THE BROKERAGE INSTITUTIONS AND SMALLHOLDER MARKET

LINKAGES IN MARKETING OF HORTICULTURAL CROPS IN

FOGERA WOREDA, SOUTH GONDAR, AMHARA NATIONAL
REGIONAL STATE

M.Sc. Thesis

SIMEGNEW TAMIR ENDALEW

OCTOBER 2012
HARAMAYA UNIVERSITY
THE BROKERAGE INSTITUTIONS AND SMALLHOLDER MARKET
LINKAGES IN MARKETING OF HORTICULTURAL CROPS IN
FOGERA WOREDA, SOUTH GONDAR, AMHARA NATIONAL
REGIONAL STATE

A Thesis Submitted to the Department of Agricultural Economics,

School of Graduate Studies
HARAMAYA UNIVERSITY

In Partial Fulfillment of the Requirements for the Degree of

MASTER OF SCIENCE IN AGRICULTURE
(AGRICULTURAL ECONOMICS)

By
SIMEGNEW TAMIR ENDALEW

OCTOBER 2012
HARAMAYA UNIVERSITY
 APROVAL SHEET

SCHOOL OF GRADUATE STUDIES

HARAMAYA UNIVERSITY

As thesis research advisors, we hereby certify that we have read this thesis prepared under our
direction, by Simegnew Tamir, entitled “The Brokerage Institutions and Smallholder Market
Linkages in the Marketing of Horticultural Crops in Fogera Woreda, South Gondar, Amhara
National Regional State” and recommend that it be accepted as fulfilling the thesis requirement.

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Name of Thesis Co-Advisor Signature Date

As members of examining Board of the Final M.Sc. Open Defense, we certify that we have read and
evaluated the thesis prepared by Simegnew Tamir and recommended that it be accepted as fulfilling
the thesis requirement for the degree of Master of Science in Agriculture (Agricultural Economics).

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Final approval and acceptance of the thesis is contingent upon the submission of the final copy of the
thesis to the Council of Graduate Studies (CGS) through the Department of Graduate Committee
(DGC) of the candidate’s major department.

ii 
 
 DEDICATION

I dedicated this thesis manuscript to my father TAMIR ENDALEW.

iii 
 
 STATEMENT OF THE AUTHOR

I hereby declare that this thesis is my work and that all sources of materials used for this
thesis have been duly acknowledged. This thesis has been submitted in partial fulfillment of
the requirements for M.Sc. degree at Haramaya University and is deposited at the University
Library to be made available to borrowers under the rules of the library. I solemnly declare
that this thesis is not submitted to any other institution anywhere for the award of any
academic degree, diploma, or certificate.

Brief quotations from this thesis are allowable without special permission provided that
accurate acknowledgement of source is made. Requests for permission for extended quotation
from or reproduction of this manuscript in whole or in part may be granted by the Department
of Agricultural Economics or the Dean of the School of Graduate Studies, Haramaya
University, when in his judgment the proposed use of the material is in the interests of
scholarship. In all other instances, however, permission must be obtained from the author.

Name: ---------------------------------- Signature: ----------------

Place: Haramaya University, Haramaya

Date of Submission: ----------------

iv 
 
 BIOGRAPHICAL SKETCH

The author was born on August 21, 1984 in Motta, East Gojjam Zone of Amhara Region. He
attended his Elementary School at Aba Motta Elementary School and his Junior Secondary
School at Agew Gemja Bet Junior Secondary School. He completed his high school education
at Ankasha Guagussa Senior Secondary School at Agew Gemja Bet.

The author joined Debub/ Hawassa University, College of Agriculture in 2002 and graduated
with B.Sc. degree in Agricultural Resource Economics and Management on July 2006. Right
after graduation, he was employed in Amhara Regional Agricultural Research Institute as a
Socio-Economic Researcher and Program Coordinator at Andassa Livestock Research Center.
After four years of service in the Research Center he becomes Assistant Researcher I and
worked as Researcher until he joined Haramaya University, School of Graduate Studies in
October 2010 for his M.Sc. degree in Agricultural Economics.

v 
 
 ACKNOWLEDGEMENTS

First and foremost let me praise and honor my GOD for giving me the opportunity and
capacity to accomplish my thesis and for his unreserved gift.

I would like to express my deep gratitude to my major research advisor, Dr. Kinde Getenet,
IWMI and co-advisor, Dr. Jema Haji, Haramaya University, for giving me time from their
tight schedule for their continuous advice, intellectual stimulation, professional guidance and
encouragement in undertaking this study, as well as for their friendly supervision. IWMI has
to be appreciated for giving me financial support for the study.

My particular appreciation and deepest gratitude goes to my mother Ayehu Tegegne who has
devoted her life in nursing me with affection and love which plays great role in the success of
my life. My brothers, Adugna, Manaye, Yebeltal, Zemenu, Abrham and Adisu and my only
sister Tinebeb deserve appreciation for their love in the family and motivation in undertaking
the entire work. My heartfelt appreciation and great thanks goes to Ato Keralem Ejigu, Center
Director of Andassa Livestock Research Center, for providing me the necessary materials
such as field car and technical assistances to undertake my field works in the Fogera Woreda.
Moreover, I would also like to offer my sincere appreciation to all the Researchers, Technical
Assistants (Demelash Dagnaw,Yohanes Menberu, Worku Sendek, Eyasu Lakew and Kegne
Yismaw), Driver (Dereje) and administrative staff of Andassa Livestock Research Center who
supported me in the course of the study.

