Farm Agribusiness Linkages

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia

IMPROVING FARMER AGRI BUSINESS MARKET INKAGES THE CASE OF ASELLA MALT FACTORY AND SMALL MALT BARLEY PRODUCER FARMERS, ARSI ZONE, ETHIOPIA

A Research Project Submitted toLarenstein University of Professional Education

in Partial fulfillment of the Requirements for the

Degree of

Master of Management of DevelopmentSpecialization in International Agriculture

By

Beshir Butta

September 2005

Deventer

The Netherlands

© Copyright Beshir Butta Dale, 2005. All right reserved

1


2


DEDICATION

This work is dedicated to my late father Hussein Kel’a, my late brother Ebrahim Butta and my late biological father Butta Dale who have been a protagonist of my study, yet I don’t have a chance to say thank you.

i


ii


Permission to use

In presenting this research project in partial fulfillment of therequirement for a master degree in Management of Development, Iagree that the library of Larenestein University ProfessionalEducation may make it freely available for inspection. I furtheragree that permission for copying of this research project in anymanner, in whole or in part, for scholarly proposes may be grantedby Larenstein Director of Research. It is understood that anycopying or publication or use of this research project or partsthereof for financial gain shall not be allowed without my writtenpermission. It is also understood that due recognition shall begiven to me and to the university in any scholarly use which may bemade of any material in my research project.

Request for permission to copy or make other use of material inthis research project in whole or part should be addressed to:

Coordinator International Education Larenstein University of Professional Education P.O.Box 77416 AA Deventer The Netherlands Fax: +31 570 68 56 08

iii


iv

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia ACKNOWLEDGEMENTS

This study was only possible with a lot of supports I received frommany individuals and institutions. My first sincere gratitude goesto my advisor Prof. A.A.W. van Wulfften Palthe for his constructivecomments, guidance and flexible supervision. I am sincerelygrateful to my co-advisor Dr. Adenine Kutcher for his time,valuable inputs and comments in such a skillful way.

The full flagged scholarship rendered by the Netherlands FellowshipProgram for this study is gratefully acknowledged. I am indebted tomy employer, Ethiopian Agricultural Research Institute, forgranting me leave of absence with pay during my entire two yearsstay overseas.

I would like to express sincere thanks and appreciation to mycolleague Mr.Tessema Abate for his time in coordinating datacollection.

My special thanks and heartfelt gratitude go to my mother WoyaKela, who has raised me and educated me profoundly in the absenceof my father. My mother, you are very special and my hero. Yourlove keeps me going even in difficult situations. Thank you forall. My late father Hussein Kela and late brother Ebrahim Butta,your support and passionate about my study is unforgettableforever. I want also to acknowledge the love and contribution of my twobrothers Amano Butta and Hussein Butta who always love me, careabout me, encourage and support me during all my studies. I gratefully acknowledge all the resource persons of Asella MaltFactory and farmers in Digalu Tijo and Kofale districts for sharingwith me their insightful knowledge without which this thesis wouldbe impossible. Ali Ahmed, I appreciate your friendship of all the time and forbeing with me in Addis during write-up of this thesis project tokeep my company.

i

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia I would like to acknowledge Friends of Foreign Students (FFS)members Ms. Nicole and Mrs. Sjakkelien who made our stay inNetherlands enjoyable and memorable.

My thanks also go to my relatives and friends (Amano Nure, MohammedNure, Hussein Dale, Mohammed Hussein, Jemal Ahmed) for their love,material and moral supports. Above all praise be to almighty ‘Allah’ who is always on my sidewith all my weaknesses by his mercy and graciousness.

Mr. Beshir Butta DALESeptember 2005The Netherlands

ii


TABLE OF CONTENTS

Pages

DEDICATION...............................................................I

PERMISSION TO USE.......................................................II

ACKNOWLEDGEMENTS.........................................................I

LIST OF TABLES...........................................................V

LIST OF FIGURES.........................................................VI

ACRONYMS...............................................................VII

ABSTRACT..............................................................VIII

1. INTRODUCTION..........................................................1

1.1 PROBLEM STATEMENTS....................................................2

1.2 OBJECTIVE OF THE RESEARCH..............................................3

1.3 MAIN RESEARCH QUESTIONS................................................3

1.4 SUB-QUESTIONS........................................................3

1.5 SIGNIFICANCE OF THE STUDY..............................................3

1.6 OUTLINE AND DELINEATION OF THE STUDY....................................4

2. RESEARCH METHODOLOGY..................................................5

2.1 AREA SELECTION.......................................................5

2.2 DATA COLLECTION METHOD................................................5

2.3 CHOICE OF METHODS....................................................6

2.4 DATA ANALYSIS........................................................6

2.5 LIMITATIONS OF THE STUDY...............................................6

3. LITERATURE REVIEW.....................................................7

3.1 GENERAL REVIEW ON AGRICULTURAL MARKETING.................................7

3.1.1 The concept of Agricultural marketing.................................................................................7

3.1.2 Trade in Agricultural commodity...........................................................................................8

3.1.3 Agricultural Commodity Prices..............................................................................................8

iii


3.1.4 The Role of Processors in Commodity Marketing...............................................................9

3.1.5 Marketing Channels for Agricultural Products.................................................................10

3.1.6 The Role of Cooperatives in Agricultural Marketing........................................................10

3.1.7 Infrastructure for Agricultural Marketing.........................................................................10

3.1.8 Market information to Farmers in Developing Countries...............................................11

3.1.8.1 The Benefits of market information to farmers....................11

3.1.8.2 The Weakness of Agricultural Market information in developing

countries................................................................11

3.1.9 The Role of Public Sector in Agricultural and Food Marketing......................................12

3.2 THEORETICAL REVIEW ON FARMER AGRIBUSINESS LINKAGES........................13

3.2.1 Background of Strengthening Farm Agribusiness Linkages..........................................13

3.2.2 Concept and Definition of Farm Agribusiness Linkages.................................................13

3.2.3 Players in Farm-Agribusiness Linkages...................................................................................14

3.2.4 Types of linkages.................................................................................................................... 16

3.2.5 Linking Arrangements between Farmers and Agro-Processors in Africa....................16

3.2.6 Factors Influencing the Strength of the Linkages............................................................18

3.2.7 Benefits on Farmer Agribusiness Linkages........................................................................19

3.2.8 Constraints on Farmer Agribusiness Linkages..................................................................19

3.2.8.1 Internal Constraints on Farmers and Agribusiness.................19

3.2.8.2 External Constraints on Farmers and Agribusiness.................20

3.3 ETHIOPIAN SPECIFIC SITUATIONS.........................................21

3.3.1 Public-Private linkages in Agricultural Development in Ethiopia.................................22

3.3.2 Asella Malt Factory, Research, Farmers partnership in Malt Barley Production.......22

3.3.3 Malt Barley Supply System....................................................................................................23

3.3.4 Quality requirement of Malt Barley....................................................................................23

3.3.5 Public-private partnership in AMF...........................................................................................24

4. BACKGROUND AND DISCRIPTION OF THE STUDY AREA.........................25

4.1 COUNTRY BACKGROUND...................................................25

4.1.1 Location and Area................................................................................................................... 25

4.1.2 Socio-economic characteristics............................................................................................25

4.1.3 Agrarian structure (farm size, cash crops/ food crops)...................................................25

4.1.4 Agricultural Marketing..........................................................................................................27

iv


4.1.5 Cooperatives............................................................................................................................ 28

4.1.6 Agro Industry........................................................................................................................... 29

KALITY FOOD PROCESSING FACTORY (KFPF).....................................29

4.2 OVERVIEW OF THE STUDY AREAS...........................................30

4.2.1 Kofale District.......................................................................................................................... 30

4.2.2 Digalu Tijo District.................................................................................................................. 32

4.2.3 Land Tenure System in the study areas.............................................................................33

5. RESULTS AND DISCUSSION...............................................34

5.1 HOUSEHOLD CHARACTERISTICS.............................................34

5.2 FARMING SYSTEM......................................................35

5.3 MALT BARLEY PRODUCTION AND MARKETING PROCESS.............................37

5.4 FARMERS’ MARKET INFORMATION...........................................41

5.5 PROBLEMS WITH MALT BARLEY MARKETING....................................42

5.5.1 External Constraints in Asella Malt Factory......................................................................43

5.5.2 Internal constraints facing farmers and processor.........................................................44

5.6 CAUSAL PROBLEM ANALYSIS ..............................................45

5.7 ACTORS ANALYSIS IN STRENGTHENING MALT BARLEY PRODUCERS AND PROCESSOR LINKAGES.46

5.8 SWOT ANALYSIS IN MALT BARLEY SUPPLY CHAIN..............................48

5.9 OPPORTUNITIES IN THE STRENGTHENING FARMER AGRO PROCESSOR LINKAGES...........49

5.10 STRATEGIES IN IMPROVING FARMER ASELLA MALT FACTORY MARKETING LINKAGES......52

5.10.1 Ways of strengthening linkages........................................................................................52

5.10.2 Actors to be identified.........................................................................................................53

6. CONCLUSIONS AND RECOMMENDATIONS......................................55

6.1 CONCLUSIONS.........................................................55

6.2 RECOMMENDATIONS.....................................................56

REFERENCES..............................................................58

APPENDIX 1: TYPES OF LINKAGES IN THE PRODUCER-PROCESSOR SUPPLY CHAIN....61

v

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia APPENDIX 2. THE SEED SUPPLY SYSTEM ....................................62

Appendix 3: Some Important Statistics of Asella Malt Factory............63

LIST OF TABLES

Tables Page

Table 4.1 Annual wheat requirements of Kaliti Food Processing Company-------------------------------------

Table 5.1 Household heads and household characteristics

-----------------------------------------------------

2831

Table 5.2 Major annual crops coverage and average yield per hectare

---------------------------------------

32

Table 5. 3 The perceived importance rank order of major crops as 32

vi


sources of cash-------------------------Table 5.4 Malt barley production, consumption and marketing by

respondents------------------------------

33

Table 5.5 Ranking order of different suppliers AMF currently relied

on and its view that the factory should rely on for the

future--------------------------------------------------------------

----------------------------

35

Table 5.6 Percentages of relative frequency respondents showing

major problems with malt barley marketing as perceived by

farmers-------------------------------------------------------------

---------------------

38

Table 5.7 Assessment of perceived of the different external

factors’ impacts on the performance of the AMF using five scale

points--------------------------------------------------------------

---------------------------

39

Table 5:8 Actors current and required contributions in malt barley

production and marketing------------

42

Table 5.9 SWOT

Analysis------------------------------------------------------------

-------------------------------

44

Table 5.10 The amount of malt barley purchased by AMF and the

percentage supplied by different producer during last five

years.--------------------------------------------------------------

------------------------

46

Table 5.11 Assessment of judgments of AMF current focus in assisting

malt barley producer farmers and view where the focus should be and

farmers’ expectation using five point scale-----------------------

48

Table 5.12 AMF preference of different actors to work together to

improve farmer processor linkages; suitable actors to be identified 49

vii


to take lead in strengthening the linkages -------------------------

LIST OF FIGURES

Figures Pag

e

Figure 3.1 : Types of Purchasing Arrangements

--------------------------------------------------------

17

Figure 4. 1 Sectoral composition of GDP, Ethiopia, 1991/92–

2000/01-----------------------------

Figure 4.2 Map of the study

areas-------------------------------------------------------------

-----------------

23

28

Figure 5.1 Farmers’ and AMF’s preference ways of malt barley

supplying and current

supply system

------------------------------------------------------------------

34

viii

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia -----------------------------------Figure 5.2 Malt Barley Supply Chain

------------------------------------------------------------------

--------

36

Figure 5.3: Respondents Assessment of Source of Market information

----------------------------------

37

Figure 5.4: Assessment of problems in Malt barley supply chain as

perceived by AMF---------------

38

Figure 5.5 Internal constrains facing

processor---------------------------------------------------------

------

40

Figure 5.6: Causal problem analysis for poor linkages between malt

barley producer

farmers and

AMF---------------------------------------------------------------

-----------------------------------

41

Figure 5.7 Asella Malt Factor’s profit during the last five

years-------------------------------------------

47

Figure 5.8 The amount of processed malt barley used by domestic

brewery factories during the last five

years-------------------------------------------------------------

--------------------------

47

ix


ACRONYMS

ADLI Agricultural Development-Led IndustrializationAMC Agricultural Marketing CooperationAMF Asella Malt FactoryARDU Arsi Rural Development UnitCADU Chilalo Agricultural Development UnitECMC Ethiopian Coffee Marketing CorporationEGTE Ethiopian Grain Trade EnterpriseEOPEC Ethiopian Oilseeds and Pulses Export CorporationETFRUIT

ESE

Ethiopian Fruit and Vegetables Marketing Enterprise

Ethiopian Seed Enterprise

FAO Food and Agricultural Organization

GATT General Agreement on Tariff and Trade

GDP Gross Domestic Product

HDE Horticulture Development Enterprise

IFAD

KFPF

International Fund For Agricultural Development

Kaliti Food Processing Factory

KARC Kulumsa Agricultural Research Center

MIS Market Information Services

x


MOA Ministry of Agriculture

NAFTA North American Free Trade Area

NGOs Non Governmental Organizations

PAs Peasant Associations

REAC Research and Extension Advisory Council

SAP Structural Adjustment Program

SWOT Strength, Weakness, Opportunities and Threat

ABSTRACT

The agricultural led industrial development policy of Ethiopia callfall for the need for higher levels of managed co-ordination amongfarmers, processors and consumers. However, co-operation betweenfarmers and emerging processors is still limited to impersonal spotmarket transactions/ ad hoc linkages. The inability of farmers toaccess markets and market information is one of the major problemsin Ethiopian agriculture. These facts led me to assess how toimprove farmer processor linkages by examining existing marketingsystem of the selected case.

The major focus of this study is to investigate constraints andopportunities in malt barley marketing chain. The study furtheraimed to identify strategies and actors required to improve farmeragro processor market linkages. The study was based on the datacollected through a formal questionnaire administered to 30households selected purposively from two districts. Informalinterview was also used to collect relevant data and informationfrom resource persons in the Asella Malt Factory. Both quantitativeand qualitative data were collected from primary and secondarysources. Descriptive statistics, ranking method, and rating pointscale were employed to quantify the opinion of the respondents.Causal problem analysis, actor analysis and SWOT analysis were used

xi

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia to analyze relevant factors; actor; strength, weakness,opportunities and threat qualitatively.

In the study area cereal crops play a significant role in thelivelihood of the rural community of which malt barley is the mainsource for income generation and home consumption. On average maltbarely contributed 63 percent of annual income in the study areas.In both districts the large proportion of farmland (41% in Digalu-Tijo and 46% in Kofale) was allocated to malt barley as compared toother major crops produced by the respondents. About 40 and 43percent of annual total harvested crop yield was coming from maltbarley in Digalu Tijo and Kofale districts respectively.

Information on market prices, quantities traded, and othermarketing-related matters rarely reach farmers in the study areas.Fellow farmers and visiting market places were identified as themain source of market information in the study area. Other majorproblems facing malt barley producer farmers were lack of access toprocessor market, high cost of production, low price for produce,lack of transportation and storage, Lack of technical knowledge toproduce required quality and lack of improved varieties. Fromprocessor (Asella Malt Factory) perspective, lack of fulfillment ofrequired quality by producers, lack of reliable supply, competitionfrom consumers and absence of organized suppliers were believed tobe the major constraints in the malt barley supply chain. Maltbarley producer farmers preferred to sell their produce directly tothe Asella Malt Factory as it offered them better price of 20-50Birr per 100 kilograms than market price. However due to lack ofaccess to factory market 94%, 78% and 74% of the total malt barleysold out by producer were sold to the traders in the year 2002,2003, and 2004 respectively. Though individual farmer supplythrough middlemen was the dominating way of supply, currently bothfarmers and the processor were convinced that efficient way of maltbarley supply is through organized group of farmers andcooperatives who will directly supply to the factory. The studyrevealed that lack of support services received from supportinginstitutions such as MOA, research institutions, processor andother government and non government institutions were contributedto poor linkages between malt barley producer and processors.

In actor analysis the most important actors found to have apositive effect to strengthen malt barley producer and processorlinkages were Asella Malt Factory, district and village MOA,

xii

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia Kulumsa Research Center, Zonal Research and Extension AdvisoryCouncil (REAC) and farmer cooperatives. Of these Asella MaltFactory was providing at least 70% of the perceived requiredcontributions to farmers through payment of better price to theirproduce, offering incentives, and funding workshop and farmers daysto producer farmers.

xiii


CHAPTER ONE

1. INTRODUCTION

The changes in food and agricultural markets have influenced theneed for higher levels of managed co-ordination. This has resultedin the introduction of different forms of vertical integration andalliances, which have become a dominant feature of agriculturalsupply chains (Kirsten & Sartorius, 2002).

In Ethiopia the emerging of some few agro industries like Asellamalt factory has created market opportunities for smallholdersthough farmers have not yet fully benefited from this market.Asella Malt factory is located in Arsi- one of the leading maltbarley producer zones of the country.

Barley is an important crop in Ethiopia and it accounts for 20percent of all cereal production and covers the third largest areaof any crop--950,000 hectares with total production at 999,610tons, which is 18.3 per cent of the total cereal production. Barleyis used as food and raw material for brewing home-made alcoholicdrinks. Beverage industry (Asella Malt Factory) uses some 10,000tons of barley per annum to prepare malt for breweries (UNDP,2004). Asella Malt Factory is the only malt processor and providerto all brewery factories in the country. Small farmers in districtssuch as Kofale, Lemu Bilbili, Digalu Tijo and Kersa produce a largeamount of malt barley and are directly or indirectly the mainsuppliers of the factory. State farms in Bale and Arsi zone alsoproduced a large amount of malt barley and supplied it to thefactory. However, currently their share is declining followingshrinkage of size of state farms.

The process of industrialization has created opportunities forsmallholders in developing countries to produce agriculturalcommodities under contract according to certain specifics, but hasthe danger that small farmers will be marginalized and excludedfrom high value markets (Reardon and Barret, 2000). The challengeis thus to prevent this from happening and to find ways to linksmall growers in developing countries to these high value markets.It is argued that the major route for continued survival of small-scale farms, would, only be through a reliance on external ratherthan internal economies of scale through networking/clustering and

1

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia other forms of alliances. This could be amongst small firms orthrough establishing links between small firms/growers and largerenterprises who have already overcome the major barriers to marketentry (Delgado, 1999).

In general, stronger linkages between farmers and processors arefound in those economies where the agricultural sector hasundergone some degree of commercialization. In less developedagricultural systems, like in Ethiopia, co-operation betweenfarmers and processors is limited to impersonal spot markettransactions which do not adequately convey information aboutquantity, quality and timing to producers and consumers.

