Spatial Analysis of Cereal Market Prices: Effects of Remoteness on Market Price

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE • ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTEINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE • ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

Spatial Analysis of Cereal Market Prices: Effects of Remoteness on Market Price

Emily Schmidt and Hailu ShiferawThe 4th ESRI-EA Conference 24 -25 September 2009Addis Ababa, Ethiopia

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE – ETHIOPIA STRATEGY SUPPORT PROGRAM


Overview

• Introduction

• Methodology

• Results

• Policy options

• Conclusions



An important determinant of household food security

is the market price of key cereal grains.

• Given Ethiopia’s unique biophysical landscape, and spatial placement

of key infrastructures, cereal prices vary across geographic areas.

• We analyze price variations over space for four major cereals

• Taking into account:

• Geographic location of 120 cereal markets

• Travel time from cereal markets to large cities

• Whether a market center is in a region that is classified as surplus

or deficit

• Teff

• Wheat

• Maize

• Sorghum

Introduction



Effects of location on grain prices

We test the hypothesis:

• Highest prices of cereal grains are in the rural-remote,

deficit producing areas

• High transportation costs to remote areas, with local deficit

production accounts for higher prices in these areas in order to

account for transaction costs

• Lowest prices are in the rural-remote, surplus grain

producing areas

• Rural, remote areas which are growing a surplus amount of

grain, but do not have access to larger markets (or cities)

forced to sell excess supply at low prices

Introduction



Each market is categorized by:

• Net Cereal Supply:• Surplus: Net production is greater than 10% reported consumption

• Autarky (Balanced): Net production is between 10% above and below reported consumption

• Deficit: Net production is below 10% of consumption

• Travel Time:• Remote (greater than 5 hours travel time from a major city)

• Non remote (less than 5 hours travel time from a major city)

• Rural/Urban: • Rural towns (markets within a town less than 20,000 people)

• Small towns (markets within a town with at least 20,000 people)

• Large city (Addis Ababa and Dire Dawa)

Methodology



Cereal markets and net supply

for all grains

Methodology


Net Wheat Supply

Net Teff Supply


Market Access and Remoteness

• Euclidean distance does not take into account biophysical features such as mountains and rivers, nor does it assess road quality and travel speed

• The shortest route in kilometers may not always be the fastest route

• By calculating a travel time from each market, to an urban hub (city of 50,000 people), we are able to classify our study markets into:

• Remote: more than 5 hours travel time to a city

• Non – remote: less than 5 hours travel time to a city

Methodology



Travel Time calculation incorporates:• Road types and classes:

• Paved, all weather / dry weather

• Gravel, all weather / dry weather

• Earth

• Landcover – walking speed

• Rivers

• Waterbodies

• Slope (calculated using DEM)

• These layers are then reclassified and combined into a friction layer that reflects the time in minutes to cross a single 1km. cell (pixel).

• This friction layer is then used as input data to calculate a cost distance (travel time) to a given target

Methodology

Travel time to cities of at least 50,000 people



Market centers and travel time

to a city of at least 50,000 people

Results


• Several markets in

Benishangul – Gumuz have

surplus grain production,

but remain further than 5

hours travel time to a large

city

• Areas in SNNP region

show deficit production

levels and are not

connected to a major road

network nor are they within

5 hours of a city

•Afar region also has

population in deficit, distant

areas


Markets disaggregated by production, remoteness,

and urban / rural classifications

Results


• A majority of sorghum

production is found in the

Northwest of Ethiopia, Surplus

– distant markets are found in

Benishangul – Gumuz

• Maize, wheat and teff are

grown primarily in the

highlands of Oromia and

Amhara regions

• Some surplus area maize is

grown in Afar region, as well

as selected regions in

Benishangul - Gumuz and

west Oromia


Location Teff Wheat Maize Sorghum

Rural 3.99 2.97 1.53 2.03

Small Town 3.98 3.10 1.62 2.27

Large Cities 4.44 3.41 1.89 3.40

Addis Ababa 4.46 3.42 1.88 3.40

Distant 3.89 3.02 1.35 1.73

Connected 4.01 3.06 1.63 2.28

Surplus 3.81 2.93 1.56 2.04

Autarky 4.06 3.19 1.52 2.26

Deficit 4.13 3.09 1.59 2.19

Average Grain Price by Location and Cereal (birr/kg, 2006/07)

When aggregated by

all grains, our

hypothesis holds true.