I feel deep sense of gratitude for my friend Leoulsegged Kassa, Researcher, for helping me in
briefing the propensity score matching model and providing the commands. I would also like
to extend my appreciation to Fogera Woreda office of agriculture and rural development
workers, trade and transport staffs and development agents of study areas for their support in
data collection. Finally, I would like to thank the people of the study villages, brokers and
wholesalers (Baye, Mengstu, Sete, Gizat and Huno) who extended their warm hospitality and
generously shared their views and made this work possible.

vi 
 
 LIST OF ABRIVATIONS AND ACRONYMS

ADLI Agriculture Development Led Industrialization

ANRS Amhara National Regional State
BoFED Bureau of Finance and Economic Development
CSA Central Statistics Authority
CSE Conservation Strategy of Ethiopia
ECX Ethiopian Commodity Exchange
FEDRE Federal Democratic Republic of Ethiopia
FIML Full Information Maximum Likelihood
GDP Gross Domestic Product
GTP Growth and Transformation Plan
ILRI International Livestock Research Center
IPMS Improving Productivity and Market Success of Ethiopian Farmers
Kms Kilometers
MoARD Ministry of Agriculture and Rural Development
MSF Ministry of State Farm
MSI Ministry of State Industry
NIE New Institutional Economics
NGOs Non Government Organizations
OLS Ordinary Least Squares
PADETS Participatory Agricultural Demonstration, Extension and Training System
PASDEP Plan for Accelerated and Sustainable Development to End Poverty
PRSP Poverty Reduction Strategy Paper
PSM Propensity Score Matching
RMA Rapid Market Appraisal
SDPRP Sustainable Development and Poverty Reduction Program

vii 
 
 TABLE OF CONTENTS
STATEMENT OF THE AUTHOR iv
BIOGRAPHICAL SKETCH v
ACKNOWLEDGEMENTS vi
LIST OF ABRIVATIONS AND ACRONYMS vii
TABLE OF CONTENTS viii
LIST OF TABLES xi
LIST OF FIGURES xii
LIST OF APPENDIX TABLES xiii
ABSTRACT xiv
1. INTRODUCTION 1
1.1. Background of the Study 1
1.2. Problem Statement 3
1.3. Objectives of the Study 6
1.4. Significance of the Study 7
1.5. Scope and Limitations of the Study 7
1.6. Organization of the Thesis 8
2. LITERATURE REVIEW 9
2.1. Definitions of Related Terms 9
2.2. Major Policy Reforms in Ethiopia Related to Market Institutions 11
2.3. Commodity Exchange 12
2.3.1. What is commodity exchange? 12
2.3.2. The rationale behind the establishment of Ethiopian commodity exchange 13
2.3.3. Ethiopian commodity exchange current status 14
2.4. The New Institutional Economics Approach 15
2.4.1. Transaction costs 15
2.4.2. Institutions to facilitate exchange 16
2.4.3. Social capital 17
2.5. Market Imperfection and the Brokerage Institutions in Ethiopia 17
2.6. Properties of Horticultural Production and Marketing 18
2.6.1. General properties of horticultural products 18

viii 
 
 2.6.2. Overview of Horticultural Crops production and Marketing in Ethiopia 20
2.6.3. Horticultural Crop Production and Marketing in Fogera Woreda 21
2.6.3.1. Production problems 22
2.6.3.2. Marketing problems 22
2.6.3.3. Production opportunities 23
2.7. Impact Evaluation Methods 23
2.7.1. Experimental methods 24
2.7.2. Quasi and non-experimental methods 24
2.8. Propensity Score Matching 27
2.9. Empirical Studies on Horticultural Marketing Systems and the Role of Brokerage
Institutions in Developing Countries and Ethiopia 29
3. RESEARCH METHDOLOGY 34
3.1. Description of the Study Area 34
3.1.1. Land use pattern and population of Fogera Woreda 34
3.1.2. Priority farming systems 36
3.2. Methods of Data Collection 38
3.3. Sampling Procedures 38
3.3.1. Farmers sampling 39
3.3.2. Brokers, rural assemblers and wholesalers sampling 39
3.3.3. Retailers sampling 40
3.4. Methods of Data Analysis 41
3.4.1. Descriptive statistics 41
3.4.2. Econometric models 41
3.4.2.1. Propensity score matching model 41
3.4.2.2. The Ordinary Least Square (OLS) regression 53
4. RESULTS AND DISCUSSION 60
4.1. The Brokerage Institutions 60
4.1.1. Socioeconomic profile of brokerage institutions 60
4.1.2. Which horticultural products have significant brokerage activity in the area? 62
4.1.3. Characteristics and economic role of brokerage institutions 62
4.1.5. The rationale behind the emergence of farmer brokers 70

ix 
 
 4.1.6. Market outlets or target markets of brokerage institutions 72
4.1.7. Producer’s perception of brokerage institutions 72
4.1.8. Night transaction and loading 72
4.1.9. Constraints of brokerage institutions 73
4.1.10. Opportunities to the brokers 74
4.2. Brokerage Institutions and Smallholder Market Linkages 74
4.2.1. Descriptive statistics 74
4.2.1.1. Demographic characteristics of sample households 74
4.2.1.2. Socio-economic characteristics of sample households 76
4.2.1.3. Institutional and organizational aspects 77
4.2.1.4. Social capital 78
4.2.2. Propensity score matching model 78
4.2.2.1. Estimation of propensity scores 79
4.2.2.2. Common support condition 83
4.2.2.3. Matching of participant and non-participant households 86
4.3. Impacts of the Brokerage Institutions 88
4.3. 1. Impact on net return from onion production 89
4.3. 2. Impact on percentage of marketed surplus 89
4.3. 3. Impact on Amount of Onion Produced and Land Allocated to Onion Production 90
4.3.4. Sensitivity Analysis 91
4.4. Brokerage Institutions and Wholesaler Market Linkages 92
4.4.1. Demographic profiles of the wholesalers 92
4.4.2. Socio-economic characteristics and assets of wholesalers 94
4.4.3. Institutional and organizational aspects 94
4.4.4. Wholesaler’s perceptions of brokerage institutions 95
4.4.5. Determinants of share (percentage) of brokered transactions 96
5. SUMMARY, CONCLUSIONS AND RECOMMANDATIONS 99
5.1. Summary 99
5.2. Conclusions and Recommendations 102
6. REFERENCES 105
7. APPENDICES 111