Although some factors such as nature of the product andavailability of support institutions influence farmers’ agroprocessor linkages, studies in Kenya, Ghana, Uganda and SouthAfrica confirmed that linkage arrangements such as serviceprovision, contractual agreements, price determination, purchasingarrangements, and full vertical cooperation helped in strengtheningfarmer agro processor linkages.

1.1 Problem Statements

The dynamic of agricultural trade and marketing in development arewell known. They apply equally to the poor. Even the subsistencesmall-holder must sell some produce if he is to have the cash topay for inputs and services that will raise his output and hislevel of living (Abbot, 1993). Farmers in Ethiopia allocate most oftheir agricultural produce for their own consumption. However thereis a need for farmers’ access to consumer goods. They also need topurchase production tools and inputs. Farmers must producemarketable surplus, saleable in the market and exchanged for othergoods and services.

The inability of farmers to access markets has been identified as amajor weakness in the Ethiopian economy and is blamed forexacerbating perennial food shortages in parts of the country(USAID, 2004). In the current Ethiopian long term agriculturaldevelopment led industrialization economic policy, quite a largenumber of agro-industries are coming up. The growing ofagricultural product processing companies, for small farmersimplies increased participation, or, rather, an improved ability toparticipate, in output markets. However, smallholder farmers find

2

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia it difficult to participate in markets because of a range ofconstraints and barriers reducing the incentives for participation.

In Arsi zone there are some local agro processing industries (oilfood, flour processing), the largest one is Asella Malt Factory,the sole malt processing factory in the country located in theleading barley producer areas of the country.

Asella Malt Factory processes more than 10,000 tons of malt barleyannually and supplies to major brewery factories in the country.The existence of this factory has created market opportunities forsmallholder malt barley farmers in the highland areas of Arsi :Kofale, Diglu Tijo, and Lemu Bilbilo. However, small holder farmerscould not fully benefit from this market. This mainly due to theneed to control the high quality of agricultural product, safehandling, packing and transporting makes difficulties for smallfarmers to be fully benefiting from this market. Therefore due tothese constraints and in some cases lack of enough supply at thepoint, the factory was some years forced to import malt barley fromother countries. The experience of existing supply of malt barleyby small farmers confirmed that, small farmers in Arsi zone havepotential to supply enough amounts of malt barley with the requiredquality. However this can only be achieved through introducingstrong linkages between producers and processors. In the case ofmalt barley producer farmers and Asella Malt factory the linkagearrangements and coordination among agents in the chain are eithernon existent or on an ad hoc basis due to institutional andphysical factors.

Strengthening farmer-agro processor linkages recently promoted byagricultural support organizations doesn’t exist in the area.Evidences in some African countries show that developing strongtrusting relationships between producer and processor are the basisfor producing significant benefits for both parties, leading to‘win-win’ situations through risk reduction for both processors andfarmers or cost saving by better production planning andmanagement.

The level of understanding of quality requirement by producers andtraders is low. Lack of product quality, reliability and commercialorientation are the most commonly criticized features of farmers.Recommended good agricultural practices are often not applied. Abetter understanding by farmers of quality requirements of

3

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia processors will enhance market linkages between producers andprocessor. This in tern resulted in increasing of incomes securedsales of materials for both farmers and factory. The effectivemarket linkages can only be achieved through co-coordinated andintegrated efforts of all actors (zonal MOA, research center, seedenterprise and factory) in marketing chains and alliances. It istherefore important to investigate constraints and opportunities aswell as institutions required to strengthen farmer agro processorlinkages.

1.2 Objective of the research

To identify major challenges and opportunities in the chain ofmalt barley producers, traders and processor marketingchannels.

To identify the strategies and actors required to improvefarmer agro processor market linkages.

To contribute to the appropriate farmer agro processor marketlinkages that can benefit both sectors by identifying relevantappropriate linkage arrangements.

1.3 Main research questions

What is the existing marketing system and constraints involvedin the market system of malt barley producers and processor?

What are the most important actors can be identified ascatalyst to improve market linkage?

What opportunities and benefits can be obtained by introducingrelevant appropriate linkage arrangements?

1.4 Sub-questions

Who are the main suppliers of malt barley to Asella MaltFactory?

What factors restrain the two sectors market linkages? What are the difference advantages and disadvantages among

different domestic supplier from the factory perspective? What possibilities and opportunities can be identified for the

future appropriate market linkages between small farmers andAsella malt factory?

What are the relevant appropriate linkage arrangements can beidentified?

Which actors would play what role to improve market linkage?

4


1.5 Significance of the Study

Various efforts to promote production of small-scale farming havebeen noted in the past decade. Despite of the persistent drought,remarkable results have been achieved in some areas in this regard.However, the challenge remains unsolved is how to deal with themarket problem. The participation of small farmers in marketeconomy is very low in Ethiopia. The investigation identifiesconstraints and possibilities to strengthen farmer agribusinesslinkages and could assist in identifying policy interventionsand/or institutional innovations to alleviate constraints andimprove the ability of small-scale farmers to be part of the marketof the emerging agroindustries.

Moreover, the study will contribute to generate information tosupport policy formation and implementation of improving farmeragribusiness linkages in the agricultural led industrializationeconomic policy programs of the country.

Lastly, the study will hopefully contribute to deeper criticalinsight into the currentendeavor of enhancing food security by improving the capacity ofsubsistence farmers and local agro processors.

1.6 Outline and Delineation of the Study

This study is organized into six main chapters. Chapter one beginswith a general overview of the study. It further describesobjectives and the significance of the study. Chapter two gives anintroduction to some methodological aspects used in this study.

Chapter three introduces the conceptual framework or theoreticalperspective of the study. This chapter is divided into two partswith the first part dealing with general review of agriculturalmarketing and related concepts, while the second part reviewstheoretical framework of the main theme of the study. It reviewsagricultural marketing related concepts, farmer agribusinesslinkage concepts from world perspective in general and developingcountries’ perspective in particular.

Chapter four presents a country profile relevant to this study andgives descriptions for the study areas. It summarizes location,

5

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia socio-economic characteristics, agrarian structures, agriculturalmarketing and agro industry of both at the country and study arealevels.. Chapter five presents the empirical findings of the studyin descriptive and qualitative ways using tables, graphs anddiagrams and gives analysis and discussion of the findingsobjectively.

The thesis report is finalized by giving conclusion and setrecommendation forward for the study.

CHAPTER TWO

2. RESEARCH METHODOLOGY

This section presents the methods that were used in the studyprocess from the time ofcollecting data, analyzing it and eventually in writing the thesis.

6

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia 2.1 Area selection

During the inception of this research design before I had decidedwhere this research would be conducted, relevant institutions andindividuals have formally been contacted to help in selectingappropriate district relevant for the study. Though all districtsin Arsi zone mainly produce barley, only some districts producemalt barley for the processing market; moreover a few of these areaccessible and have some formal marketing linkages with theprocessing company.

Based on information obtained and personal experience in the studyarea, two districts (Kofele & Digalu Tijo) with contrastinggeographic location and farming systems were selected. Kofaledistrict is located far south-west of Arsi zone, while Digalu Tijois just at corner of zone capital Asella 25 km a way (Figure, 4.2).Malt barley producing farmers were sampling unit in this study onthe assumption that the study is focused on malt barley producerand processor linkages. Selection of two Peasants Associations fromeach district and identifying household typologies based on maltbarley producers and non-producers was made. Other criteria used inselecting the respondents were based on the accessibility of thearea and respondents experience with factory’s market. About 15malt barley producer farmers from each Peasant Association wereselected purposively. A total of 30 farmers were interviewedthrough structured and semi-structured questionnaire survey.

2.2 Data Collection Method

This study is built on primary and secondary data collected fromselected farmers and Asella Malt Factory. Primary and secondarydata were collected to support one another. Collection of primarydata involved individual interview, and discussion. The maintechnique used was personal interviewing based upon questionnaireforms. The questionnaire was open and closed ended which providedboth qualitative and quantities data. The questionnaire to thefarmers was focused on household socio-economic characteristics,crop production, malt barley marketing system, constraints theyfaced in malt barley production and marketing, and what possiblestrategies they think to mitigate and how they are going to benefitfrom.

7

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia Discussions and individual interviews with of Asella malt factorymanagers at various levels were made. The necessary informationgathered in this discussion and interviews was addressed to issuessuch as the existing malt barley market system, constraints in maltbarley supply chain, factory market relation with small holderproducer farmers and possible appropriate strategies to improvefarmer agro processor linkages. For the secondary data availableliteratures, reports and documents from Asella malt factory,Kulumsa Agricultural Research Center, zonal MOA and selecteddistricts were consulted and examined. For a conceptual andtheoretical framework of the study recent literatures (books,journals, and webs) in the Larenstein University were mainly used.Triangulation became possible and findings were cross-checkedduring data analysis and interpretation.

2.3 Choice of Methods

Farm agribusiness linkage strategy should emerge from reflectiveand well-informed of all stakeholders. Both quantitative andqualitative methods were used to meet the objective of the study.Qualitative methods concentrate on words and observations toexpress reality and attempt to describe the view and opinions ofpeople in natural situations, while quantitative approach grew outof a strong academic tradition that places considerable trust innumbers that represent opinions or concepts (Krueger 1994:27).Given that the major purpose of this study was to investigateconstraints and opportunities to improve farmer agro processorlinkages from the actors’ point of view as regards theirconception, and understanding, I tried to use methods that wouldefficaciously bring out the actors’ point of view. Hence theresearch methods that were followed in this study are bothqualitative and quantitative approaches. It would not be possibleto answer the research questions set in a rigorous way through asingle approach. The combined use of the methods would enable us tocome up with a credible, realistic and scientifically balancedanalysis in relation to research themes and a problem domain thatis sensitive to subjective perceptions (Legesse, 2003). The use ofcombined methods (qualitative and quantitative) is vital since thecomplexity of rural livelihoods cannot be fully captured using asingle method and/or discipline. A questionnaire was developed insuch a way that it would capture the ideas of respondents in large,using five scale points. Ranking was also used where necessary.

8

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia 2.4 Data Analysis

The collected data were entered into the computer and analyzedusing Excel spread sheet. Simple statistical analyses like average,frequency, mean, and percentages were used. Causal problemanalysis, actor analysis and SWOT analysis were employed to analyzeopinions and perceptions of the respondents qualitatively.

The findings were presented using tables, graphs and figures.Finally the results were then interpreted, discussed and comparedwith relevant literatures.

2.5 Limitations of the study

First and foremost the study was developed in the language of theacademic discipline (English) that is different from the languageof the study subjects (Amharic and Oromiffa) which were the mainmedium of communication in the data collection. Given the languagedifferences, it was often difficult to translate some of theacademic concepts and words from English to the local languages.Besides, the primary data were collected in my absence by my fellowcolleague in my organization. Hence, personal field observation wasmissed. To overcome these problems frequent contacts with theenumerator were made, especial notes were attached to thequestionnaires to make it clear more as much as possible. I alsobelieve that the experience of the enumerator as developmentresearcher in the area will contribute to fill this gap. It isundeniable that selecting only 30 respondents from the twodistricts could not be statistically representative sample, howevergiven the lower number of farmers who have already established somelinkages with the factory, and time and resource limitation, thesample can be reasonable acceptable for the intended studypurpose.

It was almost not possible to come across related work done inEthiopia in general and in study area in particular. However,recent related works done in developing countries like Kenya,Uganda and Nigeria were helpful in this regard.

CHAPTER THREE

3. LITERATURE REVIEW

3.1 General Review on Agricultural Marketing

9


3.1.1 The concept of Agricultural marketing

Agricultural marketing is defined as the performance of businessactivities involved in the flow of food products and services fromthe point of initial agricultural production until they are in thehand of consumer ( Kohls and Uhl 1990, cited in Ritson ,1997). Formuch of the history of mankind, this was relatively insignificant,with most of what was eaten produced in the locality. However,since the industrial revolution there has been a progressiveincrease in the distance between the typical location ofagricultural production and that of food consumption, and in thevalue added to produce as it moves from farmer to consumer. AsCramer, et al., (2001) noted that in USA of the total cost spent byconsumers for food products, less than one-fourth was returned toproducer while over three-fourths of that amount was for marketingconst. Marketing costs include those associated with assembly,transportation, processing and distribution of farm food toconsumers. The cost component of marketing is called marketing billor marketing margin.

Padberg (1997) discussed that in more economically developedcountries, only small percent of the population will be involved inagriculture. This allows agricultural production to undergo oftenextreme geographic specialization. Interregional commodity movementis necessarily much greater. In developing countries, most economicactivity in agricultural sector relates to transaction involvingcommodities. Agricultural commodities refer to unprocessed orminimally processed agricultural materials which handled andmarketed in bulk quantities of which grains are a good example. Theorderly marketing of these commodities requires some public rules,such as grades and standards, food safety policies, marketinformation, features market etc.

Marketing phenomena and marketing systems are growing in importanceas key factors influencing the success or failure of efforts toimprove food production and consumption in developing countries(Zandstra, 1995).Here efficient market is needed. Marketingefficiency is measured by comparing output and input values.Therefore, markets are efficient when the ratio of value of output(based on consumer valuation) to the value of input (costsdetermined by alternative production capability) throughout themarketing system is maximized (Walter, 1979).

10


A well organized market enhances the quality of communicationbetween buyers and sellers. So that market prices can bedetermined. These prices, in turn, guide producers’ productiondecisions and consumers’ purchasing decisions (Cramer, et al.,2001). Though marketing represents one of the most criticallinkages in food system it is neglected in food security analysis(Baulch, 2001).

Zandstra (1995), discussed that with the rise in importance ofcommercial agriculture farmers are no longer interested just inhigher yields, but in more remunerative commercial outlets; directpublic intervention in marketing activities has steadily declined.Therefore, the role of private entrepreneurs and non-governmentalorganization in helping to meet the needs of urban consumers andrural producers is increasingly apparent. He added that giventhese developments, there is a variety of marketing issues fordeveloping countries to address in the years ahead includingovercoming commercial bottlenecks due to inadequate production orpost harvest technology, seizing market opportunities resultingfrom income and demographic changes, and resolving market relatedpolicy problems. Farmers, traders, processors, consumers as well asnational agricultural research institute should need to worktogether to address agricultural marketing problems in developingcountries.

3.1.2 Trade in Agricultural commodity

Down through history, the pattern of agricultural commodity tradehas been restricted by several factors. Agricultural commoditiesare bulky, perishable and expensive to transport. Low incomecountries have much of the population in subsistence agricultureproducing little exportable output. There was a greater tendency toadopt national policies to protect the low income rural sector.National policies are frequently motivated by concerns for foodsecurity or self-sufficiency. These factors led to the erection andmaintenance of significant barriers to agricultural commodity tradehowever major changes in world politics are bringing changes tothis historic impasse. The development of European Union has openedthe boarders of several high-income countries to agriculturalcommodity trade. The North American Free Trade Area (NAFTA) isexpected to have similar effect. The Uruguay round of negotiationof the 130-nation General Agreement on Tariff and Trade (GATT)

11

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia included agricultural commodities in major way for the first time(Padberg ,1997).

In the developing countries, smallholder farmers find it difficultto participate in markets because of a range of constraints andbarriers reducing the incentives for participation. These may bereflected in hidden costs that make access to markets andproductive assets difficult. Transaction costs, that is, observableand non-observable costs associated with exchange, are theembodiment of access barriers to market participation by resourcepoor smallholders. These include the costs of searching for atrading partner with whom to exchange, the costs of screeningpartners, of bargaining, monitoring, enforcement and, eventually,transferring the product to its destination (Kandiwa, 1999).

Agricultural producer rarely sells his output directly toconsumers. Usually there are several stages in the marketingprocess, and it is generally concerned that the middlemen arenecessary in some of the stages (Bauer & Yamey, 1993). Inagricultural commodity distribution where low consumer incomes andsubsistence agricultural conditions prevail, the marketing channelis short and direct.

Van der Laan (1993) reported the undesirable features of graintrade in the villages of developing countries: “many farmers didnot estimate their own requirements properly and sold too much oftheir crop during harvesting. When they discovered that they hadnot enough seed for their farms they turned to the traders toborrow where they had to repay double amount of the same grainduring next harvest.”

3.1.3 Agricultural Commodity Prices

Agricultural commodity prices, particularly their level,variability and determinants, are of central importance in thestudy of agricultural marketing (Carman, 1997). Prices foragricultural commodities are an important determinant of the levelof farm income, the cost of food to consumer, export income forcountries engaged in commodity trade, the profit for agriculturalmarking firms and return to commodity traders and speculators.Because of the importance of agricultural commodity prices toeconomic growth and development, most national governments haveextensive and often complex policies and programs to deal with

12

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia commodity price in both domestic and export market. The nature ofthese policies and programs is politically important because oftheir impact of food prices, farmers’ incomes, and relation withtrading partners (Carman, 1997).

Developing country government often intervene in commodity marketsto achieve various policy objectives such as food self-sufficiencyor food security; providing cheap food for urban consumers;stabilizing producer consumer prices; increasing governmentrevenues and controlling inflation. To achieve these objectives,government often changes the prices producers and marketing agentface (Shapiro and Staal, 1995).

Changes in market price of commodities will cause change in theamount of each product that will be produced (Cramer, et al.,2001). A decrease in the price of one product would cause producersto increase their production of other higher priced product andreduce their production of lower priced product.

Seasonal Price Change: agricultural commodity prices often tend tovary predictably through time as a result of seasonal variations insupply and demand. The harvest period often extends over only one,two or three months, with consumption over the remainder of theyear provided from storage stocks. This result in prices those arelowest at harvest time, with prices increasing inline with chargesof storage over the year. Those businesses that carry largeinventories must evaluate the risk of price changes overtime andpursue strategy for hedging (Morris, 1995).

Price and Product Quality: according to Carman (1997) commoditygrade are often viewed as equivalent to quality, with separategrades reflecting different quality levels. Alternatively, gradesmay reflect different bundles of characteristics that determine endusers possibilities, as distinct from quality. Thus grades andgrade standards convey information about a commodity thatfacilitates communication between buyers and sellers. Grade mayincrease demand, resulting in increased sales at a given price andor increased prices. At consumer and intermediate buyer level, thesorting commodities into grades allow buyers to select particularquality characteristics which they prefer and are willing to payfor, thus increasing utility.

3.1.4 The Role of Processors in Commodity Marketing

13


Agriculture in developing countries is becoming more and morecommercially oriented. And with that trend comes a growing interestin post harvest issue, in particular processing. There are severalreasons for this. Where output is abandoned in the field orunderutilized after harvest, processing can increase the usablephysical volume and economic value of existing production (Scott,1995). If particular commodities have limited usage, processing candiversify their exploitation and thereby create new markets. Indoing so processing activities can also increase the value-added inrural production through transformation of low-priced raw materialsinto higher-priced intermediate or finished products. Processingmay facilitate transportation and handling these commodities aswell. Processing entails a complex set of activities includingprocurement of inputs, transformation, distribution, and sales.Running a processing facility therefore means addressing themarketing problems associated with each of these tasks (Shapiro andStaal, 1995).