Large cities and small

towns (expected to be

deficit producers)

experience higher

grain prices.

Markets in areas with

surplus production

have lower prices than

deficit markets

Results



Average Teff Price by Location and Variety (birr/kg, 2006/07)

• Compared to rural distant deficit markets, the rural distant surplus markets have

generally lower prices for all teff varietals

• Rural markets that are distant and have deficit production have teff values that

cost roughly 50 cents more per quintile, but urban prices remain the highest for

white and black teff

• Rural deficit prices in connected markets are higher by up to 12 percent for white

and mixed teff.

White Teff Black Teff Mixed Teff

Location Distant Connected Distant Connected Distant Connected

Rural Surplus 3.68 4.16 3.25 3.22 3.50 3.82

Rural Autarky 4.52 4.15 4.00 4.00 4.00 4.00

Rural Deficit 4.27 4.68 3.71 3.58 4.00 4.38

Large cities - 4.99 - 4.00 - 4.33

Addis Ababa - 5.01 - 4.00 - 4.36

Results



Average Wheat Price by Location and Variety (birr/kg, 2006/07)

• Unlike teff, urban prices for white and mixed wheat are not substantially higher

than rural prices

• In distant, deficit areas, white wheat is 15 cents per kilogram higher than in deficit

connected producing areas

• Mixed teff in rural deficit areas is more expensive than in Addis Ababa

• We hypothesize that Ethiopia imports a larger percentage of wheat in comparison

to other grains, and imports of wheat in urban markets may be depressing prices

White Wheat Mixed Wheat

Location Distant Connected Distant Connected

Rural Surplus _ 3.04 _ 2.86

Rural Autarky 3.07 2.95 3.34 _

Rural Deficit 3.22 3.07 3.08 3.02

Large cities 3.22 3.00

Addis Ababa _ 3.23 _ 3.06

Results



9,202 1,855

21,77233,119

4,278

Deficit Distant

Surplus Distant

Deficit Connected

Surplus Connected

Autarky Connected

Population (thousands) in Surplus or Deficit

Producing Areas and Connected or Distant

Regions

Results


• More than 33 million people

live in areas that experience

surplus grain production and

are within 5 hours of a city of

50,000 people

• Almost 22 million people

live in deficit producing areas,

but are able to access a large

city within 5 hours travel time

• Over 9 million people live in

distant, deficit producing

areas and half are from

SNNP region (4.6 million)

•Almost 2 million people have

surplus production, but

limited access to a large

market


High price, Distant Markets outside of the

Productive Safety Net Areas

Woredas that are deficit , remote and experience high market prices

Teff:

• Selamago (SNNP)

• Asayita (Afar)

• Dubti (Afar)

• Moyale (Somali)

Wheat:

• Bambasi (Benshangul-Gumuz)

• Shambo (Oromia)

• Asayita (Afar)

• Dubti (Afar)

• Dahana (Amhara)

Maize:

• Dahana (Amhara)

Sorghum:

• Dubti (Afar)

• Moyale (Somali)

• Dahana (Amhara)

• Basketo (SNNP)

Results



Possible policy interventions for further exploration

In the short term:

• Currently 7.5 million people receive from PSNP program

• Remote, deficit areas facing high grain prices could benefit from PSNP assistance in-kind

In the long term:

• The Road Sector Development Plan initiated in 1997, built and/or improved roughly 15,000km. of trunk and regional roads.

• A future RSDP could assess road investments in order to increase connectivity along specified transportation networks between deficit producing areas and surplus grain markets.



Conclusions

• Analyzing grain prices across geographic space in Ethiopia at an

aggregate level illustrates that most markets are well-connected (in terms

of transport networks) and transaction costs (as reflected in the gross

margins) between rural and urban areas are generally reflected in the

higher prices reported in cities.

• When comparing distant, deficit areas with PSNP receiving woredas,

several woredas emerged that may benefit from PSNP assistance in-kind .

• In the long run, further improvements to transportation infrastructure

between deficit and surplus areas would improve access to key goods and

services, as well as decrease transaction costs between markets.


Technology

Spatial Analysis of Cereal Market Prices: Effects of Remoteness on Market Price