Urban food price margins in Africa

(Evidence from Addis Ababa) By Thomas Woldu, Bart Minten and

Seneshaw Tamiru

Introduction

Motivation of the paper:• The importance of urban food retail markets is

rapidly increasing:– World population to grow from 6.7 billion to 9.2

billion between 2007 and 2050– Higher urbanization rate in developing countries– Urban dwellers purchase food from the market and

food expenditure takes their largest expenditure share.

• Big concern of rising food prices in the world

Introduction contd.

• Developing countries’ policy makers are concerned about this food price burden and its social and political consequences.

• In addition to the supply and demand side of food markets, they want to understand the food distribution system;– Farmers ---Wholesalers--- Retailers---consumers

WS’ Margin Retailers’ margin (blamed to be larger than what it should be)

Introduction contd.

• It is important to study urban food retailers’ margin for several reasons:

1. It gives an idea on how much prices can be decreased by government intervention in these markets

2. In cases where countries already intervene in the retail market, it helps to understand the effect of the intervention in these margins.

3. Margins vary depending on the product, retailers and wholesalers. Investigating such variations provide information on available rooms for different products and different situations.

Introduction contd.

• Ethiopia is an ideal country for research on this topic for the following very important reasons:

1. Very high inflation rate starting from 2008 with traders being blamed for this inflation

2. Intervention in the food retail market by the government (in the distribution of some food products such as wheat and oil)

3. On top of urban distribution costs, urban households incur additional processing (cleaning and milling) cost on cereals

Research questions

• How much percent of the final price of food is explained by urban food retailers’ distribution and processing margins?

• What is the variation of these margins over space? • How does the distribution margin of public

distribution systems differ when compared with the private distribution systems?

• What is the effect of the pubic distribution intervention on the overall retailers’ distribution margin?

Methodology

• Data was collected both from retailers and wholesalers at the same period of time. • The information collected mainly focuses on prices and quality

of food products• Information about turnovers, retail shop and owners’

characteristics was also collected.

• Wholesale market survey• All wholesale markets in the city and also around the city are

covered • The main focus on the wholesale market survey was to collect

daily information about all types and varieties of the products on market.

Wholesale Market

Food Category

TotalCereals F& V Processed

1. Akaki 187 105 111 403

2. Shola 94 53 557 704

3. Ehil Berenda 851 0 0 851

4. Merkato 0 0 1,022 1,022

5. Atikilt Tera 0 405 0 405

6. Ashwa Meda 518 0 0 518

Total 1,650 563 1,690 3,903

Date; wholesale market survey;Table 2: Sample distribution

9

Methodology

• Retail market survey; Sample set-up – 10 sub-cities in Addis: half of them randomly selected

(after geographical stratification)– Choose 4 main cereals, 5 main fruits and vegetables, and 4

processed foods– Collected census data on the importance of different

outlets in each sub-city– Randomly selected outlets to be interviewed– Survey was done in April – May 2012 – Survey collected detailed information on turnover, prices,

and quality of products (among other information)

10

Data; retail market survey Food products Retail outlet type No. Obs. Sampling Remark Cereals

Teff Maize Wheat Sorghum

Fruit and Veg. Potato Tomato Onion Banana Orange

Processed foods Edible Oil Sugar Shiro Berbere

Supermarkets 160

All in in the sub- city

5 sub-cities out of 10 in the city

Consumer Coop. 109Private commercial farms

2

Kebele shops 7

Etfruit shops 29Flour Mills 264 All in the selected

kebeles

4 kebeles out of 10 (on average) in a

sub-city

Regular shops 201 10 randomly sampled in each

kebele Fruits and Vegetable grocery shops

187

Cereal shops 61 5 randomly sampled in each

kebele Baltena shops 99

Gulit (Micro Sellers) 107 3 in each ketene 2 ketenas out of 5 (on average) per kebele

Total 1226

Methodology

• Method of estimating the margins • Compare prices of each type of food in the wholesale market with the

prices of the same type of food in the retail market• We should make sure that the prices we compare are for the same

type of food products (the same in terms of quality) and observed in the same period of time.

• To estimate the margin, we run a simple OLS regression of the following form:

Where P = priceM = market dummy (1=retail market 0=wholesale market)X = attribute of the product for which the price is observed.