x 
 
 LIST OF TABLES

Table Page
1. Land use pattern of Fogera Woreda………………………………………………………..35
2. Farming system by ecological zone in Fogera Woreda………………………………..…..36
3. Sampling frame and the sample size………………………………………...……………..39
4. Variable definition and measurements for PSM…………………………...………………52
5. Variable definition and measurements for Heckman two stage model…………………….59
6. Frequency distributions of brokerage institutions………………………………….………60
7. Descriptive statistics for continuous variables………………………………………..……62
8. Descriptive statistics of some variables……………………………………………………67
9. Descriptive statistics of sample households on pre-intervention characteristics…………..75
10. Descriptive statistics of sample households (for dummy variables)…………….…..……78
11. Logit results of households’ brokerage institution participation…………………………80
12. Balancing test of matched sample…………………………………………………….…..87
13. Performance of matching estimators under the three criteria…………………………….88
14. Impact of brokerage institutions……………………………………………………...…..89
15. Result of sensitivity analysis using Rosenbaum bounding approach…………………….91
16. Descriptive statistics of sample wholesalers (for continuous variables)………...……..…93
17. Descriptive statistics of sample wholesalers (for dummy variables)……………….…….95
18. Results of Ordinary Least Square (OLS) estimation …………………………………….96

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 LIST OF FIGURES

Figure Page
1. Map of the study area………………………………………………………………………37
2. Broker’s chain and flow of transactions using brokerage institutions……………………..68
3. Kernel density of propensity scores before matching……………………………………...84
4. Kernel density estimates of participants before and after common support…………….…85
5. Kernel density estimate of propensity scores of non-participants households before and
after common support…………………………………………………..…………………….86

xii 
 
 LIST OF APPENDIX TABLES

Appendix Table Page

1. Multicollinearity test for explanatory variables in PSM…………………………...……..112
2. Multicollinearity test for explanatory variables in OLS……………………...……….….113
3. Conversion factor used to calculate TLU…………………………………………………113
4. Labor supply conversion factor (person day equivalent)………………………………....114

xiii 
 
 THE BROKERAGE INSTITUTIONS AND SMALLHOLDER MARKET LINKAGES
IN MARKETING OF HORTICULTURAL CROPS IN FOGERA WOREDA, SOUTH
GONDAR, AMHARA NATIONAL REGIONAL STATE

SIMEGNEW TAMIR

Major Advisor: Kinde Getnet (PhD)

Co-Advisor: Jema Haji (PhD)

ABSTRACT

The main objective of this study was to analyze the economic roles played by the brokerage
institutions in smallholder market linkages to the wholesalers in vegetable marketing and
determinants of decisions on whether to use brokerage institutions or not under imperfect
market condition in Fogera Woreda, North Western Amhara Region particularly focusing on
onion and tomato. Both secondary and primary data were collected for the study. Primary
data were collected from a very wide number of respondents at all stages of the market
channel where brokers are expected to play role. Two stage sampling techniques were used to
select the sample farmers. Descriptive and econometric statistical models were employed for
data analysis using STATA software. The study implemented the propensity score matching
and Ordinary Least Square (OLS) estimation. The result of the study showed that the
brokerage institutions are characterized as urban, peri-urban and farmer brokers. There is
significant brokerage activity only for onion marketing and in the case of tomato marketing
the brokers act as rural assemblers. Most of the horticultural trading in the area is
undertaken by credit and thrust based. Logistic regression estimation of Propensity Score
Matching revealed that Age, education level, distance of residence from development agent
office, distance of residence from Woreta market, distance of residence from main asphalt
road, access to cell phone (mobile phone) and number of regular wholesaler customers
significantly affected the participation decisions of the smallholders in the brokerage
institutions services. Kernel Matching with band width of 0.25 was found to be the best
matching algorithm. The result of the study also revealed that, smallholder farmers using
brokerage institutions have got 4393.62 ETB higher net income and 13.55% of greater
marketed surplus than those smallholders who do not use. The OLS regression estimation
showed that distance of residence of wholesaler, experience in trading, number of regular
broker customers, number of regular farmer customers and number of regular wholesaler
buyer customers found in other areas and cost of not using brokers significantly affected the
intensity of use of brokerage institutions. Generally, the brokerage institutions are playing
significant and important role in forming market linkages between smallholders and
wholesalers under imperfect market conditions with their limitations. Therefore, the study
highly recommends the formalization of the brokerage institutions through licensing, training
and continuous follow up in the Woreda considering the experience of ECX.

Key words: Fogera, Brokerage institutions, PSM, OLS, ECX

xiv 
 
 1. INTRODUCTION

1.1. Background of the Study

The primary development goal of the Ethiopian government is to achieve food security and
sustain high economic and export growth levels with the aim to eradicate poverty. The current
Growth and Transformation Plan (GTP) agricultural investment areas are divided into
implementation directions: scaling up model farmers’ practices to all farmers, improving
agricultural water use and expanding irrigation development, proper utilization of agricultural
land, extensive use of labor, linking specialization with diversification, efficient agricultural
marketing and increasing the production of high value agricultural commodities using
medium and small scale irrigation systems to enable at least double production. Thus, the
commercialization aspect is to be assisted through well organized market linkages so that
what is produced can be marketed and this needs organizational set up among farmers and
development of infrastructure, market information and market institutions (MoARD, 2010).