3.1.5 Marketing Channels for Agricultural Products

The analysis of marketing channels is intended to providesystematic knowledge of the flow of the goods and services fromtheir origin (producer) to their final destination (consumer)Mendoza (1995). The same author pointed out that, this knowledge isacquired by studying the participants (agents) in the process, i.ethose who perform physical marketing functions in order to obtaineconomic benefits. In carrying out these functions, marketingagents achieve both personal and social goals. Traditionallyaccepted marketing agents involves producers, rural assemblers,wholesalers, retailers, processing companies, producer and consumerassociation, government institutions or agencies and the consumers(Mendoza,1995)

3.1.6 The Role of Cooperatives in Agricultural Marketing

An organizational form that has long been a part of agriculture inmany countries is the cooperative. Farmer cooperatives are anintegral part of agriculture and the free enterprise economy(Cramer, 2001). According to Roy (1964) cited in Cramer et al(2001) cooperative is defined as a business that is organized,

14

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia capitalized, and managed for its member-patrons at cost, furnishingand/or marketing goods and services to the patrons at cost.

Farmer members sell their product through marking cooperatives orbuy their inputs through supply cooperatives. Farris (1997) notesthat cooperative offers opportunities for farmers in order to docollectively what they were unable to do independently within thegenerally prevailing purely competitive structure of agriculture.Among major goals that cooperatives sought to achieve are thefollowing:(i) improve bargaining power in purchasing farm suppliesand selling farm products; (ii) reducing cost of marketing farmproducts; (iii) obtain products or services which are eithercostly or not otherwise available; (iv) obtain better market accessfor cooperative members; (v) improve product or service quality inboth farm inputs purchased or commodities marketed; (vi) increasefarmers’ income; and (vii) provide information and education toincrease agricultural production efficiency and to enhance qualityof life in rural areas.

Farmers associations or cooperatives enables small farmers toeconomize on transport to distant outlets, undertake initialprocessing themselves and increase their bargaining power (Abbot,1993).

3.1.7 Infrastructure for Agricultural Marketing

A major cause of marketing problems often lies in defectiveinfrastructure, particularly road, transport services, seaports,storage facilities, electric utilities, processing facilities,water system and communication system (Mittendorf, 1995). It hasbeen estimated that more than half of the higher marketing costs inAfrica in comparison with those in Asia are due to inadequatemarketing infrastructure (Ahmed & Rustagi, 1987).

Mittendorf (1995) indicates that in the process of strengthening ofmarket infrastructure in African countries greater emphasis hasbeen given to tarred roads that serve urban centers; comparativelyfewer public resources have been allocated to construct simplerural roads; moreover government have invested in physicalmarketing facilities, such as, processing, market centers, andpackaging facilities. Policies have, however, been oriented toomuch toward direct government investment, with often doubtful

15

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia results and much less toward encouraging investment by privatetraders, farmers groups and local communities.

Farris (1997) argues that because of the nature and size of manyinfrastructure investment needs, and the fact that potentialbenefits would be widely distributed; private entrepreneurs areneither generally motivated nor financially capable of undertakingsome of them by themselves. Thus solving several infrastructureinvestment needs requires the joint participation and collaborationof public and private sectors (Patterson et al, 1996).

3.1.8 Market information to Farmers in Developing Countries

Market information services have the function of collecting andprocessing market data systematically and continuously, and ofmaking available to market participants in a form relevant to theirdecision making (Shubert, 1993). Market information can be shown tohave significant benefits for farmers, and also traders.Unfortunately, information on market prices, quantities traded, andother marketing-related matters rarely reach farmers in developingcountries (Shepherd, 2001).

3.1.8.1 The Benefits of market information to farmers

According to Shepherd (2001) farmers can use market information intwo ways. Current, or immediate, information can be used tonegotiate with traders, to decide whether or not to go to marketand, in some cases, to decide which market to visit or supply.Historical information, such as a time series of prices overseveral years, can be used to make decisions regarding productdiversification or the production of out-of-season crops. It mayeven be used to help basically subsistence farmers identifyopportunities for a cash income.

Adequate knowledge of prices, conditions of sale and qualities is,from microeconomics point of view, indispensable for rationalproduction, marketing and consumption decisions (Shubert, 1993). Atthe simplest level, the availability of market information canenable farmers to check on the prices they receive, vis-à-vis theprevailing market prices. Broadcast prices on Radio are also usedas a starting point in negotiations with traders the following dayand the availability of the market information system does enablefarmers to negotiate from a position of relative strength.

16


Rayner and Young (1980) argue that prices for a particular productin one market may differ significantly from prices for the sameproduct in another market. The provision of market information canpermit farmers and traders to take advantage of such pricedifferences.

3.1.8.2 The Weakness of Agricultural Market information indeveloping countries

Most countries have introduced government- run Market InformationServices (MIS) at one time or another. By and large these havefailed to meet their objectives and have experienced problems ofsustainability. MIS have tended to thrive while supported by donorprojects, only to fade away when the donors leave, untilresuscitated by a new donor. Moreover, many MIS function as datacollectors while losing sight of the original purpose of the datacollection, i.e. to assist farmers and traders to make commerciallyuseful decisions. Dissemination is almost always the weakest pointand this is made increasingly difficult by the fact thatgovernment-owned radio stations are increasingly required to becommercially minded (Shepherd, 2001).

Prices of some agricultural products in major markets areconstantly changing but MIS may collect price information onlyweekly or even every two weeks. While such information can be usedfor long-term purposes it does not really help farmers to negotiatewith traders or to decide whether or not to send produce to marketAbbot (1987).

National MIS often disseminate information in a form which isunsuitable for some farmers. Some MIS publish market prices innewspapers but do not broadcast them on the radio. In somecountries newspapers only reach rural areas slowly; in many a largenumber of farmers are illiterate. Where broadcasts are used theseare usually only on national radio and are often only in one or twolanguages, which cannot be understood by all farmers. Broadcastsare often at the wrong times for farmers to be listening, unlessthey take their radios to the fields with them. In years gone by apopular way of disseminating market information was to use noticeboards in villages or markets. However, MIS frequently forgot toupdate the information on the boards, which eventually becamebroken down. Alternatively, they left prices on the boards with no

17

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia date, so that farmers had no idea of the day to which the pricesreferred (Ferris & Muganga, 2000).

Boakye (2000) pointed out that farmers can, of course, obtaininformation from other farmers or from traders but both sources areunreliable, for fairly obvious reasons. Information available torural traders on urban market prices is almost certainly more up-to-date than that provided by market information services as notonly do traders regularly visit these markets, but they also learnabout market conditions from other traders. Increasingly, tradersare now in direct contact with markets by standard telephone and,where available, cell phone. However, it is in a trader’s interestto maximize his or her profits and a strategy to achieve this isunlikely to include giving unbiased information to farmers.

3.1.9 The Role of Public Sector in Agricultural and Food Marketing

Baulch (2001) pointed out that the role of public sector inagricultural and food market development is a highly controversialquestion. Some neo-classical economists argue that the state shouldconfine its activities to the provision of infrastructure andpublic goods that facilitate agricultural marketing. Othereconomists, of a structuralist persuasion, argue that the strategicand political importance of food means that its marketing should becontrolled by the state. A third group argue that selectiveintervention in agricultural and food marketing can be justified ina situations where there are market failures and imperfections,and/or distributional and equity reasons. In this regard, threemain roles can be identified for the public sector in food andagricultural marketing: state trading, price stabilization andmarket development/regulation.

IFPRI's (2003)1,Research on agricultural market reforms has shownthat the liberalization programs adopted by many developingcountries in the past two decades have had limited success indeveloping private, efficient, and competitive agriculturalmarkets. Instead, transactions costs and risks remain high, andpolicies designed to improve incentives for agricultural productionoften have had little impact on small farmers and the rural poor,especially in sub-Saharan Africa.

1 After March 31, 2003, includes research on Global and Regional Trade, formerly associated with the Trade and Macroeconomics Division. http://www.ifpri.org/divs/mtid.htm

18

http://www.ifpri.org/divs/mtid.htm

http://www.ifpri.org/themes/grp02.htm

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia Evidence suggests that a major reason why past reforms have hadlimited impact is that institutional and structural deficiencieshave not been properly addressed. In particular, four main types ofinstitutions can contribute to well-functioning agriculturalmarkets:

i. Marketing institutions such as cooperatives, farmers' andtraders' associations, credit clubs, commodity exchanges andcontract farming;

ii. Infrastructural institutions such as those regulating ormaintaining public goods, including roads, communicationnetworks, extension services, storage facilities, and marketinformation services;

iii. Regulatory institutions such as laws regarding market conductand enforcement of contracts, ownership rules and propertyrights, and grades and standards; and

iv. Government and political institutions that have the capacityto monitor the emergence of markets and support theirdevelopment.

3.2 Theoretical Review on Farmer Agribusiness linkages

3.2.1 Background of Strengthening Farm Agribusiness Linkages

The trend of market-oriented reforms, following multilateral tradeliberalization and especially structural adjustment programs indeveloping countries, have led to the increased integration ofworld markets (Reardon and Barrett, 2000). This has meant thatfarmers in the developing world are now, more than ever, linked toconsumers and corporations of the rich nations. Although most ofthe changes in agricultural and food markets are taking place indeveloped countries, they have far reaching implications foragricultural development efforts in developing countries (Kirstenand Sartorius, 2002).

The changes in food and agricultural markets (the so-calledindustrialization of agriculture) have influenced the need forhigher levels of managed co-ordination. This has resulted in theintroduction of different forms of vertical integration andalliances, which have become a dominant feature of agriculturalsupply chains. Allied to these changes is a worldwide increase inconsumer demand for differentiated agricultural products that arerelatively labor intensive (Rhodes, 1993; Royer, 1995; Pasour, 1998quoted in Kirsten and Sartorius, 2002).

19


Recent studies of the managerial economics of industrializedagriculture have revealed crucial new insights of the economicrationale for higher levels of managed co-ordination as a choice ofgovernance structure (Delgado, 1999). In conjunction with this, thehistory of vertical co-ordination projects in developing countrieshas provided many lessons and a reference framework against whichfuture development can be evaluated. All of these could pioneer anew approach to improve our understanding of market access problemsfacing farmers in developing countries (Kirsten and Sartorius,2002).

3.2.2 Concept and Definition of Farm Agribusiness Linkages

Agribusiness is defined as the sum of total of all operations inthe manufacture and distribution of farm supplies; productionoperation on the farm; and the storage, processing, anddistribution of farm commodities and items made from farm (Cramer,et al., 2001). The same authors argue that some interpret the wordagribusiness narrowly, meaning only very large business withinagricultural industry.

In FAO publication (2004) linkages are defined as direct andindirect interactions of key players in the food chain that resultin an exchange of marketable surplus. Players include producers,processors, traders, wholesalers and retailers, input suppliers, aswell as support organizations such as various support organizationsi.e. producer organizations, NGOs, research and developmentorganizations, and extension services.

Strengthening farm agribusiness linkages was initiated by FAO withthe fundamental purpose to help to transform the agriculturalsector in order to accelerate productivity growth, increase incomeand employment generation, improve food security, and increasecompetitiveness in regional and international trade (FAO, 2004).

Strengthening farm-agribusiness linkages" refers to improvingfarmers' ability to add value by switching from subsistence cropsto marketable crops, by entering into processing activities, or byestablishing raw material supply arrangements with local orinternational processors. In short, the initiative deals withdeveloping long-term and equitable relationships with theagribusiness sector (Santacoloma and Rottge, 2003).

20


Van Rooyen & Esterhuizn (2002) note that linkage between developingagricultural initiatives and agribusiness will render the requiredsupport to industrious emerging agricultural group to produceconsistent quantity and quality as required by contractualarrangements with the supply chain.

3.2.3 Players in Farm-Agribusiness Linkages

In their summery of case studies of farm-agribusiness linkages indifferent African countries, Santacoloma and Rottge (2003) pointedout that the following actors are major players in farm-agribusiness linkages

Farmers:- typically, farmers in developing countries are individualfamily-based seasonal producers. Their focus is on householdeconomics, they operate largely in isolation from the markets fortheir produce, and have little understanding of commercialrealities under which their buyers operate. They have poorlydeveloped business skills and may lack confidence or assertivenesswhen developing linkages with buyers or support agencies.

Farmers’ organizations:- farmers’ associations are fundamentalpillars for smallholders providing a diverse range of services suchas input supplies, training and technical assistance, technologytransfer etc. Other services offered include market information,support in production and marketing planning, laboratory services,access to remote markets, and legal and accounting support. Thesefarmers’ organizations can be savings and credit associations,marketing and producers cooperatives.

Traders:- Traders and other middlemen buy crops from farmers in avariety of ways: some may require delivery (e.g. at rural milkcollection centers or assembly markets) whereas others, includingagro-processing company buyers, may collect produce from the farm.Some buy an entire crop regardless of quality, sort it intodifferent grades, and sell it to a variety of markets that each hastheir own quality standards. Other buyers, includingagribusinesses, may select crops according to particular qualitystandards or varieties. Linkages are usually informal and maychange or evolve. More organized linkages occur where farmersregularly sell to particular traders. Organized but informallinkages between traders, buying agents, wholesalers and retailers,

21

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia are rarely written down, but in effect they are ‘unwrittencontracts’ that are mostly permanent and stable. Linkages oftenextend to form a wide network among players in the distributionchain, and the strength of the relationships is such that it newoperators can be prevented to enter the market.

Agribusiness companies:-These include input suppliers, processorsthat add value to crops for either domestic markets or export,agents/packers that supply fresh foods to international retailingor processing companies, etc. Agribusiness companies may beindependent limited-liability companies with shareholders,companies linked to parent companies or internationalconglomerates, co-operatives or family owned businesses. At the micro- and small-scale, processing companies often have poorlinkages with suppliers, and make ad hoc purchases of raw materials,packaging or ingredients from traders in local retail markets. Atlarger scales of operation they may contract individual farmers orfarmers’ groups and provide support in a variety of ways. They alsohave linkages with wholesalers, retailers, institutional buyers orother commercial buyers of processed foods.

22

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia Publicly funded advisory services:-These include organizationsthat support agribusiness, such as Standards Boards and businessadvisory services. In many countries Standards Boards are movingaway from their traditional role of enforcing food legislation,towards an advisory and support role to improve food qualitystandards. In some countries, staff from the Ministry of Healthinspects food premises and advice on hygiene and sanitation.Extension workers from agricultural ministries or internationalNGOs disseminate information and introduce new ideas to ruralareas, provide training, and help develop linkages to government orprivate sector service providers. When they are adequatelyresourced they can be effective change agents, but in manycountries public sector extension workers are poorly supported andhave limited effectiveness while profitable agribusiness companiesemploy their own extension staff.

NGOs:-For many years these agencies focused on agriculture andrural development in preference to agribusiness support. However,they have recognized the importance of small- and micro-enterprisedevelopment in the food sector and many now operate a wide range ofbusiness and technical training programs, credit schemes andbusiness support programs. They may work directly with smallfarmers and agribusiness entities, but more frequently supportinstitutions and government agencies that promote businessdevelopment. NGOs can be important intermediaries between farmersand agribusiness to assist in the creation and strengthening oflinkages However (Dannson et al, 2004) suggested that NGOs should beaware of not creating unfair competition by offering subsidized(and hence long-term unsustainable) incentives such as subsidizedfarm-gate price, credit, inputs etc..

Private sector support organizations:-These include manufacturers’associations, Chambers of Commerce and consultants or consultancycompanies. Although the focus and membership of these associationsis often larger companies that are able to afford their fees, theyprovide support by dissemination of information (e.g. on marketopportunities, equipment and service suppliers), provide a forumfor discussion of common problems, and lobby governments for fiscalor legislative changes to benefit their members.

3.2.4 Types of linkages

23

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia Farm-agribusiness linkages evolve around the exchange of rawmaterials between the two parties. These linkages can be classifiedinto primary, secondary and cross-cutting linkages1 (see appendix 1).

Primary linkages: refer to exchanges between main players such asfarmers or farmer's organizations and raw material buyers such asprocessors or traders serving national and international markets.This ranges between simple ad hoc spot market transactions with orwithout the inclusion of intermediaries or informal supplyarrangements to highly managed co-operation such as farming undercontract, asset sharing arrangements between farmers and processorsor fully vertical integration of producing and processingactivities1.

Secondary linkages: are those referring to the supply of supportservices necessary for long-term relationships between farmers andagribusiness. These links traditionally include input supplies suchas seeds, fertilizers, pesticides, rental of agriculturalmachinery, technical assistance, training in good agriculturalpractices, provision of transport and storage facilities etc. Morespecialized secondary linkages develop with higher food safetystandards. These may include cold storage facilities, leasingfacilities, laboratory facilities or business management training1.

Cross cutting linkages: these are complementary to primary andsecondary linkages and address more general needs of key actors infarm-agribusiness linkages such as access to finance and marketinformation or institutional support to agribusiness development.These include financial services and market intelligence servicesand support organizations1.

3.2.5 Linking Arrangements between Farmers and Agro-Processors in Africa

FAO (2004) reported that case studies in selected African countries(Ghana, Kenya, Nigeria, South Africa and Uganda) show that thefollowing are successful farm-agribusiness linkage arrangementsused.

Service Provision:- most agribusiness companies studied provide awide range of extension services to farmers. These services includethe provision of agricultural inputs such as seeds, fertilizer,

1 http://www.fao.org/agribusinesslink/html.

24

http://www.fao.org/agribusinesslink/html

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia agrochemicals, veterinary drugs, artificial insemination, animalfeed etc. as well as field preparation services, supply ofirrigation water, produce transport etc. free-of-charge or oncredit. The case studies revealed that the private sector is ableto take over public extension services to primary producers,provided the agro-business is a profitable enterprise.

Price Determination:- prices are normally determined by theprocessor and not by the farmer. In some cases, prices vary fromday to day, according to prevailing market prices, in other cases,like the Mwea rice irrigation scheme and Brookside Dairy Ltd. inKenya, the processor fixes the price on a seasonal basis which thenfluctuate according to market conditions.

Purchasing Arrangements: methods and practices of raw materialexchange can range between simple ad hoc spot market transactionswith or without the inclusion of intermediaries or informal supplyarrangements to highly managed co-operation such as farming undercontract, asset sharing arrangements between farmers and processorsor fully vertical integration of producing and processingactivities.

Full vertical co-operation: full vertical co-operation applies tosituations where farming and processing are undertaken by the samebusiness entity. The level of co-operation is highest with directlinkages between farming and processing. Examples are found intraditional export crops such as oil palm, cocoa, coffee, tea etc.as well as high value horticultural crops when processing entitiessecure their raw material supplies through a variety ofarrangements (FAO, 2004).