Results; Wholesale – Retail flow of cereals

• Retailers go to Wholesale markets once per month

• Transport cost • Mostly retailers

pay it• Some times no

transport is paid • In few cases,

wholesalers cover the cost

Ehil Berenda

EGTE

Ashewa Meda

Other sources in Addis

Out Side Addis

Flour Mills

Cereal Shops

Consumer Cooperatives

25%

21%

TeffWheat

Maize

Sorghum51%

9%

10%

11%

11%

46%

73%

12%

12%

73%

13%

11%

Main Wholesalers Main Retailers

>90%

Results; Wholesale – Retail flow of vegetables

• Retailers go to Wholesale markets once or twice per month depending on the type of vegetable

• Transport cost • Mostly retailers

pay it• Some times no

transport is paid • In few cases,

wholesalers cover the cost

Atikilt Tera (Vegetables street)

Other Wholesale Market in Addis

Out Side Addis

Regular shops

F and V Grocery shops

F and V micro sellers (Gulit)

7%

7%

PotatoTomato

Onion

85%

6%

8%

83%

84%

7%

7%

Main Wholesalers Main Retailers

>90%

Results; Wholesale – Retail flow of fruits

• Retailers go to Wholesale markets once or twice per month depending on the type of fruit

• Transport cost • Mostly retailers

pay it• Some times no

transport is paid • In few cases,

wholesalers cover the cost

Atikilt Tera (Vegetables street)

ETFRUIT

Regular shops

F and V Grocery shops

Minimarkets

Banana

Orange

98%74%

20%

Main Wholesalers Main Retailers

>90%

Results; Wholesale – Retail flow of Edible Oil and Sugar

• Retailers go to Wholesale markets once per month

• Transport cost • Mostly retailers

pay it• Some times no

transport is paid • In few cases,

wholesalers cover the cost

MEWIT (Jenead)

Kebele shops

Consumer Cooperatives

Regular shops

Etfruit

Edible Oil Sugar

29%18%

43%

Main Wholesalers Main Retailers

>90%

Consumer Cooperatives

Merkato

Etfruit

40%

13%

10%

8% %

13%

12% %

Other sources in Addis

Results; Wholesale – Retail flow of Shiro and Berbere

• Retailers don’t normally go to wholesale markets in a month

• Transport cost • Mostly retailers

pay it• Some times no

transport is paid • In few cases,

wholesalers cover the cost

Baltena

Consumer Cooperatives

Baltena Shops

Regular shops

Shiro Berbere

31%31%

28%

Main sources Main Retailers

>90%

Retailers made it by themselves

Merkato

Other sources in Addis

30%

12%

20%

21% %

13%

Results on Price Margins

• Regressions were done for each product separately. Three types of margin regressions:

1. We estimate margins. 2. We test how the margins vary depending on

the location of the wholesale market by including wholesale market dummies.

3. We include retailers’ location dummies to see how the margins vary depending on the location of the retail market.

Results on Price Margins

9.8***( birr 1.10/kg)

6.2%***( birr 4.28/kg)

17.1%***( birr 13.30/kg)

7.1%***( birr 5.23/litter)

39.8%***( birr 303.2/quintal)

12.5***( birr 68/quintal)

17.7%***( birr 152.3/quintal)

41.5%***( birr 569.8/quintal)

87.7%***( birr 458.2/quintal)

5.7%***( birr 56.2/quintal)

4.9%***( birr 58.2quintal)

10.2***(birr 77.4/quintal)

18.4%***(birr 99.6/quintal)

0 .2 .4 .6 .8Retail margin

Sugar

Shiro

Redpep

Edible_oil

Tometo

Poteto

Onion

Orange

Banana

Wheat

Teff

Sorghum

Maize

Results on price margins in public and private distribution systems

-0.8%

23.2%***

7.1%***15%*

48.4%***41.5%***

9.8%***11.3%***

9.8%***

-9%***

7.5%***5.7%***

-.2

0.2

.4.6

Edible_oil OrangeSugarWheat

Public Private Overall

Conclusions

• We study food marketing from wholesale markets to retailers in Addis; we look at price margins involved in distributing the food.

• Retailers go mainly – to Ehil Berenda and Ashewa Meda for cereals. But,

EGTE is also serving considerable number of wheat retailers mainly consumer cooperatives.

– to Atikilt Tera for fruits and vegetables. But, Etfruit takes a considerable share in serving orange retailers.

– to larger number of retail channels for processed foods

Conclusions contd.

• Margins depend on wholesale market locations and retailer’s locations.

• Fruits and vegetables have relatively higher margins than cereals and processed foods. The margins on cereals and processed foods are more or less similar.

• The public distribution system shows lower margins. But, this is not the case for sugar where we don’t see variation in margins in public and private distribution systems.

Policy implications

• The estimated price margins give an idea about the room available to lower food prices by intervening in the urban retail market.– The room is smaller on cereals and processed

foods as compared to fruits and vegetables.– If the government intervenes, there might also be

secondary effects on higher implicit prices (due to shortages) as well as employment effects

Policy implications contd.

• The public distribution reduces prices and price margins but it has its own problems with respect to market efficiency. – There are issues related with leaks from the public

distribution system to the private distribution system (WFP, 2011)

– There are issues of rationing through long queues and sometimes shortage of these publicly distributed products (T.W Assefa and et al, 2012)