Ethiopia has highly-diversified agro-ecological conditions which are suitable for the
production of various types of fruit and vegetables. However, the contribution of horticultural
crops both to the diet and income of Ethiopians is insignificant. With the aim of enhancing
agricultural development, the Government considers various projects, including small-scale
irrigation mainly through rainfall harvesting and home gardening, to be of crucial importance.
As a result, vegetable and fruit production is being more widely adopted, primarily to ensure
food security and promote production of high-value crops for the market and improving the
living conditions of smallholders (Abebe, 2008).

In Amhara Region, agriculture contributed to about 55.8 % of the total regional GDP and
accounted for an employment of 87.4 percent of the total population (BOFED, 2011). Crop
production in the region is rain fed, supported by very little irrigation mainly for vegetables.
According to CSA (2012) the total cultivated land size of ANRS by the year 2011/12 was
estimated to be 4.287 million ha from which, horticulture covered about 88.98 thousands of
ha and produced over 5.8 million quintal through employing over 3.5 million small-holders.
Onion covered 12,174.60 and tomato covered 892.72 ha of land.

Fogera Woreda, where the study focused, is endowed with diverse natural resource, with the
capacity to grow different annual and perennial crops. Two major rivers are of great
importance to the Woreda, Gumara and Rib. They are used for irrigation during the dry
season for the production of horticultural crops mainly vegetables. Major types of vegetable
crops grown in the area include potato, onion, tomato, garlic, green peppers and some leafy
vegetables. Owing to its production potential (seasonal irrigation and rainfed-based, low cost,
and organic agriculture) and easily accessible road transport to reach local markets (Abay,
2007), the area is experiencing an emerging commercial horticulture production by
smallholders in recent years.

According to the Fogera district Bureau of Agriculture and Rural Development, there was an
estimated 19,774ha of land cultivated under horticulture crops in 2010, from which a total of
203,063tons of vegetables is produced. The respective figures increased to 20,635ha and
270,484tons in 2011. A considerable number of farmers in the district are involved in
commercial production of vegetables, mainly onion and tomato, using both irrigated and rain-
fed agriculture. Such growing participation of farmers in commercial vegetable production is
contributing to a changing farming system (especially in the livestock farming system) and to
new livelihood strategies in the vegetable producing areas of the district. Smallholders in the
Woreda participate in commercial agriculture by producing and marketing horticulture crops
for local and national markets using the services of the brokerage institution. The marketing
channel of tomato and onion crops is through the interconnection of different actors namely
producing farmers, rural assemblers, wholesalers, retailers, consumers, transporters and
brokers. Wholesalers and brokers control the whole channel (because of asymmetric market
information) resulted in an exploitative market behavior in onion market.

2 
 
1.2. Problem Statement

Strong assumptions like large number of buyers and sellers, complete information, perfect
mobility of resources, free entry and exit and price taken by all economic agents (price is
determined by the market) are the characteristics of perfect competition (MasCollel et al.,
1995). This ideal situation, however, does not exist in the real rural agricultural market like
Fogera Woreda. When market participants do not have equal information on prices, quality
and quantities of the product under transaction and on the number of trading agents in the
market, there is an incentive for better informed agents to uphold information and maximize
their private benefits (Cramton, 1984). Incomplete information increases transaction costs and
leads to bargaining inefficiency.

The dynamics of horticultural marketing has a great influence on farmer’s response in terms
of production and market participation which in turn influences the level of income and
poverty situation among smallholder farmers. Four ingredients that determine the acceptance
of vegetables through a marketing system are quality of the product, volume of high quality
produce, continuity of both volume and quality, and price the grower expect to receive
(Nonneck, 1989). Moreover, the marketing system is influenced by a number of production,
product and market characteristics like perishabity , price and quantity risks, seasonality,
product bulkiness, and geographic specialization (Kohls and Uhl, 1985).

Despite policy support as one of the mechanisms for creating investment opportunities in the
horticulture sector for production, transportation, grading, exporting and financing the venture
there is great problem of horticultural marketing in Ethiopia. Moti (2007) investigated the
role of markets in the smallholder farmers’ resource allocation for subsistence food crops and
commercial cash crop production. The results revealed that limited marketing outlets and lack
of price information were the major factors that hindered the move from subsistence farming
to cash crop production. Furthermore, Bezabih and Hadera (2007) described lack of local
markets to absorb supply, low produce prices, plethora of intermediaries, and lack of
marketing institutions and coordination among farmers as the major constraints on the
marketing of horticultural crops in Ethiopia. They argue that poor product handling and

3 
 
packing, imperfect pricing systems, and lack of transparency in market information are also
among the impediments in the marketing of horticultural crops in Ethiopia.

Efficient coordination in traditional markets is a prerequisite for a successful smallholder

commercialization towards rural transformation, poverty reduction and agrarian change in the
developing countries. However, it is often staggered by the problem of market imperfection
and institutional underdevelopment that increase transaction cost and risk faced by
smallholders. In addition, well organized market linkage needs organizational set up among
farmers and development of infrastructure, market information and market institutions.

Of all the institutions that might contribute to enhance the operation of markets, several
studies (eg. Jema, 2008; Shiferaw et al., 2009; Lokanathan and De Silva, 2010; Quattri et al.,
2011) have documented the crucial role played by brokers. These studies outline the benefits
farmers and wholesalers derive from engaging in the services of brokers such as technical
support, finance, risk sharing and information. However, very few contributions have
investigated the variables influencing the decision of economic agents to use brokers ( Eleni,
2001; Jabbar et al., 2008; Quattri et al., 2011) and only Eleni (2001) and Quattri et al. (2011)
has attempted to explain the actual decision processes followed by traders in the use of
brokers. When it comes to farmers, to our best knowledge, no attempt has been made to
explain the determinants of farmers’ decisions to use brokers and their impacts on smallholder
farmers. Yet, it is increasingly recognized that the formulation of market-enhancing policy
and intervention programs require a clearer understanding of transaction costs, institutional
marketing arrangements, and microeconomic trader behavior (Dercon 1996).

