Agribusiness & Markets
Currently, Ethiopian agricultural markets are characterized by extended marketing chains between producers and consumers coupled with limited market infrastructure and services for farmers. The transformation of subsistence agricultural production into a commercially oriented system requires the efficient and timely delivery of quality inputs to farmers at competitive prices. It also requires transparent output markets that provide signals to the farmers, allowing them to make informed decisions on what to produce and at what quality standards, as well as where and when to sell their outputs.
In some commodities, such as specific fruits and vegetables, the oligopolistic nature of the market structure involves just a few intermediary buyers who control a significant aspect of the supply chain, thus reaping the largest portion of the benefit. In addition, due to an absence of wide scale commodity grading and standardization, price incentives related to product quality are limited, resulting in low quality outputs that do not attract premium prices in domestic markets, and make it difficult to access export markets. This also results in high transaction costs and limited transparency as market actors are forced to negotiate with imperfect information. This usually puts smallholder famers at a disadvantage, given their limited economies of scale and sophistication when dealing with large wholesale buyers.
In the absence of adequately remunerating and competitive markets, merely focusing on the production aspect of the agricultural value chain has sometimes led to market price collapses and discouraged farmers from buying yield enhancing inputs to produce more.
Therefore, improving the efficiency of agricultural markets, reducing transaction costs, and improving market information transparency is a prerequisite for broader agricultural transformation. At the same time, increased investment in medium and large scale commercial farming with enhanced linkages to smallholders through out-grower schemes and contract farming arrangements is envisaged to significantly contribute to exports, as well as producing high quality and quantity raw materials for agroindustry which reduce imports and save valuable foreign exchange reserves.