Asset sharing arrangements:- these are an important means to linkagro-business and farming. Commitments vary according to equityheld by each party and shareholder representation on supervisoryboards and within the management of the agribusiness.

Contract farming:- successful agri-businesses have to maintain thevolume and regularity of raw material supplies in order to operateat a reasonable proportion of their planned capacity. To achievethis, local companies may enter into formal contracts withwholesale traders, farmers’ organizations or the farmersthemselves. The contracts involve providing assistance to farmersin return for the crop. A similar approach is adopted by large

25

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia international processing companies, which may either place staffmembers in the producing area to negotiate with suppliers or employa local agent to act on their behalf.

Informal linkages and ad hoc arrangements: In many scenarioscontracts are not written down but rely on verbal agreementsbetween entrepreneurs and farmers. Informal arrangements are commonin markets with less stringent quality requirements for example andwhen planning skills of producer and processors are limited.

Figure 3.1 : Types of Purchasing Arrangements

Source: FAO, 2003

3.2.6 Factors Influencing the Strength of the Linkages

The type and strength of linkages formed between differentplayers depends in part on their mutual interest in formingand maintaining agreements, but also on other factorsincluding the physical and institutional environment, and thetypes of products or processes involved. In general, goodcommunications and transport promote stronger linkagesbetween farmers and traders or processors while adequateutility services support the development of agribusinessesnear to producers (Dannson et al, 2004).

26


Nature of Product:- The nature of the product is an importantfactor determining the collaboration between producers andprocessors. Highly perishable, labor intensive crops, whichdo not have an alternative market, ensure very closecollaboration between farmers and agribusiness firms. This isclear from the involvement of the agribusiness firm inproduction matters such as the provision of credit, extensionservices, and the establishment of produce collection centers(Santacoloma and Rottge,2003).

Support of Farmers' Organizations:- the existence of farmer'sorganizations such as producers' co-operatives or associations andagricultural lobby groups are beneficial to commercialization ofagriculture and agribusiness development. Farmers as individualsespecially in small holding systems are at the weak end of theeconomic exchange system. They therefore have to evolve strategiesto enhance their market power. Farmer's associations can beresponsible for configuring its members with market requirementsincluding training, extension, technology acquisition, provision ofcommodity inputs and co-coordinating harvesting-delivery schedules(Eaton and Andrew,2001). On the other hand agribusiness firms candeal more efficiently with farmers association by acquiringrepresentation in the management structure, as well as, allowingthe producers’ association to be represented in its own managementstructure.

Role of the Initiator of the link:- successful farm-agribusinessdevelopment depends on the role played by the initiator. Ingenerals, linkages are initiated by either a business entity ormore traditionally, by a government agency responsible for thedevelopment of a particular commodity. Where profit making for theinitiating entity is essential, the initiator plays a greater rolein developing farm-agribusiness linkages. Private sectorenterprises have proven faster in establishing linkages with theagricultural sector than public institutions (Santacoloma andRottge,2003, Dannson et al, 2004).

27

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia Creation of Asset Specificity1:- Other factors that favor thecreation of stronger linkages include greater productspecialization by farmers and processors. The creation of mutualasset specificity reduces uncertainty and raises the exit costs ofboth sets of contracting partners. Asset-specificity is high intree crops for example due to long production cycle compared toannual crops. Capital intensive processing equipment with a longamortization period create a high specificity and increase exitcosts. Closer integration of production and processing is morelikely if the quantity, quality or timing of raw material suppliesis variable or if the produce is perishable and requires rapidprocessing.

3.2.7 Benefits on Farmer Agribusiness Linkages

Farmers' benefits include having assured produce markets, minimizing production risks,transfer of knowledge on the latest farming technology, supply withcrucial agriculturalinputs, often on credit. As for farmers, processors benefit from assured raw material supplies without commitment of land and labor resources. Also they are exercise controlover the production system in order to comply with set standards ofrelevance to accessing markets. Managed co-ordination facilitates production and marketing planning (Dannson et al, 2004).

Linking farmers to agribusiness activities is generatingsignificant benefits including income generation, employmentgeneration and welfare redistribution, as well as increasedmanagerial and technical skills (Santacoloma and Rottge, 2003, FAO,2004).

3.2.8 Constraints on Farmer Agribusiness Linkages

Despite the obvious benefits a number of constraints in farm-agribusiness linkages have been mentioned in the cases studiesconducted in Africa, Asia and Latin America. Recent literatures1 Asset specificity relates to investments in assets which have a specific range of economic use. The more specific the use of an asset (e.g. equipment) is, the more difficult is it for the investor to either sell it in the market or switch toother enterprises in case of problems with marketing or raw material supply (Santacoloma and Rottge,2003).

28

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia FAO, 2003, 2004 divided farmer agribusiness linkage constraints intwo major group namely internal and external constraints.

3.2.8.1 Internal Constraints on Farmers and Agribusiness

Farmers and agribusiness's inability to form and maintainsuccessful linkages take many faces.

Lack of Business Management Skills:- poor production planning andmarketing skills, especially by small-scale processors, results ina failure to take account of inputs needed to process scheduledamounts of raw materials. Production rates are then insufficientfor the amount of crop ordered from the farmer, and processors failto collect the crop when agreed. Financial planning skills byagribusiness entities are especially important during the harvestseason. For a large majority of smaller companies, theseconstraints effectively prevent them from entering into formalcontractual arrangements with farmers (Santacoloma and Rottger,2003, Dannson et al, 2004).

Raw Material Procurement:- difficulties in establishing andmaintaining reliable and sustainable supply relationships betweenfarmers and processors can lead to poor business planning andmanagement. Off-season supplies are particularly difficult tomaintain in rain fed farming systems.

Quality Constraints:- farmers often have little understanding ofprocessors’ requirements for specific crop varieties, high qualitystandards, specified production volumes or timeliness of delivery.Their lack of commercial skills and knowledge of the way in whichcommercial enterprises operate is a significant constraint ondevelopment of effective linkages. Lack of knowledge and skillsalso cause farmers to harvest crops when they are immature, causedamage to crops from poor post-harvest handling, and not sort cropsinto different quality grades. Each of these restricts farmers’ability to meet buyers’ requirements and again reduces theirincome.

Financial Constraints: lack of resources for farmers ultimatelyarises from insufficient income from their crops, although thereare multiple reasons for this. For example, delayed payments frombuyers and lack of access to credit create indebtedness, and highinterest charges for informal loans by rural money-lenders or

29

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia middlemen continue the cycle of poverty. Farmers are unable toafford inputs that would reduce damage and maintain the quality oftheir crops, or afford post-harvest technologies which would enablethem to store crops until prices increase out of season(Dannson etal, 2004).

3.2.8.2 External Constraints on Farmers and Agribusiness

Rottger (2003); Santacoloma and Rottger (2003) and Dannson et al(2004) identified among numerous external constraints that faceboth farmers and agribusiness; the following have significanteffects on the creation of strong linkages.

Adverse Macroeconomic Conditions:- inconsistent and not transparentbusiness rules and regulations in general hinder businessdevelopment. In countries with high taxes, a poor taxadministration and high levels of corruption, any economicdevelopment is stifled. Poor monetary polices are reflected in highinterest rates and devaluing exchange rates. Credits from financialinstitutions are difficult to obtain and loans are unaffordable inhigh inflation/ high interest rate environments. Devaluation leadsto rising costs of imported inputs. Shrinking governmentexpenditures on agriculture are rather the norm than the exceptionin most agricultural based countries.

Market Constraints:- limited purchasing power of consumers indeveloping countries results in low demand for processed goods.This in return limits the profitability of agribusiness.Additionally, small numbers of processing companies areinsufficient to support local manufacturers or supply agents ofprocessing equipment, packaging and ingredients, each of which actsas a brake on development of agribusiness. Trade liberalizationpolicies have increased competition with imported raw materials andprocessed goods.

Lack of Institutional Support:- coherent public agricultural,business and industrial development strategies are lacking or thereare problems with implementation. Educational institutions oftenhave insufficient understanding of the needs of farmers andagribusiness linkages, and lack both the resources and commercialawareness to implement practical programs of support.Governmentpolicies to support applied research and development may not becoordinated with agricultural and industrial development policies,

30

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia or may even conflict with them. Extension services often haveinadequately resources. Extension agents may be technicallytrained, but lack marketing or business skills or skills requiredfor improving farmers’ business opportunities and theirorganizations (Santacoloma and Rottger,2003).

Limited Availability of Inputs:- High costs of raw materials inboth, farming and processing levels, lead to a low profitability inthe agricultural and business sector. Inputs necessary for addingvalue to primary products are often imported while localintermediary goods suppliers cannot compete on price and quality ofimports.

Restricted Market Information:- public services are under-funded sothat little or no published information on markets, prices, trends,key market players. Commercial market research services are rareand costly.

3.3 Ethiopian Specific Situations

In its import substitution policy the ‘Derg Regime’ establishedAMF in 1984. However it has been observed that this importsubstitution policy placed strains on the balance of payments,local industrialization stagnated, that by the late 1980s themanufacturing sector had become unable even to meet the limiteddomestic demand. The situation with exports has fared no better.Indeed the 1997 World Development Report indicated that exportsper person in Ethiopia for 1995 were the lowest of 12 comparabledeveloping countries by a considerable margin. The decline inagricultural production in recent years has also been attributed tolack of security of tenure, land fragmentation, soil erosion,shortage draught power, limited supplies of chemical inputs,adverse weather conditions, improper sectoral macro economicpolicies and inefficient marketing practices. Population pressureis also one of the major factors for the decline in agriculturalproductivity in the highlands of Ethiopia.

All this placed growing strain on an agricultural sector thathad become even less competitive as time went by. Privatecapital formation in agriculture had begun to fall in the 1970sand deteriorated even further in the 1980s. By the early 1990s

31

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia average agricultural incomes had also fallen substantially andpoverty had increased (Federal Democratic Republic of Ethiopia,1998). It is this combination of inefficiency in both industryand agriculture that has produced the present Government’sstrategy of agricultural-development-led industrialization(ADLI). According to the Ministry of Agriculture, ADLI strategyhas two layers: an outer crust of export-led growth and an innercore of ADLI. The export (outer crust) contribution will comethrough the supply of commodities for direct export and throughindustrial value added. The inner crust will come in two ways.First, by establishing a deliberate reliance of industry ondomestic agriculture as inputs to agri-business of varioustypes. Second, it is intended to improve smallholderproductivity thus reducing employment pressures and acting as anincreased source of demand for local industrial goods.

Agriculture has become more market oriented in virtually alldeveloping countries (Scott, 1995). Ethiopia is still a countrywhere millions of farmers are engaged in subsistence agriculture.The agricultural sector is still confronted with immenseproblems, although its performance has improved greatly, inrecent years due largely to improvements in domestic inputsupply capacity and growing participation of the private sectorin the production and marketing of agricultural goods.

Farmers in Ethiopia allocate most of their agricultural produce fortheir own consumption. Moreover, most of them do not produce enoughfor their own consumption. This trend, however, is not consistentwith the desired accelerated and sustainable development. They needto purchase production tools and inputs. Thus, over and above theirfamilies food needs, farmers must produce marketable surplus,saleable in the market and exchanged for other goods and services.This would naturally strengthen the linkage between agriculture andthe other productive sectors (services and industry). This linkagewould enhance demand across sectors and will thereby call forfurther expansion of production The Government also wishes tostrengthen linkages between agriculture and the manufacturingsector and to that end, has introduced incentive measures thatencourage such linkages (United Nation, 2002).

The outlet that farmers normally target for their marketablesurplus is the domestic market. Within the short and medium term,the major market outlets for agricultural products are urban

32

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia consumers and a few processing companies. The urban populationaccesses practically all of its food requirements from the ruralareas. However, the urban population is only about 15 percent ofthe country’s total population. Industries that use agriculturalraw materials are also not expanded. Most agricultural productionoperations conducted by majority of small farmers do not producemarketable surplus of acceptable quality at competitive prices.

In Ethiopia collaborative efforts where the potentials for public-private partnership show promising ends are observed in theEthiopian Seed Enterprise (ESE) - Assela Malt Factory (AMF) andFarmers Associations, ESE-The Kality Food Processing Factory (KFPF)(Belay, et al., 2003).

3.3.1 Public-Private linkages in Agricultural Development in Ethiopia

Belay, et al., (2003) pointed out that in Ethiopia semi-formalpartnership were established among partners in the public researchorganizations, seed enterprises and farmers associations andperformed toward the satisfaction of all the partners (see appendix2). The seed supply system is still not competitive enough to ensurefarmers an easy access s, improved seeds along with advisoryservices. The role of the private sector in the seed productionand delivery is very limited. As a result this input is notavailable at the right place and time for the small-scale farmers.The agricultural marketing channels and support services are notwell developed. Belay, et al., (2003) argue that , healthy andcompetitive seed industry by mobilizing both the public and theprivate sector is far from reality. Both seed production andmarketing is carried out by public institutions on competitivebasis and is market oriented. The private sector is interested onlyin the production and marketing of hybrid maize and vegetableswhich are economically attractive. However, the private sector doesnot have the same privilege of access as the Ethiopian SeedEnterprise to newly developed varieties. Some farmers cooperativeare involved in the production and distribution of self-pollinatedcrops.

3.3.2 Asella Malt Factory, Research, Farmers partnership in Malt Barley Production

33

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia Assela Malt Factory (AMF) is the only enterprise that processmalting barley in Ethiopia. It was established in 1984 at Asella167 Km southeast of Addis Ababa. The main thrust of the governmentwas saving foreign currency by producing the required amount ofmalt in the country and substitute importation. The capacity of thefactory until 1996 was 100,000 qts per year then expanded to150,000 qt/year.As the consumption of beer is increasing in the country in recentyears , so are the number of breweries. Currently there are 5breweries with total capacity of about 1,567,000 hectoliter perannum. This requires well over half a million quintals of maltbarley per year. However, AMF's share of malt supply now stands at56 percent and the rest is met through import.

Even though, there are some promising varieties in the pipeline,released varieties of malt barley available for commercial use areonly four. Ethiopian Seed Enterprise (ESE) used to multiply seedson selected state farms and maintained sustainable seed supplysystem until 1991. However, after the liberalization of the commandeconomy, the improved seed supply system completely collapsedbecause it was not financially rewarding. In recent years, thereare signs of revival of seed production by ESE.

AMF played an important role in supplying improved seed to farmerswith some extension services to keep the system alive, throughfarmer-based seed multiplication scheme soon after the withdrawalof seed supply of malt barley by ESE. With some sacrifice inquality, AMSF was able to make AMF farmer relationship active, with40% additional premium price over the local market in order tomaintain the required quality and attract more farmers.

3.3.3 Malt Barley Supply System

Following the establishment of Assela Malt Factory in 1984, Arsiand Bale state farms were given the responsibility of supplyingmalt barley to the factory while the Ethiopian seed Enterprise wasgiven the responsibility of supplying malt barley seeds to thestate farms. Despite some quality problems, there has not beenshortage of supply till 1989. After the declarations of Mixedeconomy, the state farms shifted to producing only wheat andstopped producing malt barley. Since then the factory startedfacing shortage of barely.

34


Negotiation of the factory with state farms for production of maltbarley on contract basis did not materialize. The state farms arguestrongly that malt barley is less productive and less profitablethan wheat. Therefore the factory resorted to putting more efforton promoting the extension work with smallholder farmers. For thefirst three years following the declaration of mixed economy(market oriented production) the factory was in a critical shortageof barely. Gradually the quantity and quality of the supplyimproved over time and at present 94% the total malt barley supplyis received from smallholder farmers while the rest 6% is suppliedfrom state farms.

3.3.4 Quality requirement of Malt Barley

AMF assessed barley suitability for malting on three major conditions, namely the rate of water up take, the case of modification and the extract potential. Once the varieties are accepted, the individual samples of barley received by suppliers are subject to physical and chemical scrutiny.

Uncontrolled seed multiplication and distribution have been theroot cause of the deterioration of quality of the malt barelysupplied to AMF. Both the physical and the chemical qualities ofthe grain delivered to AMF were of poor.

Table : Malt Barley Grain Quality supplied to AMFParameters On 2.5mm

Ideal Actual1. Distribution of grain sizes in percent >80 41.32. Protein content in percent (grain) ≤11.5 11.43. 1000 Kernl weight (gm) >40 ‗354. Germination capacity in percent >98 98.65. Total protein in percent (mail) ≤11.5 11.26. Malt size on 2.8 mm screen (percent) >60 50.87. " " " 2.8+2.5mm (percent) >80 878. F/C difference (malt modification) <2.6 2.19. Kolbach Index (malt modification%) 35-45 3810. Viscosity < 1.5 1.6 Source: Assela Malt Factory cited in Belay, et al., 2003.

3.3.5 Public-private partnership in AMF

35

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia AMF has already identified its priority needs in order to expand itsactivities and satisfy the malt barley needs of all breweries inEthiopia. To this end it is working towards creating sustainablemalt barley production and marketing system through the involvementof the public research institutions in the development of highyielding barley varieties (backward linkage) and the private sectorin the production of malt barley (forward linage). However,according to Belay, et al., (2003) this system has not performed tothe satisfaction of the partners since due to: lack of binding agreements the absence of a win-win relationship lack of trust and full commitment among partners lack of experience and knowledge in entrepreneurship

36


CHAPTER FOUR

4. BACKGROUND AND DISCRIPTION OF THE STUDY AREA

4.1 Country Background

This chapter provides an overview of the general country backgroundwith the main emphasis to the relevant aspects of the study. Italso further describes socio-economic characteristics of the studyareas.

4.1.1 Location and Area

Ethiopia is located in the horn of Africa in the southern Red Searegion. It borders Sudan in the west, Eritrea in the north,Djibouti and Somalia in the east, and Kenya on the south. The totalarea of the country is 1.12 million square kilometers.

4.1.2 Socio-economic characteristics

The Ethiopian population is estimated at 67 million in 2002 with anaverage growth rate of about 3%. About 85% of the population livedin rural areas in 2002 (Afrint, 2003). In Ethiopia 44% of thepopulation live below the national poverty line1. Income per headis only $100 per annum, and most health and education indicatorsare significantly worse than the average for Sub-Saharan Africa.Rehamato (2003) critically analyzed that over the last halfcentury, rural society in Ethiopia has been experiencing an erosionof its livelihood capabilities. This is evidenced by growingpoverty and destitution, frequent famines and food crises, and thedeterioration of environmental resources on a large scale. Thereis, in other words, a crisis of livelihood affecting millions of

1 The most recent World Bank data show 31% of the population in 1995 were below the international $1 per day poverty line,(calculated using Purchasing Power Parityprices).

37

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia people throughout the country. Thus Ethiopia is among the leastdeveloped countries with sluggish socio-economic progress andrepeated manmade and natural calamities played significant role incausing retardation and societal under-development.