There are no producer organizations, such as cooperatives to coordinate horticultural

marketing purpose in Fogera on behalf of farmers, against a growing demand for the products
in different parts of the country. Although multipurpose cooperatives had been established in
the district a few years back, they remain inefficient to effectively coordinate the marketing
activities and to successfully link farmers to markets. Because of this, success in horticulture
crop production as high value crops is not necessarily translated into a market success in the
area. Such institutional bottlenecks against an emerging horticultural market have created a

4 
 
fertile ground for a strong presence of brokers in the horticultural market of Fogera. Though
road infrastructure and use of mobile telephones among farmers for market access and
information exchange is reasonable, direct linkage of farmers to the wholesale market (the
major market for the horticulture crops produced) is very limited. As a result, the majority of
smallholders opt to use brokers to sell their products to wholesalers, who distribute products
to different consumer and seasonally deficit producer markets in the country.

Given the large volume of horticulture products in the area, combined with seasonal glut and
high perishability, efficient market coordination and logistics are necessary to link Fogera
horticulture farmers with the wholesale markets and to enable them generate sufficient
economic incentives. In rural areas where producer organizations are absent and market
institutions are underdeveloped, posing a challenge for smallholder market linkage, brokers
could fill the coordination gaps and logistical constraints to facilitate exchange. Fogera
provides a useful case in this regard where the brokerage institution, which dominantly exists
informally, plays an important role in coordinating the horticultural marketing activities,
starting from the farm. According to Amhara Regional Agricultural Research Institute and
Amhara Regional Bereau of Agriculture (2008) participatory rural appraisal report, one of the
priority research problems in horticultural marketing in the Woreda was the role and functions
of informal brokerage activity in the area.

However, the brokers at Fogera horticulture market (who play a market coordination role by
constituting an important element of the “invisible hand”), are not closely studied, known, and
described in terms of their profile, functions and roles, organizational setup, impacts, and
limitations and constraints to improve the performance, efficiency, and impact of the
brokerage institution as an important intermediary in the horticultural supply chain of the
area. Perhaps, this is a result of the less recognition the brokerage institution receives. This
paper is intended to contribute to filling this knowledge gap in the area by addressing research
questions like:
• What are the socioeconomic profiles and economic roles of brokerage institutions?
• What are the major constraints and opportunities of the brokerage institution in the
marketing of horticultural crops?

5 
 
 • How do brokerage institutions act in the market linkages between farmers and
wholesalers?
• Are brokers trusted institutions fulfilling desirable economic roles?
• Which of the variables significantly impact on farmers decisions on whether to use
brokers or not and determinants of intensity brokerage use by wholesalers?
• What are the impacts of brokerage institutions for smallholder farmers

1.3. Objectives of the Study

The general objective of the study was:

• To assess the economic roles played by the brokerage institution in smallholder
market linkages and identify determinants of decisions on whether to use brokers or
not under imperfect market condition in the study area.

The specific objectives of the study were:

• To assess the socioeconomic profile, economic roles, constraints and opportunities of

the brokerage institutions
• To identify the determinants of farmers decision whether to use brokerage institutions
or not as a means of market linkage to wholesalers
• To measure the impact of brokerage activities on percentage of marketed surplus and
income generation capacity; and
• To identify the determinants of wholesalers decisions on the extent of brokerage
intuitions usage under imperfect market condition of horticultural marketing.

6 
 
1.4. Significance of the Study

Horticultural marketing in Ethiopia and Fogera Woreda in particular is constrained by number

of factors such as seasonality of production, perishable nature of the product, bulkiness,
imperfect market information and market power by traders. Many studies indicated that the
dynamics of horticultural marketing have great interaction with farmer’s participation and
production response in developing countries and Ethiopia. Recent studies in developing
countries indicated that the brokerage institutions play great role by solving market
imperfection by providing market information, finance, technical support and risk sharing.
Therefore, study of the brokerage institutions and smallholder market linkages in the
horticultural marketing of Fogera district is very crucial to identify and inform Government
and other development partners with possible strategies that would support horticulture
marketing to improve the economy of the Region and more specifically the income of poor
farmers which in turn helps farmers coming out of poverty.

1.5. Scope and Limitations of the Study

The research concentrated on the Fogera District, South Gondar horticultural production area
to major market centers (Gondar and Bahir Dar cities). The type of crop was limited to onion
for its proportion in production and marketing in the area. Other vegetable crop types are not
considered because their production is limited and have little proportion in marketing
activities and no report of strong brokerage activities. Along the marketing chain the
consumers were not considered because of the expectation of no brokerage activity between
the retailers and consumers. The study has also considered only samples of the market actors
along the horticultural market chains and detail investigations in relation to production and
consumption studies were not undertaken. The other one is the limitations associated with the
Propensity Score Matching Model. It needs large sample size, group overlap and hidden bias
because matching only controls for observed variables. The research used different techniques
such as increasing sample size, common support conditions and sensitivity analysis in order to
reduce these limitations.

7 
 
1.6. Organization of the Thesis

Excluding the introduction, the next part of this thesis is organized in to four parts. The
literature review includes the concepts of market, polices related to market, brokerage
institutions, the new institutional economic theory, horticultural marketing, methodologies
used in impact evaluation and empirical studies on the roles of brokerage institutions. The
methodology part includes description of the study area, methods of data collection and data
analysis. The result and discussion section presents the descriptive and econometric results
and discusses the research outcomes. The final section of the Thesis presents summary of the
findings of the study, conclusion and implications of the research.

