines by 17%

2. Doubling of distance to cooperative unions: a. Reduction of fertilizer use of 13 kg per ha; b. Share of area planted with quncho declines by 3%

Results double-hurdle regressions

• Cobb-Douglas production function; use fixed and random effect models (control for household specific effects):

1. Chemical fertilizer: Additional kg of DAP increases teff production by 2 kgs; additional kg of urea increases teff production by 2-5 kgs. Value-cost ratios (VCRs) are between 2.2 and 4.5.

2. Quncho seeds: Quncho seeds have 10% higher production than traditional seeds or other improved seeds.

Modern inputs and teff productivity

• 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

• About 26% of teff procured by retailers in rural areas; bypassing wholesale markets

4. Teff downstream in the value chain

10 years ago Now Now

Unit (weighted)Procurement (share) In Addis % 82 83 74Outside Addis on temporary markets % 12 7 6Outside Addis not on temporary markets % 6 9 20

• Mixing is on the increaseMixing of teff with other cereals

10 years ago NowUnit No. of Value No. of Value

obs. obs. % of teff consumers that mix teff with Sorghum % 101 22 271 26Rice % 101 8 271 20Wheat % 101 1 271 0Maize % 102 8 271 12Other cereals % 102 2 271 2

• The poor and enjera sellers behave differently

Mixing of teff with other cereals

Consumers Enjera sellers

Poorest Middle RichestWith fixed

Without fixed

income shops shopNumber of observations 275 274 251 79 86Type of teff bought (%)Red 23 5 3 3 2Mix 64 35 5 46 70White 11 50 35 44 25Magna 2 9 57 7 2Total 100 100 100 100 100Share of customers that mix teff with other cereals(%) 60 43 15 79 71

• The poor and enjera sellers behave differently

Mixing of teff with other cereals

Consumers Enjera sellers

Poorest Middle RichestWith fixed

Without fixed

income shops shopTypical composition of flour bought (%)Teff 75 83 94 75 77Sorghum 15 5 0 11 13Rice 1 9 5 10 6Maize 7 2 0 4 3Wheat 1 0 0 0 0Other 1 0 1 0 0Total 100 100 100 100 100

• About 20% of teff sold in Addis as prepared enjera

Foodservice industry

10 years Now Now Unit ago (weighted)Type of customers for retailers (share)Consumers % 80.4 87.0 82.1Enjera wholesalers % 0.8 1.1 2.1Enjera wholesale companies % 0.3 0.1 0.1Enjera retailers with fixed shops % 4.7 3.1 4.3Enjera retailers without shops % 8.7 5.6 5.5Institutions % 0.7 0.3 0.3Restaurants % 1.9 1.2 4.2Supermarkets % 0.0 0.2 0.8Others % 0.1 0.1 0.2Total % 100.0 100.0 100.0

• Use prices of:1. CSA at producer level (focus on the five main production

regions)

2. CSA for milling (Addis)

3. EGTE for the wholesale level (Addis)

4. CSA for the retail level (Addis)

6. Marketing margins

• Milling margins dropped by half in last ten yearsRatio of milling margins over teff price

2001072002102004022005052006082007112009022010052011080

0.01

0.02

0.03

0.04

0.05

0.06

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

Share of wholesale in retail price

200201 200303 200405 200507 200609 200711 200901 201003 2011050.75

0.8

0.85

0.9

0.95

1

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

Share of 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

1. Public sector:

- Less complaints about fertilizer delivery

- Investment in R&D. Limited in the teff sector

- However, large investments in extension system

7. Drivers for change

7. Drivers for change 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 51Farmers is aware of:- broadcasting at lower seed rates share 92- row planting of teff share 77- transplanting of teff share 40- zero tillage of teff soils share 11

2. Important improvements in road and communication infrastructure

7. 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

7. Drivers for change

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8. 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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8. 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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8. Implications

1. Despite quncho take-off, major room for improved seed development:

a. lodging resistant varieties, more attention to taste preferences (quncho suffers from drying out disadvantage), disease and pest resistant varieties. b. More sophisticated techniques of breeding 2. 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

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8. Implications

3. Overall, investments for R&D not at appropriate levels given importance of teff (e.g. total budget ag. R&D 70 million USD in 2008). For example, rate of return to quncho development enormous: Assumptions- 10 % higher yield 160million USD per year - 50% of teff farmers adopt 80million USD per year Scenario 1Investment in millions USD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

-50 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80Internal rate of return 160%Scenario 2Investment 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

-200 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80Internal rate of return 40%

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8. Implications

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

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