4.1.3 Agrarian structure (farm size, cash crops/ food crops)

Ethiopia is an agricultural based economy endowed with wide-rangingagro-ecological zones. Agriculture generates nearly one-half (45per cent) of the country's GDP - more than double the average forSub-Saharan Africa - and over 80 per cent of export earnings.Agriculture is the single most important sector of the economy. Itemploys 85 percent of the labor force, and supplies the bulk of theraw material inputs to the industrial sector. The industrial sectoraccounted for 12 percent of the GDP, compared to the service sectorthat constituted about 43 percent of the GDP (FAO, 2004).

With the rapidly expanding population, the average farm size hascontinuously declined over the years in Ethiopia. Nearly 40% ofthe total farming households cultivate less than 0.5 ha and arecultivated only once in a year under rain-fed conditions. Less than1% of the households own holdings measuring over 5 hectares (CSA,1998). The major food crops grown include teff, wheat, barley,sorghum, maize, beans, peas, lentils, soybeans, chickpeas, etc.Coffee exports are by far the largest contributor to foreignexchange revenues with a share ranging from 40 to 60 percent overthe last six years (FAO, 2002). Oil crops such as rape-seed,linseed, groundnuts, sunflower seed, niger seed and cotton seedserve as raw material inputs for the edible oil industry. Someoilseeds, including sesame, are important export crops.

Ethiopia is endowed with agro-climatic conditions that are suitablefor the production of a broad range of fruits and vegetables,including temperate, tropical and sub-tropical crops. The potentialfor irrigated agriculture is estimated at 3.5 million ha.

Ethiopia has the largest livestock resources in Africa, whichinclude 32 million cattle and 42 million sheep and goats. Despitethe large livestock resources of the country the contribution ofthe sector to the national economy is about 12-15% to the overallGDP and 25-30% to the overall agricultural value added.

38

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia Agricultural production in Ethiopia is predominantly in the handsof small farmers working individual smallholdings mainly forhousehold consumption- About 95% of the cultivated land is undersmall holder farming. In spite of the free market policy whichallowed private investment in agriculture, private commercial farmsare limited in number and size mainly because of hostilities fromlocal people and lack of clear policy over land Afrint (2003).

While smallholdings can be efficient and an important source ofsurplus, this sector remains underdeveloped and in need of morepolicy attention. Currently, Ethiopia's agriculture ischaracterized by its low level of fertilizer application, one ofthe lowest in Africa, and its low level of mechanization (UnitedNations, 2002). Although policy changes have influenced someperformances, drought and rainfall conditions remain the majorfactor influencing agricultural production.

The main feature of the agriculture sector in Ethiopia is the lowlevel of productivity, particularly of the predominantsubsistence/traditional farming sector, thus agriculture isincreasingly dependent on the quality of natural resourcesendowment. Environmental degradation impact on soil fertility isalso a serious problem in Ethiopia, which ultimately decreases theamount of available land for food production. Recurrent droughtsand desertification are clear examples of consequences ofenvironmental degradation and are becoming major problems (Belay, etal., 2003).

Figure 4.1 Sectoral composition of GDP, Ethiopia, 1991/92–2000/01

Source: Economic Commission for Africa from official sources cited in Economic Report on Africa 2002:

39

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia 4.1.4 Agricultural Marketing

Pre-SAP Period:- In the last three decades, Ethiopia has undergonemajor socio-economic and political transformations ranging from afeudal system to socialist and more recently an open market-basedeconomy (United Nation, 2002).

The former military government promoted a policy of pervasive andexcessive intervention in the economy. Prices and markets ofagricultural products were controlled mainly for ideologicalreasons (communist-inspired). Shortages that emerged following the1975 land reform also led to high urban food prices, forcing thegovernment to intervene with the aim of supporting lower incomeurban groups such as urban civil servants and workers. Thegovernment sought to increase the volume of marketed output whilekeeping urban prices low through establishing state farms andimposing forced delivery of cereals by farmers to a parastatalgrain-marketing agency known as Agricultural Marketing Corporation(AMC) (Ministry of finance and Economic Development, 2002).

Generally, the hostile attitude of the previous Dergue regimetowards the private sector was a major obstacle to private sectorparticipation in investment and development. The participation ofprivate traders in the grain market was deliberately suppressed.The bulk of grains produced were sold to public marketingenterprises such as the Agricultural Marketing Corporation (AMC)and the Ethiopian Oilseeds and Pulses Export Corporation (EOPEC)through quota systems. Licensed grain traders had to supply aminimum of 30 percent of their purchases in 1979/80, which was thenraised to 50 percent in 1980/81. Traders were heavily taxed whentrying to move grain around the country as theywere required to sell their quota to the AMC at fixed prices belowmarket prices to receive permits to transport grain from one regionto another (Afrint Macro study, 2003 and United Nation, 2002).

Post-SAP Period:- An economic reform program was initiated in 1991,which took the form of Structural Adjustment Program (SAP) underthe auspices of the World Bank and IMF. As part of the concertedeffort to liberalize the trade sector, a series of trade-relatedmeasures have been introduced (Afrint Macro study, 2003).

Economic reform has brought a significant change in the area ofmarketing and pricing agricultural products. State monopoly over

40

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia wholesale grain trade was thus abolished and private business wasallowed to operate on a competitive basis. This has forced the AMCto operate competitively in the grain market and it has beenrenamed as the Ethiopian Grain Trade Enterprise (EGTE). Thesemeasures granted producers the right to sell their produce freelyat prevailing prices at any market (United Nation, 2002). Followingthe implementation of Structural Adjustment Program (SAP) allrestrictions on grain marketing by private traders were removed.All taxes and subsidies on exports are eliminated and stateexporting enterprises are required to participate competitively. Inthis connection, the monopoly position of the Ethiopian CoffeeMarketing Corporation (ECMC) has ended as private exporters wereallowed to operate alongside the ECMC. The number of coffeeexporters as well as private traders and transporters hasincreased, providing the basis for greater competition in thevarious stages of the coffee marketing process (Ministry of financeand Economic Development, 2002).

In spite of the various policy measures, agricultural markets inEthiopia are still underdeveloped. Inefficient output markets haveresulted in low and variable prices thereby reducing theprofitability of new technologies in agriculture. Amha (1999) discussed that small traders have limited capacity ofhandling large quantities for longer duration. Hence, the volume ofgrain marketed falls sharply in years of poor harvest and pricesrise considerably. Grain prices, on the other hand, are seriouslydepressed in good years and immediately after harvest. Handling andtransport costs are also high due to the small quantities thatfarmers bring to market places (often small bags carried on head oron the back of pack animals) and the absence of grading andstandards.

Weak agricultural commercialization implies that most of Ethiopia'spopulation remains rooted in subsistence and that domestic marketsoperate at high costs, volatile prices, and low volumes. For poormarketing situations as Eleni (2003) notes that first, farmersreceive a mere one-third of the final price, compared to Asianfarmers who receive 70 to 80 percent of the final price; second,the high costs of transport and handling are passed on directly tothe final consumer; third, the marketing chain has taken 20 to 30days instead of the 2 to 3 days to go from producer to consumer;fourth, there is no value-added or transformation, no safety or

41

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia quality inspection, in the marketing chain, which begins and endswith a sack of unprocessed grain. “When these high costs are coupled with thelack of legal enforcement of contracts and the absence of publicly available marketinformation about prices and grain qualities, it is little wonder that those in remote food-deficit areas simply are not served by markets.” (Eleni ,2003). Market failureis a real problem confronting Ethiopia's food security (Ministry offinance and Economic Development, 2002).

4.1.5 Cooperatives

In Ethiopia cooperatives started as one the community organizationsand institutions in the late 1960s with the launching of thecomprehensive agricultural development projects such as the ChilaloAgricultural Development Unit (CADU) and Arsi Rural DevelopmentUnit (ARDU). However, a nation-wide large scale movement servicecooperates started only after the 1975 land reform and theformation of Peasant Associations (PAs). A service cooperative wasformed as a joint association of two or more PAs to buy and sellconsumer goods and farm inputs to members. The services providedincluded input and output marketing, distribution of basic goodsand development of infrastructure.

However, (Afrint, 2003) the cooperatives failed to survive thecollapse of the Military government: they were largely viewed asthe creation of the Government with no genuine and voluntaryparticipation by the farmers themselves. There was no directparticipation by farmers and the cooperatives were managed byindividuals with close association with the ruling party. Theservice cooperatives served as an instrument to impose and collectgrain quota from farmers for the government.

The present Government issued a proclamation in 1995 to reactivatecooperative movement in the country. Member-led co-operatives arethought to be necessary to reduce transaction costs and enhance thebargaining position small farmer. A new proclamation was issued in1998 to provide a better policy framework to set up cooperativesbased on an individual membership and voluntary basis. TheCooperative Promotion Office has been established in every woreda(district) to provide technical assistance. Cooperative societiesnow provide a wide range of services, including the supply ofinputs, output marketing and distribute consumer goods. But badexperiences in the past, insufficient capital, lack of managerialskills and inadequate support from cooperative promotion

42

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia bureaus/offices have not helped the cooperative movement (Desslign,2002).

4.1.6 Agro Industry

Up until recent year in Ethiopia since all factories were publicowned, there was no room for establishment of the partnershipsbetween primary producers and the public establishments agroindustries. However currently there are quite number ofsystematically privatized agro industries serving the sector. Themajor ones are the followings1:

Kality Food Processing Factory (KFPF)

Kaliti Food Share Company is one of the leading food producingindustries in the country. It has 63 years of active involvement inthe food industry. The Company has 5 silos to store 50,000 tones ofwheat. The silos have pre-cleaning facilities, sieving andaeration. In addition there are temporary raw material storagesilos in the processing lines. There are also warehouses to storeraw material and final products storage.

The company has a flour mill which produces wheat flour suitable forpasta, bread and biscuit production. It produces different types ofbiscuits, pasta and bread. Its products are known by the brand nameCEREALIA which are noted by the public for their quality taste andmeeting customer satisfaction.The company totally relies on imported durum wheat for long pastaproduction while it relies on local wheat for other products (Table4.1 )

Table 4.1 Annual wheat requirements of Kaliti Food Processing Company.

No.

Type of raw materialSource

SuitabilityLocal(mt)

Imported (mt)

1 Durum wheat - 6600 For long cutpasta

2 Hard wheat 16200 - for bread &short cut

1 http://www.telecom.net.et/epa/ sectors/agriculture_prof.html Ethiopian Privatization Agency.

43


pasta3 Soft wheat 6,000 - for biscuit

Source: Belay, et al., 2003

Ethiopian Fruit & Vegetable Marketing Enterprise

The Ethiopian Fruit and Vegetables Marketing Enterprise (ETFRUIT)was established in 1980 under the former Ministry of State FarmsDevelopment, the Horticulture Development Corporation with theaim of serving as a marketing organ for all state ownedhorticultural farms. With the decentralization and liberalizationof the country's economic policy, ETFRUIT was reorganized in1993. The scope of its services has since then been extended toinclude private horticultural producers striving to enter exportmarket. ETFRUIT is the major domestic distributor and leadingexporter of fresh fruits, vegetables, cut flowers and processedhorticultural products in Ethiopia.

ETFRUIT is the largest domestic company handling, and marketingfresh horticulture produce and their related processed products.ETFUIT has developed its distribution centers and branches andis today present in 10 major towns of the country. In thenation's capital, Addis Ababa, ETFRUIT has three main branches,twenty-one retail handling shops and thirty mobile shopsstrategically placed to render efficient service. The majorsuppliers of fresh fruits and processed products are the UpperAwash Agro-Industry Enterprise the Horticulture DevelopmentEnterprise and Metehara Sugar Factory. It exports horticultureproduce including cut flowers and fruits to the Netherlands,Germany, Italy, France, Belgium, Switzerland and the formerEastern bloc countries. In almost all the exporting farmsrelatively advanced post harvest techniques are applied. Moderncooling facilities have been installed to ensure the freshnessand quality of the products.

Horticulture Development Enterprise (HDE)

Horticulture Development Enterprise (HDE) was established as apublic enterprise in November 1993. The enterprise operates fourfarms located at different parts of the country; namely DukemFarm 30km, Eaerr Gorta Farm 465km, Ghibe Farm 185 km, Tsedey Farm40km, Zwai Farm 165km, away from Addis Ababa. The farms under the

44

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia enterprise are located in agro-ecologies favorable for theproduction of diverse set of fruits, vegetables and cut flowerswhich could have markets especially in Djibouti and Middle Eastcountries. These farms were started by small private investorbefore 1975. Since then they have been under differentsupervising bodies. The farms produce fruits, vegetables, flowersand cereals. HDE's markets are both local and export. Its exportmarkets are in Holland, Germany, etc.

In Ethiopian except coffee, bread and durum wheat, and maltbarley processors cases, in most agro industries verticalarrangements where farming and processing are undertaken by samebusiness entities is common. In the former cases purchasinglinkage arrangements based on simple ad hoc market transactionswith or without the inclusion of intermediaries are used.

4.2 Overview of the Study Areas1

4.2.1 Kofale District

Physical Characteristics:- Kofele district is located in 285 km away from the capital

Addis Ababa shares boundary lines with Gedeb Asasa in the east, East Shewa and

Southern Peoples Regional State in the west, Munesa in the north and Bale in the south.

The total area of the district is 1200 km2. Kofele is the district capital. The altitude that

ranges from 2000 to 3050 is characterized by plains, hills, valleysand gorges. About

98% of the district is Dega (highland), while only 2% is Weina Dega(middle altitude).

The three permanent rivers within the district are Anjelelo (35 kms), Totalamo (30 kms)

and Ashoka (35 kms). The major soil are Eutric Nitosols (65%), Chromic and Pellic

vertisols (19%) and Orthic Acrisols (12%).

Population:- the estimated population of Kofele district in 1997 was 192,700, of which 7% were urban residents. The female population constituted 50.2% of the total population. The age

1 Adopted from socio economic profile of Oromiya Regional State Pdf documents

45

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia groups 0-14, 15-64 and 65 and above years was 53.06%, 44.6% and 2.34% respectively. The crude population density of the district was 161 persons per km2

.

Figure 4.2 Map of the study areas

Figure 1: National Regional States of Ethiopia

Kofale

Digalu

Asella

46


Agricultural Development Activities in Kofale District:- About 30%,29%, 2.9% and 38.1% of the total area were cultivable land, pastureland, Forest and shrub land and others respectively. Barley, wheatand maize are the dominant cereals during the long rainy season.Horse beans and field peas are the major pulses produced. Theaverage farm size in hectares and number of farm oxen per householdwere 1.68 and 2 respectively. Improved seeds, pesticides andherbicides are commonly distributed to the farmers in the district.There were 55 Farmers’ Associations with 21,083 member farmers (18%females) and 6 Service Cooperatives composed of 8466 members (13,6%females) in kofele district. There is no state and privately ownedlarge scale farm in the district. Fallowing, crop rotation,application of animal manure and crop residue are used in thedistrict to maintain soil fertility. Even though the livestockpopulation is declining recently, the district has been the leadinglivestock potential area in Arsi province/zone. Small farms in mostpart of the district cultivate enset (false banana)- droughtresistance and source of traditional food.

Trade and Market:- The district has 991 licensed traders, of which162 (16%) are wholesalers, 253 (26%) are retailers and 576 (58%)are service giving traders. The major local cash crops arevegetables, while the major exportable items are hides and skins.More than 132,540 skins (number) are supplied to the central marketfrom the district.

Problem and potentials: Land degradation, shortage of farm land,high input cost, poor transportation, lack of access to marketingfacilities, low price of agricultural produce and shortage ofhealth personnel & unemployment are some of the problems in thedistrict. However the district has high potential for livestockkeeping.

4.2.2 Digalu Tijo District

Physical Characteristics:- Digalu Tojo district (981.25km2) islocated in the south western part of Arsi zone bordering Tiyo in

47

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia the north, Hetosa in the north east, Tena in the east, Shirka inthe south east, Limu Bilbio in the south and Munesa in the southwest . Sagure is the district capital. The altitude ranges from2500 to 3560m. About 97% of the district is Dega (highland) andWeina Dega (middle altitude) agroclimatic zone covered only 3%. Themain rivers are keter, Ashebeka and Gusha . Chromic and OrthicLuvisols and Chromic and Pellic Vertsols are the dominant soiltypes found in the district. Natural vegetation covered about 13.3%of the district.

Population:- The district had a total population of 111,717 (7.7%urban) in 1997. Females accounted for 55% of the urban and 50.5% ofthe rural population. The economically active population (15-64years) was 46.9% of the total population in the mentioned year. Thecrude population density of the district was about 114 persons perkm2.

Agriculture:- There are 22 Farmers’ Associations with 14,096members (13.8% females). There are also six Farmers’ ServiceCooperative in the district with 11,058 members (10.9% females). Inthe year indicated, 39.5%, 27.4%, 13.3% and 19.8% of Digalu Tijo’sarea were cultivated land, forest and shrub land and othersrespectively. The average farmland holding size was about 2hectares. About 17% of the peasants had no farmland of their own.Similarly, 16.5% of the peasants had no farm oxen. Cereals are themajor crops produced followed by pulses & oil seeds. Barley, wheat,horse bean, field pea, linseed and rape seed are the most importantcrops. Fallowing, crop rotation, manure and chemical fertilizersare employed to maintain soil fertility.

Trade and Market:- There are 475 licensed traders in Digalu Tijo,of which 181 are wholesalers, 182 are retailers and 112 are servicerendering enterprises. The most important agricultural productsupplied to the local market is linseed and malt barley. About 521hides & 19,400 skins (number) were supplied to the central market.

Problems & Potentialities:- Scarcity of cultivable land,deforestation, high prices of inputs, low price for agriculturalproduce, lack of credit lack of secondary school & low healthcoverage are some of the problems. It needs further study to knowabout the potentialities of the district. However, from theavailable data the district is rich in livestock population.

48

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia 4.2.3 Land Tenure System in the study areas

Ethiopia’s land tenure system is a major constraint to agriculturaldevelopment (World Bank, 2002). Like many other regionalgovernments, in both study areas Oromiya regional government isresponsible for administering and redistributing land, followingits own laws and regulations- rural farmers have a guaranteed rightto use land indefinitely, free of charge, and to temporarily leaseit to other farmers and transfer it to their children. But farmerscannot sell or mortgage their land. Urban land is leased byregional governments at rates determined by the market or by publicauctions. Furthermore, in study areas uneven distributions of landin terms of holdings and quality, along with the threat of futureredistribution, have resulted in tenure insecurity. This situationhas discouraged land investment, especially in inputs that wouldincrease productivity and conserve soil.

49


CHAPTER FIVE

5. RESULTS AND DISCUSSION

This chapter presents the empirical findings of the study in descriptive and qualitative ways using tables, graphs and diagrams.The research result will be supplemented by a discussion and interpretation.