8 
 
 2. LITERATURE REVIEW

2.1. Definitions of Related Terms

Market: Kohls and Uhl (1985) define market as an “an area for organizing and facilitating
business activities and for answering the basic economic questions: what to produce, how
much to produce, how to produce, and how to distribute production.”

Marketing: It is about flow of goods and services from their point of production to
consumption (Abbott and Makeham, 1981; Kohls and Uhl, 1985). For Mendoza (1995),
marketing is a ‘‘system’’, which comprises several and usually stable and interrelated
structures that along with production, distribution and consumption, strengthen the economic
process. Usually, the marketing of agricultural products begins at the farm when the farmer
plans his production to meet specific demand and market prospects (Abbott and Makeham,
1981; Kohls and Uhl, 1985).

Market chain: It is the term used to describe the various links that connect all the actors and
transactions involved in the movement of agricultural goods from the producer to the
consumer. Commodity chain is the chain that connects smallholder farmers to technologies
that they need on one side of the chain and to the product markets of the commodity on the
other side.

Marketable and marketed surplus: Marketable surplus is the quantity of the produce left
out after meeting the farmers’ consumption and utilization requirements for kind payments
and other obligations such as gifts, donation, charity, etc. Thus, marketable surplus shows the
quantity left out for sale in the market. The marketed surplus shows the quantity actually sold
after accounting for losses and retention by the farmers, if any and adding the previous stock
left out for sale. Thus, marketed surplus may be equal to marketable surplus, it may be less if
the entire marketable surplus is not sold out and the farmers retain some stock and if losses
are incurred at the farm or during transit (Thakur et al., 1997).

9 
 
The importance of marketed and marketable surplus has greatly increased owing to the recent
changes in agricultural technology as well as social pattern. In order to maintain the balance
between demand for and supply of agricultural commodities with rapid increase in demand
due to higher growth in population, urbanization, industrialization and overall economic
development, accurate knowledge on marketed/marketable surplus is essential in the process
of proper planning for the procurement, distribution, export and import of agricultural
products (Malik et al., 1993).

Competitive market: In a competitive market, each agent makes inter temporal choices in
a stochastic environment. Their attitudes toward risk, the production possibility set, and the
set of available trades determine the equilibrium quantities and prices of assets that are traded.
In an "idealized" representation agents are assumed to have costless contractual enforcement
and perfect knowledge of future states and their likelihood. With a complete set of state
contingent claims (also known as Arrow–Debreu securities) agents can trade these securities
to hedge against undesirable or bad outcomes. When a market is incomplete, it typically fails
to make the optimal allocation of assets.

Information Asymmetry: In economics and contract theory, information asymmetry deals

with the study of decisions in transactions where one party has more or
better information than the other. This creates an imbalance of power in transactions which
can sometimes cause the transactions to go awry, a kind of market failure in the worst case.

Market linkages: It is a process where an organized community validates and consolidates its
production in new markets in a sustainable way.

Broker: A broker is an individual or party (brokerage firm) that arranges transactions

between a buyer and a seller, and gets a commission when the deal is executed. brokers are
referred to as individuals (or organizations) who facilitate product distribution by bringing
buyers and sellers together but do not take title to goods (Crawford, 1997).Brokers earn
income from the commission paid to them by their clients (buyers and sellers) for the services
they offered. It is also possible that a broker acts as a seller or as a buyer (becoming a

10 
 
principal party in the business transaction) or, in some cases, acts on behalf of a principal (in
both cases by taking title to goods). When they act as agents, they represent either the seller or
the buyer, but not both at the same time.

Opportunity cost: It is the cost of any activity measured in terms of the value of the next best
alternative foregone (that is not chosen). It is the sacrifice related to the second best choice
available to someone, or group, who has picked among several mutually exclusive choices.
The opportunity cost is also the cost of the foregone products after making a choice.
Opportunity cost is a key concept in economics, and has been described as expressing "the
basic relationship between scarcity and choice". The notion of opportunity cost plays a crucial
part in ensuring that scarce resources are used efficiently. Thus, opportunity costs are not
restricted to monetary or financial costs: the real cost of output foregone, lost time, pleasure or
any other benefit that provides utility should also be considered opportunity costs.

Contract theory: In economics, contract theory studies how economic actors can and do
construct contractual arrangements, generally in the presence of asymmetric information.
Because of its connections with both agency and incentives, contract theory is often
categorized within a field known as Law and economics. One prominent application of it is
the design of optimal schemes of managerial compensation. In the field of economics, the first
formal treatment of this topic was given by Kenneth Arrow in the 1960s.

2.2. Major Policy Reforms in Ethiopia Related to Market Institutions

Major policy reforms were undertaken in Ethiopia in the early Nineties in order to substitute
the centrally-planned and controlled socialist economy, in place since 1974, with a free
market system. These reforms were based on the idea that eliminating distortionary economic
interventions by the state was a precondition for “getting prices right”, which was itself
necessary for spurring private investment and economic growth (Timmer, 1986).

However studies indicated that liberalization succeeded in enhancing price transmission

between the main regional markets (Jayne et al., 1998). According to the study made by

11 
 
Barrett and Mutambatsere (2005) the withdrawal of parastatals from core input marketing
activities created a void that the private sector often failed to fill due to underdeveloped
physical communications, power and transport infrastructure, credit constraints and continued
bureaucratic impediments that increased transaction costs for input suppliers. To address the
challenges posed by failing and incomplete markets, the Ethiopian Government has
implemented a number of post-structural market reforms focused instead on “getting
institutions right” (Barrett and Mutambatsere, 2005) and “getting markets right” (World Bank,
2004).