5.1 Household characteristics

Respondent’s age compositions were ranged from 27 to 76 years. Themajority of respondents fall between ages of 18-40 (45%) in Digalu-Tijo and 41-60 (47%) in Kofale district (Table1). About 13% and 20%of the respondents were above 60 years of age in the two districtsrespectively. This indicates that the respondents were from theproductive group of the farming community. Female households werenot represented in this study, this is mainly because of the factthat no female farmer registered as malt barley producer andsupplier in the Arsi zone in general and in the selected districtsin particular.

In the two districts Digalu –Tijo and Kofale, about 73% and 53% ofthe respondents have attended at least primary school respectively.Of the total 15 respondents in each district- Digalu-Tijo andKofale 13% and 20% were not able to read and write respectively inthe two districts. The relatively higher literacy level of therespondents implies that mostly educated farmers were involved inmalt barley production and supply.

Family size of the respondents ranges from 3 to 16 in Digalu-Tijoand 5 to 15 in Kofale. Average family size of the respondent was 7and 10 in the two districts respectively. In Kofale 60% percent ofrespondent households have family size of greater than 10, while inDigalu-Tijo the majority about 53% of the respondents has familysize between 6 and 10. The difference in family size across thestudy areas is probably due to the differences in socio-culturalsettings, religion and access to education and family planning.

In Digalu-Tijo study area about 86% of the households wereidentified to have less than 3 hectares of landholdings with anaverage of 2 hectares per households. In Kofale with an average of

50

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia 5.5 hectares of landholdings, the majority about 47% of therespondents hold more than 5 hectare.

Table 5.1: Household heads and household characteristics (N=30)

Household heads and households characteristics

Digalu Tijo Kofale

Mean Specific characteristics

Frequency

Percentage

Mean Specificcharacteristics

Frequency

Percentage

Household head age (years) 41

18-40 7 45.048.0

18-40 5 33.041-60 6 40.0 41-60 7 47.0>60 2 13.0 >60 3 20.0

Household head Sex

Male 15 100 Male 15 100.0Female 0 0.0 Female 0 0.0

Household head education level 5

Can not read and write

2 13.0

4

Can not read and write

3 20.0

Read and write only

2 13.0 Read and write only

4 27.0

Attend primary school

6 40.0 Attend primary school

5 33.0

Attend highschool

5 33.0 Attend highschool

3 20.0

51


College level

0 0 College level

0 0

Household familysize 7

0-5 2 13.010

0-5 1 7.06-10 8 53.0 6-10 5 33.0>10 5 33.0 >10 9 60.0

Household landholding( ha)

20-1.0 5 33.0

5.00-1.0 0 0.0

1.1-3 8 53.0 1.1-3 3 20.03.1-5 2 13.0 3.1-5 5 33.0>5 0 0.0 >5 7 47.0

Source: Survey data

5.2 Farming System

The major crops grown in the study areas are malt barley, foodbarley, wheat, pulse crops (Feba bean and field pea), linseed,maize, potato and different horticultural crops. Among these, majorannual crops preferably grown by a large number of respondentsduring the last three years are presented (Table 5. 2) and this wasalso used to see the trend of crop yield and area coverage. In bothdistricts the large proportion of farmland (41% in Digalu-Tijo and47% in Kofale) was allocated to malt barley as compared to othermajor crops produced by the respondents. The second major crop interms of area coverage and yield preference in both study areas waswheat, which accounts for about 28% and 17% of land under majorcrops and 23% and 17% of the major crop yields in Digalu-Tijo andKofale districts respectively. However, this could notnecessarily show the pattern of crop coverage in the districts, asthe majority of resource poor farmers particularly women headedfarmers do not produce malt barley and wheat for market. Ratherthey usually prefer to grow food barley, potato, indigenous cropcalled “Inset” and vegetables mainly for home consumption. But theyield advantages of malt barley and wheat clearly implies thatthose farmers who produce these crops have a better chance to sellsome for cash sources.

Table 5.2: Major annual crops coverage and average yield per hectare (N=30)

Digalu-Tijo Kofale

52


Major croptype

Mean size of hectares allocated

% AverageYield per hectare(quintal)

% Mean size of hectares allocated

% AverageYield per hectare(quintal)

%

Malt barley

1.5 42.0 30.0 39.0 2.0 47.0 36.0 43.0

Food barley

0.5 14.0 11.0 14.0 0.6 14.0 13.0 14.0

Wheat 1.0 26.0 18.0 24.0 0.75 17.0 15.0 18.0Pulse 0.4 11.0 8.0 10.0 0.65 15.0 9.0 11.0Linseed 0.25 7.0 10.0 13.0 0.25 6.0 5.6 7.0Maize 0.0 0.0 0.0 0.0 0.05 1.0 6.0 7.0

100.0

100.0

100.0

100.0

Source: computed from own survey

Though subsistence farmers in the study areas largely produce theircrop for home consumption, it is foreseeable that they also usesome portion of their produces for cash sources at least to pay forthe input and cover their daily expenses. An indication ofrespondents’ viewpoints in this regard was obtained from theirimportance rank order of major crops produced according to theirpotential contribution as sources of cash. These viewpoints aresummarized in Table 5. 3.

Table 5. 3: The perceived importance rank order of major crops as sourcesof cash (N=30)

Major crops Digalu-Tijo Kofale

Mean weightedpercentage

Rank orderposition

Meanweighted

percentage

Rank orderposition

Malt barley 62.0 1st 75.0 1st

Food barley 32.0 5th 25.0 7th

Wheat 58.0 2nd 64.0 2nd

Linseed 46.0 3rd 33.0 6th

Inset - -

35.0 5th

Pulse crop 40.0 4th 49.0 3rd

Maize - - 45.0 4th

53

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia Source: Own survey

From the above it is clear that perceived importance of malt barleyand wheat as main cash source was confirmed in the two study areas.However there are differences in the importance of cash sources forother crops across the study areas. For instance in for therespondents of Digalu-Tijo district, linseed is the most importantcash source next to malt barley and wheat, while in Kofale, pulsecrops to be the third important crop of cash source followed bymaize and “Inset” which were not even produced by respondents inDigalu-Tijo.

5.3 Malt barley production and Marketing Process

Malt barely is one of the important crops in Arsi zone in generaland in the study areas in particular. It has been observed that(Table 5.2) in the study areas malt barely gives a relatively highamount of yield than the rest of major crops produced byrespondents. The fact that it gives a higher yield in the studyareas offers farmers an opportunity to sell a portion of theirproduce in the available market. Moreover, the availability ofAsella Malt Factory’s market nearby in the zone was contributed tomotivate farmers to produce more malt barley. To this end theimportance of malt barley for own home consumption (Table 5.4), andurban consumer demand for consumption will be added as one of themajor factors led farmers to produce more malt barley. This wasevident by the allocation of more than 40% of cultivated land tomalt barley in the study areas.

Table 5.4 gives more information regarding average malt barleyproduced in the last three years, percentage of malt barelyconsumed at home and percentage of malt barley sold in any market.The Table further indicates mean percentage of malt barley sold todifferent actors in the chain.

Table 5.4: Malt barley production, consumption and marketing byrespondents (N=30)

Distr Year Annual % of malt % of % of % malt % malt

54


ict Name

average productionin Quintalper household

barley used for consumption

malt barely sold out

malt barley directlysold to the factory

barely sold tothe traders

barley sold to the cooperatives

Digalu-Tijo

2002 38.0 62.0 28.0 12.0 88.0 0.02003 35.0 66.0 34.0 9.0 68.0 23.02004 30.0 61.0 39.0 9.0 63.0 28.0

Kofale

2002 40.0 60.0 40.0 0.0 100.0 0.02003 38.0 57.0 43.0 0.0 89.0 11.02004 37.0 45.0 54.0 0.0 84.0 16.0

Source: Own survey

The above findings show that in the last three years in bothdistricts more than 55% of malt barley produced by respondents wasconsumed at home. This is due to the fact that malt barley isperceived to be more suitable to prepare common food called“Injera” in the absence of ‘’teff” as “teff” is not commonlyproduced in these areas. There is also high demand by urbanconsumers for malt barley for the same purpose and to preparetraditional alcohol drink called “tella’’.

Most farmers in the study areas have sold their malt barley totraders who in turn either provide to the Asella Malt Factory orsell to individual urban consumers. However recently there is atendency to supply to marketing cooperatives in the areas. InDigalu-Tijo a few farmers directly supplied to Asella Malt Factorywhile this has not happened in Kofale district. This was mainly dueto the remoteness and inaccessibility of the areas in Kofeledistrict than those in Digalu-Tijo, which is located at about 25 Kmaway from the factory location. Normally, AMF buy directly fromfarmer or a group of farmers in areas where accessible fortransportation. The main reasons why most farmers did not selltheir malt barley directly to the factory are: inaccessibility totransportation facilities and remoteness of the area from thefactory location, absence of organized producer farmers that canease the supply and lack of institutional supports that improve thelinkages. Farmers were asked if there was any seasonal price change for maltbarley. Almost all the respondents indicated that there is alwaysseasonal change of price in the market for malt barley. The changeof price is ranged from mean price 120 Birr during harvesting

55

Improving Farmer Agribusiness Market Linkages, the case of Asella Malt Factory and small farmes, Ethiopia season to 170 Birr during off season in the market. Framerscomplain that the traders do not offer them good price even if theyknow that there is a huge demand for malt barley from Asella MaltFactory and consumers. It was also found out that there is nosignificant seasonal change of price in Asella Malt Factory for asingle year. As a result those farmers who directly sell theirproduct to the factory would receive a reliable and good price (30-70 Birr per 100 kg) depending on the quality of their produce thanthose who sell to the middle men. AMF determines the price of maltbarley for a given year using information from market assessment,last year price, factory profit margin, price of substitute cropsand productivity of malt barely of the given year. The price isalways better than higher market price. The traders do not usually buy malt barley from farmers as qualityproduct rather they buy it jus as any ordinary grain. The probablereasons for this could be first the traders do not have standardmeasurement to differentiate good quality malt barley from the poorquality one. Secondly, it is the traders’ interest to get moreprofit from malt barley in a situation where farmers do not havereliable market information. Therefore they did not offer them goodprice. However in Kofale most farmers sold their malt barley to thetraders and they do not have any alternative market. Due to thesefacts all the respondents prefer to sell their malt barley directlyto the factory, though this was not practically possible for themajority of the producer who have been scattered all over theremote and inaccessible areas. In the last two years the growing offarmers’ cooperatives in the study areas started to offer thechance for malt barley producer to sell their product in a goodprice slightly lower than factory price. It was also found out thatin areas where there are no formal cooperative organizations;farmers opted to be organized in small group to sell their productdirectly to the factory.

To get an indication of the farmers’ and Asell Malt Factory’sassessment of the preference of different ways of supplyingmethods/ linkage arrangements both farmers and resource person offactory were asked to assess these arrangements using five pointscale and the result was presented in figure 5.1.

56


Figure 5.1

Source: computed from own survey

Figure 5.1 shows that, as far as farmers are concerned the mostpreferable way of supplying malt barley was direct individualfarmer’s supply followed by small group of farmers and cooperativesin their village, though currently this is not the case. CurrentlyAMF has mainly relied on middlemen/traders supply; however there isa tendency to buy from group of small farmers organized in thevillage, cooperatives and individual farmers. Farmers have alsostarted to realize the benefit of supplying their produce as agroup or cooperative members. Both producer farmers and Asella MaltFactory were not interested to have contractual arrangements.

The factory was more interested in getting mutual trustrelationship with the producer farmers than legal contact throughvillage municipality and contractual arrangements. Recently withthe development of formal farmers’ organization the factory hasbegan to work closely with farmers marketing cooperatives. As faras quality control is concerned the factory used continuessupervision of producers’ farms using own staff, providingincentives to those farmers who produce quality products, andtraining technical aspects that help farmers to produce qualitymalt barley.

Table 5.5 Ranking order of different suppliers AMF currentlyrelied on and its view that the factory should rely on forthe future.Suppliers Currently relied on Future to be relied

on

Farm ers' and AM F's preference of w ays of m alt barley supplying and Factor's current supply system

0 2 4 6

scale point (1= not prefered and 5=preferable w ay)

To be used by AMF Currently used by AMFFarm ers' preference

57


Individual farmers (spot market)

4th 2nd

small group of farmersin the villages

5th 1st

Traders/middle men 1st 4th

Cooperatives 3rd 3rd

State farms 2nd 5th

Contractual arrangements never used No intension to useSource: computed from survey

According to the preferences expressed in Table 5.5 currently AMFprimarily relied on malt barley supplied by traders/middle men andstate farms. In both study areas producer farmers have sold onaverage more than 80% of their malt barley to traders who directlysupply to the factory (Table 5.4). State farms still remained thesecond important malt barley producer and supplier of the factory.From its past experience the factory judged that for sustainableand effective supply, AMF should rely on the small group offarmers, individual producer farmer and farmers’ marketingcooperatives. The current change in focus from state farms andproducer cooperatives to small subsistence farmers has contributedto the change of malt barley supplier. Figure 5.2 below shows thecurrent actors in the malt barley supply chain.

AMF believes that buying malt barley from individual farmers willcontribute to get quality malt barley, sustainable supply, andbuild trust relationship; but costly and difficult to organize thesupply. On the other hands traders’ supply has advantages ofgetting large quantity of malt barley at a time and is costeffective supply. However there is a problem of getting qualitymalt barley due to mixing up of different quality of malt barleysand in some cases malt barley would mixed with food barley.Moreover, reliable supply could not be achieved in the later case.

58


Figure 5.2 Malt Barley Supply Chain

Farmer produce

Transporters

Farmer’scooperatives

Traders

Consumers / users

Processor /AMF/

State Farms

Seed Enterprises

Farmers supporting organizations and institutions (Research

59

Improving Farmer Agribusiness Market Linkages, the case of AsellaMalt Factory and small farmes, Ethiopia

5.4 Farmers’ Market Information

Market information has significant benefits for farmers.Unfortunately, information of market prices, quantities traded,and other marketing-related matters rarely reach farmers in thestudy areas. The respondents were asked to indicate the level ofreliance of different sources of market information believed tobe commonly used in the areas using five point scale (1= notused; 2 = rarely used, 3 = moderately used; 4 = commonly used; 5= very important source) and the resulted was summarized inFigure 5.3

Figure 5.3: Respondents Assessment of Source of Market information

012345

Five point scale (1=not source; 5=very im portant source)

Fellow farm ers Extensionofficers

visiting m arketplace

Radio Printed m edia Cooperatives

Respondents Assessem ent of source of m arket inform ation

Digalu-Tijo Kofale

Source: computed from survey

These findings show that respondents have primarily relied onmarket information from their fellow farmers. This almostapplies, without exception, in both districts. However themajority of the respondents in Digalu-Tojo indicated that theyalso largely used farmers’ cooperative as source of marketinformation, while respondents of Kofale district still relied onfellow farmers and regularly visiting market places to get marketinformation. The coming up of more farmers cooperatives in thestudy areas seemed to solve this problems in the near future asit has recently been observed in Digalu-Tijo where there are morefarmers’ cooperative services including malt barely marketing.

60

Improving Farmer Agribusiness Market Linkages, the case of AsellaMalt Factory and small farmes, Ethiopia Though radio is believed to be the cheapest sources of marketinformation for small farmers in developing countries, in thestudy no respondents confirmed this reality. The main reason forthis was there was no any market information particularlyconcerning malt barely marketing transmitted in both national andregional languages. This is also true for the rest of crops andlivestock marketing at least for the study areas. MostlyEthiopian Radio transmitted coffee price information on dailybases and summery of price of most crops occasionally.

5.5 Problems with Malt Barley Marketing

Table 5.6 shows that most respondents claimed to have lack ofaccess to market particularly lack of access to factory marketduring good producing seasons (32%). Respondents pointed out thatproduction of malt barley even in a very good harvest seasonsusually fetch high market prices for those who have got access tofactory market. A justifiable reason for not to have access tofactory market for the majority of farmers could be remoteness ofthe area and lack of transportation. Furthermore, according tothe respondents, the factory is reluctant to buy from individualfarmer and hence they are forced to sell to the traders at lowerprice. Lack of improved varieties, lack of technical knowledgerequired to produce high quality of malt barley and shortage oftransportation and storage facilities were identified as majorconstraints in malt barely production and marketing.

Table 5.6: Percentages of relative frequency respondents showing major problems with malt barley marketing as perceived by farmers.

Variables Allrespondents

Digalu-Tijo Kofale

N =30 n =15 n =15Lack of access to better market

32% 40% 24%

Lower price for produce

17% 15% 16%

High cost of production

22% 21% 19%

61

Improving Farmer Agribusiness Market Linkages, the case of AsellaMalt Factory and small farmes, Ethiopia Lack of improved varieties

6% 14% 11%

Lack of technical knowledge to producerequired quality

9% 10% 10%

Lack of transportation and storage

14% 0% 20%

n = number of responses from each village, N = number of all responses

Respondent farmers perceived that they have no a problem oftechnical knowledge; This seems to imply that a large percentageof respondents were unacquainted with the importance of requiredtechnical knowledge and skills and have not yet formed a clearopinion regarding them. From Asella Malt Factory perspective themain constraints in the malt barley supply chain were assessedusing five point scale (1 = not a problem; 2 = somewhat aproblem; 3 = recognizable problem; 4 = serious problem; 5 =extremely serious problem) and the result is presented in

Figure 5.4: Assessment of problems in Malt barley supply chain as perceived byAMF

00.51

1.52

2.53

3.54

Scale point

quantityneeded

qualityproblem

unrealiablesupply

tradersdistortion

transportation im provedvariety

com petitionfrom

consum er

lack oforganisedsupplier

Assessem ent of problem s in m alt barley supply chain as perceived by AM F

Source: computed from survey As shown in Figure 5.4 According to Asella Malt factory, lack offulfillment of the required quality by producers, absence of wellorganized reliable supplier and competition from high demand forconsumption were believed to be the major constraints in the maltbarley supply chain. Quality distortion by some middlemen traderswas also rated high value as one of the major problems in thechain. A real explanation for this distortion could be that thetraders involved in malt barley supply do not have good storageand transportation facilities to maintain the quality. In somecases there was also a situation where some traders mix cheaplyobtained food barley with malt barley in order to maximize their

62

Improving Farmer Agribusiness Market Linkages, the case of AsellaMalt Factory and small farmes, Ethiopia return. This causes the factory to incur additional costs toclean those mixed ones.

5.5.1 External Constraints in Asella Malt Factory

FAO studies in other African countries shows that processors inlow-margin sectors with limited skills and assets faceconstraints to ensure on and off seasonal raw material suppliers.With uncertain raw material supplies of adequate quality andquantities, and with high cost of co-ordination, processors findproduction planning a crucial constraint that also leads tomarketing problems for the processor.

In strengthening partnership between producers and processorsexternal factors are crucial. In this study the opinion of AMF ondifferent commonly known external factors was assessed and theresult was summarized in Table 5: 7. The intension here is toidentify those factors contribute to increase the performance ofAMF and as a result strengthen producer and processor linkages.