2.3. Commodity Exchange

2.3.1. What is commodity exchange?

To many, a commodity exchange connotes a highly sophisticated market system, with an

electronic-based, highly evolved system of trading in future commodity positions,
exemplified by markets such as the Chicago Board of Trade, the Tokyo Grain Exchange, or
the London Metal Exchange, among others. To many, a commodity exchange is an advanced
market mechanism for use in industrialized countries, out of the reach or inappropriate to low-
income countries.

However, at its heart, a commodity exchange is simply a central place where sellers and
buyers meet to transact in an organized fashion, with certain clearly specified and transparent
“rules of the game.” In its wider sense, a commodity exchange is any organized market place
where trade, with or without the physical commodities, is funneled through a single
mechanism, allowing for maximum effective competition among buyers and among sellers.
The fact of having a single market mechanism to bring together the myriad buyers and sellers
at any point in time effectively results in the greatest concentration of trading for a given
good. This market mechanism, such as a price bidding system or an auction system, results in
what is known as “price discovery,” that is, the emergence of the true market-clearing price
for a good at a particular point in time due to the highest possible concentration and
competition among buyers and among sellers.

12 
 
The difference between a commodity exchange and a typical wholesale or terminal market is
that an exchange creates a mechanism for price discovery to occur in an organized manner,
through a system of price bidding and through a set of rules governing the products brought to
the market, the market actors, and the contracts between buyers and sellers.

2.3.2. The rationale behind the establishment of Ethiopian commodity exchange

Prices of food staples in Ethiopia are highly volatile, due to erratic supplies and weakly
integrated markets, reflected in high transport and transaction costs, which limit opportunities
for smoothing prices through arbitrage across space (transport) and time (storage). Price
volatility undermines both food security for consumers and incentives for food producers.
Under the Derg regime, food trading was tightly controlled through the Agriculture Marketing
Corporation (AMC); however, like many other African countries, Ethiopia underwent rapid
market liberalisation in the 1990s, where prices controls were eliminated and the AMC was
„downsized‟. These reforms did not reduce food price volatility and have arguably
exacerbated it (Eleni, 2001). Market actors react sluggishly to signals of changes in food
supply or demand, leaving producers highly vulnerable to food price collapses and consumers
equally vulnerable to food price inflation. Following bumper harvests in 2001 and 2002, for
instance, grain prices collapsed by 80%, which undermined smallholder incomes and left
300,000 tonnes of grain rotting in the fields because it was not profitable to harvest (Eleni and
Goggin, 2005; Jopson, 2007).

In an innovative attempt to address these high transaction costs, the Ethiopian government is
work with the International Food Policy Research Institute (IFPRI) and established Ethiopian
Commodity Exchange (ECEX) covering six crops: coffee, sesame, haricot beans, maize, teff
and wheat and livestock products. A commodity exchange performs three basic functions: (1)
price transparency: enabling access for everyone to a neutral reference price; (2) price
discovery: ensuring that demand and supply developments are easily reflected in price levels;
(3) reduced transaction costs: making it easier to find buyers or suppliers through a
centralised market-place. Commodity exchanges can also reduce price risk by trading in
futures contracts, and the ECEX will aim to do this in the near future (Gabre-Madhin, 2006).

13 
 
The Ethiopian Commodity Exchange is expected to reduce transaction costs by: (1)
facilitating contact between buyers and sellers, (2) enabling centralised grading of products,
(3) ensuring that contracts are enforceable, (4) providing a mechanism for price discovery, (5)
simplifying transactions with standard contracts, and (6) transmitting information about prices
and volumes which will be enabled through the installation of price tickers at 200 rural sites,
giving farmers independent access to price information from the exchange in Addis Ababa.

The reduction of transaction costs will enable various market actors, including smallholders,
to benefit from a higher share of the final price. Increased information about market prices
will also increase the bargaining power of smallholder farmers and enable them to make
better investment decisions. This in turn, would generate incentives for increased production.
Moreover, if the exchange is linked to a negotiable warehouse receipts system, this can also
increase liquidity for farmers by facilitating access to credit borrowed against the receipt. At
least on paper, the ECEX appears to be an excellent example of an intervention that has the
potential to achieve both social protection and agricultural growth (i.e. livelihood protection
plus livelihood promotion) in a single instrument.

2.3.3. Ethiopian commodity exchange current status

The Ethiopia Commodity Exchange (ECX) is a commodities exchange established April 2008
in Ethiopia. In Proclamation 2007-551, which created the ECX, its stated objective was "to
ensure the development of an efficient modern trading system" that would "protect the rights
and benefits of sellers, buyers, intermediaries, and the general public". The ECX is set up as a
private company owned by a partnership of the market actors, members of the exchange, and
the Ethiopian government, led by Dr. Eleni Gebre Medhin a former economist for the World
Bank. As of July 2011, the physical presence of the ECX consists of 55 warehouses in 17
regional locations. It has grown from trading 138,000 ton in its first year to 508,000 tons in its
third year, with nearly equal shares of coffee and oilseeds and pulses. The value of the ECX
rose 368 percent between 2010 and 2011 to reach US$1.1 billion.

14 
 
As of November 2010, the trading floor in Addis Ababa, handled 200 spot contracts in such
commodities as Coffee, sesame, haricot beans, maize and wheat. It was assessed in July 2011
that total membership equaled 243 with total clients, who trade through members, numbered
about 7,800. Farmer Cooperatives represented 2.4 millions smallholder farmers, which make
up 12 percent of the membership. Currently, the ECX is the only stock or commodity
exchange in Africa to have streamlined payment transfers down to "T+1" (Next day payment
after a trade) from its clearinghouse to its partner commercial banks. Market data reach is
expansive. "Push" price date is transmitted in real time to outdoor electronic ticker boards in
32 rural sites, to the ECX website, 256,000 mobile subscribers via instant messaging, the
radio, TV and print media. "Pull" market data is available through a toll-free phone-in service.
The service received more than 1 million calls in September 2011, 70 percent coming from
rural callers.