Table 5.7: Assessment of perceived of the different external factors’impacts on the performance of the AMF using five scale points (1= not aproblem, 5= extremely recognized problem)

Major Factors The impact of each factor Scale point

Market Lack of required quality of malt barely 3low demand for processed malt barely 1Competition from imported malt barley 1Competition for malt barley from consumers

4

Adverse businessenvironment

Inconsistence and lack of transparency business rules and regulation of the government

1

High tax from the government 3High level of bureaucratic and corrupt 1

Lack of institutional support

Poor support from research institution 2inadequate support from MOA at all level

2

Poor coordination and cooperation amonggovernment institution

4

Lack of government industrialization strategies and problems with implement

1

Others Uncertainty due to agronomic and 3

63


climatic adverseSource: Computed from survey

The high assessments are evidence of the prevalence of theexternal constraint. This findings show that competition for maltbarley from consumers and poor coordination and cooperation amonggovernment institutions are assessed as major problems in thefactory’s performance followed by lack of required quality ofmalt barely, high tax from the government and uncertainty due toagronomic and climatic adverse. These responses generally seem toindicate that except lack of coordination and cooperation thereis lower level of impact from most external factors. However theabsence of competition from in and outside would negativelyaffect the performance of the factory. This means the highercompetition from other would contribute to improve theeffectiveness and efficiency of the factory.

5.5.2 Internal constraints facing farmers and processor

Internal constraints are crucial in leading to marketing problemsfor both farmers and processors. Problems meeting qualitystandards of processors, lack of access to market place andmarket information, poor negotiating and selling skills andfinancial constraints were the common problems facing malt barelyproducer farmers. As far as internal constraints facing AMF isconcerned the opinion of the factory was assessed using fivepoint scale (1= not a problem; 5= extremely a problem) and theresult is presented in Figure 5.5

Figure 5.5 Internal constraints facing processor

64


Internal costraints Facing AM F

0123456

Lack of relaiblesupply fromsupplier

Lack of relaibletrusting relation

Shortage of staffw orking w ithfarmers

Quality problem Lack of capital tosupport

producers

Lack of BusinessManagement

Skills

Scale po

int

Source: computed from survey

These findings show that lack of reliable supply from producers, problem of getting required quality standard, and shortage of staff working with farmers were internal constraints facing AMF. The factory believed that it has mutual trust relation with suppliers, financial capital to support producers and business management skills.

5.6 Causal problem analysis for poor linkages between producers and processor

The following causal problem analysis can be drawn for the causality of poor linkages between farmers and Asella Malt Factory based on the findings from the two subjects and personal observation.

Fig 5.6: Causal problem analysis for poor linkages between malt barley producer farmers and AMF.

65


Source:Analysis from survey

NB- The shaded boxes show the main problems

In Ethiopia in general and in the study area in particular thereis insufficient data on the farmers’ agro processor linkagestructures available. This is mainly due to the fact that agroprocessing business in Ethiopia, particularly private agroprocessors are still rudimentary with little growth ordevelopment over the last one decade. There are sufficientevidences showing that the linkages among producers, traders andexisting limited processors are more of in ad hoc bases. Theabove (Figure 5.6) conceptual causal problem analysis clearlyindicates that there were different but interrelated economic andinstitutional factors for the poor linkages between malt barleyproducers and processor (AMF). Factors like lack oftransportation and storage facilities, limited credit for input,and lack of improved varieties are more of an indication ofeconomic status of the study areas that contributed to the poorlinkages. However evident from the analysis responses of the

Poor support from

Lack of transportation andstorage

Limited credit for input use

Lack of productive improved

Limited farmers’cooperat

Limited negotiation or bargainin

Lack of market information for

Lack of technical knowledge toproduce quality

Poor quality ofproduct supply

High trans action cost for

no processor’s staff working

Poor handlingand

Limited experience in farmer -

Limited support from processor

Limited reliable supply to processor

Poor linkages

Poor coordination among farmers

66

Improving Farmer Agribusiness Market Linkages, the case of AsellaMalt Factory and small farmes, Ethiopia respondents (farmers and AMF) clearly show that institutionalfactors such as lack of coordination among farmers supportinginstitutions in supporting farmers, lack of organizing farmerscooperatives, poor delivery services such as input supply andtechnical training to farmers were mainly contributed for thepoor linkage. In the study areas agriculture is dominated bysmallholder peasant farmers with limited interaction with bothproduct and input markets, as a result the windfall benefits werelargely went to the traders.

5.7 Actors Analysis in Strengthening Malt Barley Producers and Processor Linkages

Findings indicated that, though the required quantity and qualitymalt barley can be supplied by farmers in the study areas thepresent poor linkages between farmers and processor (AMF)emanated from either lack of sufficient support services fromfarmers supporting institutions or coordination among thoseinstitutions in providing complementary support services. Basedon respondents’ opinions this study has identified differentactors and their current and required contributions instrengthening farmer processor linkages and the results aresummarized in Table 5.8.

Table 5:8 Actors current and required contributions in malt barley production and marketing

Actors Current contributions to farmers

Required contributions to be provided

Asella Malt Factory (AMF)

Incentive of 50 Birrfor ½ ha. malt barley cleaned

Organizing workshops, and fielddays for farmers

Technical training on malt barley production

Good price for farmers Increasing incentive Technical training Buy directly from farmers Funding the research done

on malt barley improvement

District and Village level MOA

Disseminating improved technology and general trainingfor farmers

Disseminate cleaned seed Training and technical

support for malt barley producer

67


Input supply throughcooperatives

Facilitating farmerscooperatives

No especial support services have been provided to malt barely producer farmers

Arranging credit facilities to farmers

Providing market information to farmers

Timely input supply

Kulumsa Agricultural Research Center(KARC)

Research on malt barely improvement

Coordinating Zonal Research and Extension Advisory Council

Release high yielding improved varieties

Conduct research to improve common malt barleys logging problem

Zonal Research and Extension Advisory Council (REAC)

Organizing forum forproducers and processor

Continuous to organize discussion forum for producer and processor

Provide market informationto malt barely producers

Organize special training for malt barley producer

Brewery Factories

Purchasing processedmalt barley for goodprice

Currently no supportservices from Brewery factories has been noted for malt barley producerfarmers

Funding research conductedon malt barley development

Provide incentive to farmers directly by payment to farmers or indirectly purchasing maltbarely for better price

Farmers organizations(Farmers cooperatives)

Purchasing malt barely from farmers

Input distribution to farmers

Purchasing malt barley forgood price

Timely supplying inputs Provide market information Provide transportation

facilities Organizing technical

training for members Ethiopian Seed Enterprise (ESE)

Multiplying improvedreleased seed

Multiplying and disseminating improved seed

Non Governmental Organizations

No NGOs currently provide any support in malt barely production and

Should provide credit facilities to malt barley producer farmers

Should organize training

68


marketing Facilitating farmers supplier group

Source: Analysis from survey

The findings (Table 5.8), summery of actors’ analysis invariablyshows that the current support services provided by most actorsare far behind the expected required support services. However,it is clear that Asella Malt factory was providing at least 70%of the perceived required contributions to farmers. The factoryoffers 50 Birr as incentive for one and half hectare of maltbarley's farms cleaned or rouged to motivate farmers in improvingquality of malt barely. The factory also yearly spends 10,000-15,000 Birr for cleaning farmers’ malt barley farms and 20,000-30,000 Birr for organizing workshops and field days for farmers.

The MOA responsibility in promoting agricultural development isusually not questioned. However the marketing aspects ofagricultural produce were not given much attention; it isexpected that there is a lot to be done in this regard. Forinstance, this study shows that except general extensionservices, there was no any special support service given for maltbarely producer farmers by district MOA.

The contribution of Kulumsa Agricultural Research Center (KARC)in supporting farmers’ processor linkages was started with theestablishment of zonal Research Extension Advisory Council (REAC)funded by IFAD (International Fund for Agricultural Development)project. The mandate to coordinate this project was given toResearch and Extension Division of the KARC. Since itsestablishment, under supervision of KARC, REAC has organized atleast two forums per annum on which agricultural and ruraldevelopment matters including the issue of malt barley marketinghave been discussed. However, both farmers’ and AMF’s respondentscomplained about inadequacy of research done on the improvementof malt barley, particularly lack of high yielding and loggingfree varieties. Generally the respondents are seemed to beoptimistic, about all the actors contributions, though this couldbe difficult to happen in the current competition market. 5.8 SWOT Analysis in Malt barley Supply Chain

69

Improving Farmer Agribusiness Market Linkages, the case of AsellaMalt Factory and small farmes, Ethiopia In SWOT analysis the Strengths and Weaknesses, and theOpportunities and Threats business or organization face areidentified. Carrying out an analysis using the SWOT frameworkhelps us to focus the activities into areas where are strong andwhere the greatest opportunities lie. Manktewol(1998)http://www.mintool.com/page/article/jnm.htmlIn this section SWOT analysis was employed to assess malt barelysales and distributions.

Table 5.9: SWOT Analysis

Strength Weakness

Comparable quality with imported malt barley can be produced by small farmersin the study areas

The farmers are not fully accessed to the factory market due to physical and institutional barriers

AMF developed mutual trust relation with farmers than most other agribusiness operating in the country

Problems meeting quality standards of processors is stillthere

Support services from processor throughtechnical and material supports to maltbarely producer, which is not common practice for most agribusinesses.

Lack of formal linkages between producer farmers and processors / ad hoc linkages

Locally produced malt barley totally substituted import

lack of experience andknowledge in entrepreneurship

Established partnership with public sector through being core member of zonal Research Extension Advisory Council .

Lack of improved varieties in malt barley than other food crops

Continues payment and supervision from processormotivated farmers to sell their products to processor (AMF) than to thetraders

Suppliers are not well organizedin group/ as cooperative like incoffee producers

Having access to factory’s market, maltbarley producer farmers are fetching profit from malt barely than other crops

Absence of formal traders/middlemen responsible to maintain quality

70

Improving Farmer Agribusiness Market Linkages, the case of AsellaMalt Factory and small farmes, Ethiopia In spite of the fact that there is shortage of staff, processor’s staff are closely working with the producer farmers as much as possible

Producer’s poor negotiating and selling skills, lack of trustingrelationships and formalized agreements with traders

Unlike most agribusiness in the countryAMF’s earnings from malt barley is increasing

Lack of market presence or reputation in the overseas market

Opportunities Threats

Ever increasing demand for processed malt barley by domestic brewery factories due to increasing their production capacity

Competition for malt barley fromconsumers and for home consumption

Absence of other malt barley processor in the country

Uncertainty due to agronomic andclimatic adverse and lack of compensation during crop failure

Increasing number of brewery factories in the country

Unreliable supply due to increasing cost of inputs and lack of affordable credit service for malt barley producers

The presence of national barley improvement research project and seed enterprise in the study areas Released varieties are

susceptible to logging.

Relatively the study areas have access to road, mechanization facilities, inputs and research results.

High tax from the government

Increasing processing capacity of processor (AMF)

5.9 Opportunities in the strengthening Farmer Agro Processor Linkages

Malt barley is grown in most all highland areas of Arsi zone withnotable variation in the extent of areas planted and volume ofproduction obtained. The two districts selected for this study

71

Improving Farmer Agribusiness Market Linkages, the case of AsellaMalt Factory and small farmes, Ethiopia are believed to be the leading malt barley producer in terms ofboth quantity and quality. As a result most AMF supply is comingfrom these districts.

Asella Malt Factory is the only national Ethiopian processingfactory administered under the Development OrganizationsAuthority. It was established in 1984 as part of an importsubstitution industrialization program with specific objective tosupply processed malt barley as the main raw material for thebrewery factories. When it was established it had productioncapacity of 100,000 quintals. Later on with the establishment ofBedele Brewery Factory and increasing in production capacity ofthe existing brewery factories, Asella Malt Factory has expandedits processing capacity from 100,000 to 150,000 quintals in 1995.Currently the potential for growth and expansion of the breweryfactories is enormous. As a result the demand for processed maltbarely is expected to exceed the available processing capacity ofAMF. The factory has started expansion process to raise itsprocessing capacity to 300,000 quintals to satisfy this everincreasing demand for processed malt barley from breweryfactories. This in tern obviously will increase marketopportunity for malt barley producer farmers. This excessproduction capacity coupled with the availability of cheap laborin the area makes the malt factory sector of critical importancefor import substitution, creating market opportunity for maltbarley producers, and employment generation for the surroundingcommunity.

The following three aspects of fundamental changes taking placeare worth noting for malt barley producers in the study areas: Currently Asella Malt Factory is totally relied on

domestically produced malt barley (Table 5.10). The expected decreasing of state farm supply. The growing of brewery factories and the expansion in

processing capacity of the AMF.Indeed, the current Agricultural Development-LedIndustrialization (ADLI) economic policy is in favor of farmerprocessor linkages.

Table 5.10: The amount of malt barley purchased by AMF and thepercentage supplied by different producer during last five years.

72


Production year

Total purchasedby AMF

Percentage of contribution of different suppliers

Farmersin Arsi

Farmers in Shashemane

Serofta

Others* State farms

Imported

2000 163,660.70 27.42 9.30 0.23 0.00 0.49 60.442001 247,787.78 43.96 26.80 0.35 0.32 0.23 23.11

2002 219,294.72 48.91 38.75 5.46 0.39 6.49 0.00

2003 181,745.34 45.40 46.94 5.07 0.90 1.68 0.00

2004 232,940.54 44.59 36.23 5.45 0.10 13.58 0.00Source: computed from AMF data source* Others include individual suppliers from Bale zone and Awasa area.

The findings presented in Table 5.10 show that the amount of maltbarley purchased by AMF was steadily increased over the last fiveyears with the exception of miner decreasing in 2003. This couldbe an indication for the growing in capacity of AMF andincreasing demand for processed malt barley from breweryfactories. This reality was further supported by findingssummarized in figure 5.8.

In all these years the supply contribution made from Arsi was farhigher than any other supply in the chain. It was nearlyconsisted of 50% of the total amount purchased by the factory.This confirmed the rationale of the reason why the factory wasestablished in this zone in the first place. State farms arestill remained to be the second most important malt barelysupplier after small farmer producers in Arsi. However theprocess of transformation of economy from a closed, centrallyplanned, and dominated public sector to an open and market-basedeconomy would inevitably affect the sustainability of state farmsmalt barley supply. This has already been observed when previousmalt barley supplier state farms were getting started to shrinkand in some cases were dismantled. Other study by United Nationshows that in Ethiopia most enterprises, especially State-ownedenterprises, are currently faced with profitability, cash-flowand indebtedness problems, partly due to high interest rates.

Expectation of the capacity of future AMF to buy, process andsupply malt barely as perceived by the factory is going toincrease in the next 5 years by at least 100%.

73

Improving Farmer Agribusiness Market Linkages, the case of AsellaMalt Factory and small farmes, Ethiopia Figure 5.7 shows that Asella Malt Factory is among few profitableenterprises in the country. Annually there was far more than100% in increasing profit during the last five years

Figure 5.7 Asella M alt Factor's profit during the last five years

187.75

135.35

169.51

84.66

0 50 100 150 200

2,200,100

4,130,700

5,590,900

9,477,300

8,023,537.71

2000

2001

2002

2003

2004

Valu

e pr

ofit

per a

nnua

m

% of profit incream ent

Source: computed from AMF data source

Figure 5.8 the Amount of processed malt barley used by domestic breweryfactories during the last five years

020000400006000080000100000120000140000160000180000

2000 2001 2002 2003 2004

amount in quintal

M eta Abo Bedele Herar BGI Dashin Total

Source: Computed from AMF available data

74

Improving Farmer Agribusiness Market Linkages, the case of AsellaMalt Factory and small farmes, Ethiopia Figure 5.7 shows that the amount of processed malt barley used bybrewery factories varies depending on their production capacityin the given year. The trend shows that in average the amount ofprocessed malt barley used by most factories was increased duringthe year 2001, 2003 and 2004, as a result the total amount ofprocessed malt barley used by brewery factories was steadilyincreased during the last five years except in 2002.

75

5.10 Strategies in improving Farmer Asella Malt Factory MarketingLinkages

Literatures reveal that strengthening farm agro processorlinkages has many dimensions and a wide range of interventionscan be applied on different levels- government, agro processor,farmers, donors / international organization levels.

5.10.1 Ways of strengthening linkages

In the following section, various aspects of strengthening focusat processor level are analyzed and presented, both as far as theperceived current and ideal or desired situation is concerned.

Table 5.11 Assessment of judgments of AMF current focus in assistingmalt barley producer farmers and view where the focus should be andfarmers’ expectation of these assistance level using five point scale(1= extremely small; 5= extremely high)

CURRENT FOCUS

RECOMMENDED FOCUS

RANKING IN ORDER OF THE APPLICABILITYTO AMF SITUATION

FARMERS’ EXPECTATION

PRICE INCENTIVE TO MOTIVATE FARMERS

4 4 1ST 4

TRAINING AND SKILL DEVELOPMENT RELATED TO MALT BARLEY PRODUCTION

4 5 2ND 2

ASSISTING FARMERS ORGANIZATION THROUGH TECHNICAL AND MATERIAL SUPPORT

3 4 3RD 4

COMPENSATION AND SUPPORT DURING CROP FAILURE

1 2 5TH 3

INPUT SUPPLY AND CREDITSERVICES

1 2 4TH 2

Source: Computed from Survey

Figure 5.11 show that AMF believed that it was providing therequired assistance to malt barley producer farmers. This meansin other words the difference between the current and desiredsituations of AMF in assisting malt barley producer farmers doesnot differ all that much. In both cases the factory wasinterested in providing incentive to motivate farmers, offeringtraining and skill development and assisting farmers’organization through technical and material support. As far ascompensation and support during crop failure, and input supplyand credit services is concerned the factory did not show muchinterest in both perceived current situation and perceivedrecommended cases. However these two factors (crop failure andlack of input and credit services) are believed to be the mostcritical problems frequently facing malt barley producer farmersdue to ever increasing cost of inputs and erotic climaticconditions. It is further interesting to note that theassistances farmers expected from AMF and what the factorybelieves to provide does not significantly differ as well. Though buying malt barley directly from individual farmer wouldhelp to get high quality of malt barely and build mutual trustbetween farmer and processor, AMF prefers to buy malt barley fromat least small group of farmers organized in the village. Thejustifiable reason for this was effective and efficient marketingand transportation system will be achieved. Farmers' priority for different support services in malt barleymarketing are the need for input supply, improved varieties,market information and transportation facilities rated highestvalue of all by the respondents. The need for credit services andthe importance of technical knowledge and demonstration were notgiven the priority concern by the respondents. This seems thatthe farmers did not have a clue the importance of technicalskills required to produce quality malt barley.

5.10.2 Actors to be identified

To establish the degree or level of importance of most importantactors, the respondents, were confronted with a list of differentalternative actors and requested to judge them in order of theirimportance in improving farmer – processor linkages. Thefindings are summarised in Table 5.11

Table 5.12 AMF preference of different actors to work togetherto improve farmer processor linkages; suitable actors to be identified to take lead in strengthening the linkages and farmers’ opinion of the level of support services they have received so far from these actors using five scale point (1 = extremely low/ not important; 5 = extremely high/ important)

Actors AMF’s preference of different actors to work together

Farmers’ opinion of the level support they have received from these actors

Suitability of actors in taking lead in strengthening farmer processor linkages

Asella Malt Factory - 3 4Research Center 4 3 3District subject matter specialist

4 2 2

Village extension officer

4 4 4

Farmers organization 4 2 2Zonal Research Extension Advisory council

5 1 5

Representatives of different actors

5 1 5

Ethiopian seed Enterprise

4 1 2

NGOs 3 1 2Source: Computed from Survey

The findings in Table 5.12 have a clearly show that, malt barleyproducer farmers were perceived that they have received low levelof support from most actors except village extension officers whoare closely working with farmers on daily bases. However theextent of this support received from AMF and Kulumsa AgriculturalResearch Center is currently pronounced in both study areas.

No significant difference is observed as far as the preference ofdifferent actors that AMF would like to work together instrengthening farmers- factory linkages is concerned. However thehigher preference is inclined towards Zonal Research ExtensionAdvisory Council and representatives of different actors; giventheir current efforts toward solving malt barely marketingproblems in the zone.

According to the mean assessments of all respondents (Table 5:12)the most acceptable alternative is where the service providersand farmers organizations mutually share, as equal partner.Initiating, planning, and coordinating and implementing offarmer- processor linkages should be the responsibility of ZonalResearch Extension Advisory Council, Representatives of differentactors, and AMF.

Cooperatives:- Though there was a general believe that in Arsizone in general and in the study areas in particular farmers donot have a positive attitude toward cooperative due to negativeexperience of producer cooperative of the past Derg Regime.However this study proofed that the importance of servicecooperative is well understood and 100% of the respondentspreferred to be a member of service cooperative. Next to directlyselling their produce to the factory, most farmers prefer to selltheir malt barley to cooperatives as they offered them good priceand other related support services.

AMF:- Transaction costs are high when dealing with individualfarmers; AMF agreed with the ideas that this cost can beminimized by supporting and strengthening farmer organization andcooperatives. Furthermore the factory believes that buildingtrust and mutual accountability and frequent contact between agroindustry and farmers through price incentive and technicalsupport will contribute for reliable supply. It was evident thatso far price incentives and technical support were alreadyapplied by the factory.

Research Center:- According to respondents, farmers in the studyarea have the problem with the availability of improved maltbarley varieties. Most available varieties of malt barley wereoutdated low yielding, susceptible to disease and easily affectedby logging effects. The respondents underlined that the recentlyreleased varieties of malt barley (HB-52 and HB-120) are even lowyielding than the older variety locally called ‘Shuke’ or ‘Beke’and are highly susceptible to logging effects. Generallyaccording to this survey disease and pests (Beka /Shuke/),logging effects (HB-52 and HB-120) and problem of lower yield(HB-52) are particularly the most threatening factors affectingmalt barley production and marketing. This is clearly anindication to the necessity of more malt barley improvement

research to be done by Ethiopian Agricultural ResearchOrganization to address these problems.

CHAPTER SIX

6. CONCLUSIONS AND RECOMMENDATIONS

In the previous chapter the research results were presented anddiscussed. This final chapter focuses on the summary of the majorfindings of the study and the recommendations set forward.

6.1 Conclusions

As mentioned in the introduction chapter the focus of the studywas to investigate constraints and opportunities in malt barleymarketing chain with the assumptions aimed to identify strategiesand actors required to improve farmer agro processor marketlinkages.

In the study areas the average farm size in hectares and numberof farm oxen per household were 1.68 and 2 respectively in Kofaledistrict while in Digalu Tijo the average farmland holding sizewas about 2 hectares. About 17% of the peasants had no farmlandof their own. Similarly, 16.5% of the peasants had no farm oxen.

In the study area different type of crops are grown. Amongst themajor annual crops cereals are the major crops produced followedby pulses & oil seeds. Barley, wheat, maize horse bean, fieldpea, linseed and rape seed are the most important crops. Theproportion of farmers growing these crops varies from farmer to

farmer. Malt barley constitute major portion of income source andhome consumption for malt barley producer farmers.

In Ethiopia following the implementation of Structural AdjustmentProgram (SAP) all restrictions on grain marketing by privatetraders were removed. All subsidies and quotas on grain marketare eliminated. In spite of the various policy measures,agricultural markets in Ethiopia are still underdeveloped. Likeother grain marketing malt barley marketing, even under aliberalized environment, suffers from a number of constraints,including inadequate transport network and high transport tariff,limited number of large-interregional traders with adequatestorage and working capital, high handling costs, inadequatemarket information system, weak bargaining power, underdevelopedprocessing industrial sector, lack of financial credit, absenceof control on un-licensed traders.

Due to concerted efforts by the extension service in recentyears, there is an increasing trend in agricultural productionfor most cereal crops including malt barley. However, lessemphasis was given to improve agricultural marketing throughimproving producer processor and consumer linkages.

Small traders with limited capacity of handling large quantitiesbuy malt barley from farmers and supply to processor indisorganized way. Member-led co-operatives thought to benecessary to reduce transaction costs and enhance the bargainingposition of small farmer did not well develop in the study area.In the recent years following new proclamation issued in 1998,service cooperatives were established with the aim of purchasingagricultural produce from member farmers, providing marketinformation and input supply. However it was found out that maltbarley producer farmers have not yet fully benefited of thesecooperative services and they were selling their malt barley tothe spot market of middlemen at far lower price than processorand consumer market. It was further noted that despite the pastnegative experience about cooperatives in the study areas mostrespondents have shown interest to be member of the cooperatives.As a result in the year 2003 and 2004, on average 17% and 22 % ofmalt barley was sold to cooperatives in the study arearespectively.

Zonal Research Extension Advisory council, representatives ofdifferent actors, Asella Malt Factory and village level extensionofficers are found to be the most important actors should takelead in strengthening malt barley producer and processorlinkages. The study clearly shows that AMF interested to workclosely with all farmer’s supporting institutions. According tofarmers perceptions the level of support services provided by AMFwas the highest of all in malt barley production and marketing.This is evident by providing incentives, technical support, closesupervision, and organizing and sponsoring workshop to maltbarely producer farmers. The factory is aimed to increasesupporting malt barley producers through increasing incentive,providing training and skill development and assisting farmerorganization/cooperatives through technical and materialsupports.

Thus these positive processor’s efforts will contribute to easestrengthening producer and processor linkages if it issupplemented by support services from other concernedinstitutions/ organization that help to improve producer’stechnical capacity and their understanding of the importance ofrequired quality of the product supplied to processor.

The main conclusion is that small farmers in the study area canfully produce the required quantity and quality of malt barely tobe processed by AMF. However, all indications have shown thatthere is little, if any, support for small farmer’s marketimprovement in general and malt producer farmers in particularfrom agricultural development institutions. It has been comeacross many examples gleamed from interviews as well as from independent observation of lack ofcommunication and interaction between the different institutionsdealing with agriculture and rural development.

6.2 Recommendations

The following recommendations based on literature review and theempirical results obtained in this research are put forward.

Labour intensity, quality requirements and lack of alternativemalt barley processor necessitate very close collaborationbetween malt barley producer farmers and AMF.

Information on price forecasts, quality of products, and availability of market futures needs of the commodity should be disseminated to farmers.

The government agencies should not only focus on providingsupports for agricultural production; they should also giveemphasis to solve agricultural marketing problems which iseventually affecting the livelihood of households.Institutional supports including research and extension shouldconsider marketing aspects of the technology they released anddisseminated.

Linkage arrangement based on mutual trust between malt barleyproducer farmers and AMF should be supported by legal formalarrangements to enhance reliable supply and enforce therequirements needed from both sides.

Disorganized and ad hoc spot malt barley transaction between producers and processor should be altered to effective and efficient ways of supply through supporting organized producerfarmers and marketing cooperatives. Support the expansion of service cooperatives, which are critical for providing input/output marketing services.

More price incentives should be provided to farm-level producer to encourage them to produce high quality standard.

There must be public-private partnerships (Research institutions, AMF, Breweries, and Seed Enterprises) in malt barley research and development.

REFERENCES

Abbott. J.C., 1993. Marketing the Rural Poor and Sustainability. In Abbott, J. (ed.) Agricultural and Food Marketing in Developing Countries selected readings. C.A.B International Wallingford: UK .

Ahmed, R. and Rustagi, M., 1987. Marketing and price incentives in Africa and Asia countries: a comparison. In Elz, D. (ed.) Agricultural marketing starategy and pricing policy. World Bank, Washington, DC, pp. 104-118.

Amha, W. ,1999. GAD Grain Marketing Training Program: Country Report for IGAD.Addis Ababa: Ethiopia.Belay, S., Zerihun. W., and Berihe, G.E., 2003. Pulic-Private Partnership inBiotechnology Product Development in Ethiopia. Ethiopian Science and Technology officialReport.

Bauer, P.T. & Yamey. 1993. The Economics of Marketing Reform. In Abbott, J.(ed.) Agricultural and Food Marketing in Developing Countries selected readings. C.A.BInternational Wallingford: UK.

Boehlje, M., Akridge, J. and Downey, D.,1995. Restructuring Agribusinessfor the 21st century, Agribusiness, vol. 11 no 6: 493-500.

Boakye, K A (2000). Presentation at a consultativegroup meeting: The development of market information services for small operators in the agricultural sectors of ACP countries. CTA Headquarters.30-31 October, 2000. Wageningen, The Netherlands.

Carman, H.F., 1997. Agricultural Price Analysis. University of California, USA.

Cramer, L. Jensen, W. and Douglas, D., 2001. Agricultural Economics andAgribusiness 8th ed. John Wiley and Sons, Inc. New York.

CSA, 1998. Agricultural Sample Survey. Vol. IV, Statistical Bulletin # 193,Addis Ababa: Ethiopia

Delgado, C., 1999. Sources of growth in smallholder agriculture in sub-Saharan Africa:The role of vertical integration of smallholders with processors and marketers of high value-added items.Agrekon, Vol. 38, Special Issue, pp 165-189

Dembélé, N, Tefft, J F. & Staatz, J M.,2000. Mali’s market information system:Innovative evolution in support of a dynamic private sector. Policy Synthesis Paper No. 56, December2000. USAID. Washington D.C., USA

Dessalegn, R., 2002. Civil Society Organizations in Ethiopia’ in Bahru Zewde and S.Pausewang (eds), op cit. Addis Ababa University. Ethiopia.

Dessalegn R., 2003. Access to Resources and Livelihood Insecurity, Forum For Social Studies. Addis Ababa.

Eaton C. , Andrew, K. & Shepherd, W., 2001. Contract Farming, Partnership forGrowth, by, FAO Agricultural Services. Bulletin 145, Rome, Italy.

Eleni, G.2003.From crop surplus to food shortage. http://www.globalpolicy.org/socecon/develop/africa/ 27/6/2005

Esterhuizn, D. & Van Rooyen, C.J (2001). Creating Chain Reaction: Thecompetitiveness of agricultural industry in SA. Working Paper 2001-07, University of Pretoria,South Africa

Ethiopian agriculture, 2003: macro and micro perspective, For Afrint Macro Study.Addis Ababa, Ethiopia

FAO, 2004. Crop and Food Supply Assessment Mission to Ethiopia. Rome: Italy.

FAO, 2004. Strengthening Farm- Agribusiness Linkages. Summary results of five country studies in Ghana, Nigeria, Kenya, Uganda and South Africa. AGSF Occasional Paper 6.

FAO, 2003.. Country Studies on Strengthening Farm Agribusiness Linkages.In Rottger, A. (eds.) Draft Synthesis Results. Rome, Italy.

FAO, 2002. Country Report, Ethiopia. http://www.FAO.org/ethiopia/html. 25/5/2005.

Farris, P.L., 1997. Market Structure and Institutions. In Padberg, D.I,Ritson, C. & Albisu, L.M. (eds.). Agro Food Marketing. CAB International, Wallingford, UK.

Ferris, S.& Muganga, A., 2000. Presentation at a consultative group meeting: Thedevelopment of market information services for small operators in the agricultural sectors of ACP countries. CTA.

Kandiwa, V. (1999). Economic performance of smallholder farmers using alternative vertical coordination mechanisms for horticultural crops. Cornell University.

Kirsten, J., and Sartorius, K., 2002. Farm-agribusiness linkages in South Africa:Empowering disadvantaged communities through links with agribusiness. Working paper: 2002-11. Departmentof Agricultural Economics, Extension and Rural Development University ofPretoria, Pretoria, South Africa

Krueger, R. ,1994. Focus Group Discussion: A Guide to Applied Research. SagePublications, London.

http://www.FAO.org/ethiopia/html

http://www.globalpolicy.org/socecon/develop/africa/

Legesse, B., 2003. Risk management strategies of smallholder farmers in the Easternhighlands of Ethiopia. Doctoral dissertation. Swedish University of AgriculturalSciences, Department of Rural Development Studies.

Liu, Fu-Shan, 1995. Building a Farmers’ Organization’s System in a Developing Country:TheTaiwan Experience. National Training Institute for Farmers’ Organizations (NTIFOTraining Series, No. 1)

Ministry of Finance and Economic Development, 2002. Ethiopia: SustainableDevelopment and Poverty Reduction Program. Addis Ababa: Ethiopia.

Mittendorf, H.J., 1995. Improving Physical Marketing Infrastructure in Africa throughmore self help. In Abbott, J. (ed.) Agricultural and Food Marketing in DevelopingCountries selected readings. C.A.B International Wallingford: UK

Morris, L., 1995. Rapid Reconnaissance Methods for Diagnosis of sub-sector limitations.Economic Program, International Maize and Wheat Improvement Center(CIMMYT), Thailand.

Oromiya Regional State Government, 1998. Socio economic Profile, of districts foundin Arsi Zone. Council of the Regional State of Oromiya: Bureau of Planning and EconomicDevelopment, Addis Ababa Ethiopia.

Padberg, D.I., 1997. The Global context of Agro-food Marketing. In Padberg, D.I,Ritson, C. & Albisu, L.M. (eds.). Agro Food Marketing. CAB International, Wallingford, UK.

Rayner, A.J. and Young, R., 1980. Information, hierarchical modelstructure and forecasting. European Review of Agricultural Economics7, 289-300.

Reardon, T. and Barrett, C.B. ,2000. Agro industrialization,globalization, and international development: An overview of issues, patterns, and determinants.Journal of Agricultural Economics, Vol. 23 Special issue, September 2000: 195-205.

Ritson, C., 1997. Food Marketing and Agricultural Marketing: The scope and the Subjectof Agro-food Marketing. In Padberg, D.I, Ritson, C. & Albisu, L.M. (eds.). AgroFood Marketing. CAB International, Wallingford, UK

Schubert, B. 1998. Agricultural Market Information Services. Marketing ServicesFAO, Rome.

Scott, G.J., 1995. Agricultural Marketing Research in Developing Countries: Old and New Challenges. In Scott, G.J. (ed.) Price Product and People: Analysing Agricultural Marketing in Developing Countries. Lynne Rienner Publishers, Inc. USA.

Shapiro, B.I. and Staal, S., 1995. The Policy Analysis Matrix applied toAgricultural Commodity Market. In Scott, G.J. (ed.) Price Product and People: Analysing Agricultural Marketing in Developing Countries. Lynne Rienner Publishers, Inc. USA.

Shepherd, W. 2001.Bringing Market Information to Farmers. FAO Headquarters in Rome,

Shepherd, W.,1997. Market information services - Theory and practice. AGS Bulletin No.125. FAO. Rome, Italy

Shepherd, W.,2000. Understanding and using market information. FAO MarketingExtension Guide No 2. Marketing and Rural Finance Service, FAO. Rome, Italy.

United Nation, 2002. Investment and innovation policy review, Ethiopia. UN publication

Van der Laan, H.L. 1993. The Lebanese Trading in Sierra Leone. In Abbott, J.(ed.) Agricultural and Food Marketing in Developing Countries selected readings. C.A.B InternationalWallingford: UK

Van Rooyen, C.J & Esterhuizn, D., 2002. Business system for increasedcompetitiveness in agribusiness sector of SA, Working paper 01-02 University of Pretoria, South Africa

WFP, 2002. Special Report Crop and Food Supply Assessment Mission to Ethiopia. Rome,Italy.

Wills Walter, J., 1979. An introduction to Agricultural management, 2nd ed.Danville, iii: The interdatate Printer and Publishers.

World Bank, 2002. Economic Report on Africa : Tracking Performance and Progress.Washington, D.C.

Zandstra, H., 1995. Analyzing Agricultural Markets in DevelopingCountries. In Scott (ed.) Price Product and People. International Potato Center (CIP).

Appendices

Appendix 1: Types of linkages in the producer-processor supply chain

( = usually informal1 linkages, = formal linkages exist in some countries) Domestic Export markets PROCESSORS markets (processed foods) (processed foods)

Domestic Small Medium Large Exportmarket scale scale scale market(crops) (unprocessed food)

Traders

1Source: FAO, Occasional Paper, 2003

Urban retailmarkets Export agents

Distributors

Wholesalers

Commission agents

Urban wholesale markets

Traders

Rural wholesale NGOs/ Large scaleAgents for markets Fair Tradepackers multinational Organizations companies/supermarkets

Traders/Hauliers

Rural retail markets/rural Farmers’collection centers organizations

Livestock/milk Agriculture/Horticulture FisheriesFloriculture

PRODUCERS

Appendix 2. The Seed Supply System (Source: Belay, et al., 2003)

Research Institutes Universities NVRC

NAIA

Research Institutes Universities

ESE Research Institutes Universities

ESE

. ESE

. Private seed farms

ESE

BOA

NGO

Private

Plant Breeding

Variety Release and

Breeder Seed

Pre Basic Seed

Basic Seed Certified Seed

Farmers

Quality Control

NAIADUS +UCV UuUCV

IndustriesMaltFood

processing

Direct Purchas

Retailers/

Appendix 3: Some Important Statistics of Asella Malt Factory

No. Variables Amount

1 Average yearly Capital of Asella Malt Factory 49,500,000.00 Birr*

2 Buying price of 100 kg of malt barley 160.00 Birr3 Selling price of 100 kg of malt barley 380.00 Birr4 Average quantity marketed per year 150,000.00 quintals5 Tax paid per 100 kg of malt barley 57.00 Birr6 Fixed cost per 100 kg of malt barley 59.00 Birr

7 Average annual profit in the last five years 6,000,000.00 Birr

Source: own survey * 1 €= 10.70 Eth Birr

Documents

Farm Agribusiness Linkages