2.4. The New Institutional Economics Approach

2.4.1. Transaction costs

According to the New Institutional Economics (NIE) approach, the unit of analysis is the
transaction rather than the price. Exchange itself is costly. Transaction costs, which are
distinct from physical marketing costs such as those for transport and storage, arise from the
coordination of exchange among market actors. They include the costs of obtaining and
processing market information (Hoff and Stiglitz, 1990), negotiating contracts (Williamson,
1985), monitoring agents (Bardhan, 1989), and enforcing contracts (Fafchamps, 1996).
Transaction costs are unique to each market participant, implying that economic actors are not
interchangeable. The presence of transaction costs, which are specific to each market actor,
implies that there is no single effective market price at which exchange occurs (Sadoulet and
de Janvry, 1995). Each agent in the market conducts transactions on the basis of his or her
specific transaction costs. The implications of transaction costs are that markets are thin or fail
if prohibitively high costs prevent exchange.

15 
 
2.4.2. Institutions to facilitate exchange

Institutions are defined as the “rules of the game,” both formal rules and informal constraints
such as norms, conventions, and codes of conduct that provide the structure for human
interaction (North, 1990). Institutions emerge to minimize these transaction costs and to
facilitate market exchange. The evolution from personalized exchange to impersonal or
anonymous exchange, supported by legal systems that enforce contracts, is central to the
process of growth and development (North and Thomas, 1973).

However, following Polanyi (1957), it is widely recognized that market transactions,

particularly in developing countries, are often embedded in long-term, personalized
relationships (Geertz, 1968). Personalized exchange emerges in response to commitment
failure, in which the risk of breach of contract or opportunism is high, resulting from the lack
of market information, inadequate regulation, and the absence of legal enforcement
mechanisms. Institutions build trust and promote reputation and social capital, such as trade
associations, solidarity networks, and groups that enhance ethnic or religious ties, emerge to
circumvent commitment failure (Greif, 1993; Fafchamps, 1996).

Historically, institutions have emerged in various contexts to facilitate anonymous trade.

Historical institutional analysis of pre modern trade in medieval Europe by Milgrom et al.
(1990) showed that an institution known as the Law Merchant enabled impersonal exchange
to occur in 12th and 13th century Champagne fairs. The Law Merchant enabled trade through a
reputation mechanism that stored information about traders’ past behavior and sanctioned
violators of the commercial code. Greif (1993) views the Maghribi traders’ coalition formed
in the 11th century as a means of overcoming the commitment problem intrinsic to long-
distance trade. The coalitions of long-distance traders in 19th-century Mexican California
promoted honest exchange through information sharing and punishing of cheaters. In contrast,
Platteau (1994) argues that decentralized arrangements based on reputation are not sufficient
to ensure honest behavior and that private and public-order institutions are necessary to create
the social conditions necessary for markets to operate. The dominant contract enforcement
mechanism in liberalized grain markets in Madagascar is trust-based relationships, where trust

16 
 
is established primarily by repeated interaction. The incidence of theft and breach of contract
is low, and recourse to the legal system is rare.

2.4.3. Social capital

Although social scientists have long recognized the role of interpersonal relationships in
human interaction (Coleman, 1988), the concept of social capital has been little used in
economics (Barr, 1997). There are two possible meanings of social capital. The first definition
sees social capital as a “stock” of trust and an emotional attachment to a group or society that
facilitates the provision of public goods (Fukuyama, 1995). The second views social capital as
an individual asset that provides private benefits to a single individual or firm (Aoki, 1984).

2.5. Market Imperfection and the Brokerage Institutions in Ethiopia

In perfect market situation, it is believed that there is perfect information, knowledge, no

barrier to entry and exit, price determined by supply and demand and perfect mobility of
resources. However this is ideal and the Ethiopian agricultural marketing is characterized by
imperfect market conditions which is a deviation from perfect market condition. Market
imperfection leads to high transaction costs and poor allocation of resources. Ethiopian
agricultural traders face three major constraints that increase their transaction costs of
participating in the grain market. First, traders do not benefit from a system of agricultural
product standardization and inspection that would enable them to place orders with long
distance partners for guaranteed qualities and quantities of grain. Instead they must be
physically present at the time of transaction in order to visually inspect the grain that is being
exchanged. Second, agricultural traders have very limited recourse to legal means for
enforcing contracts.

Thus, they trade only with partners whom they know well and trust in order to avoid the high
costs of payment delinquency or reneging on the terms of the contract. Third, traders do not
have access to a public market information system that enables them to know prices and flows
in markets outside of their own. This limits traders’ ability to deliver agricultural product to

17 
 
unknown markets or to set contracts to go into effect at a future point in time, thus limiting
their scope of spatial or temporal arbitrage. These market constraints result in high transaction
costs for partner search, information, and enforcement for Ethiopian traders. In order to
reduce these costs, traders engage the services of brokers, known as delala, who act as
intermediaries on their behalf (Eleni, 2001).

The study also indicated that the majority of Ethiopia’s grain traders, 85 percent, regularly use
these intermediaries to conduct their long-distance transactions. Brokers, operating as
commission agents, provide the service of matching regional buyers and sellers, as well as
handling and inspecting shipments of grain and providing market information to their clients.
Brokers have a distinct identity in the market because they do not take market positions
themselves, but only act on behalf of traders. There are approximately 40 established brokers
in the central market of Addis Ababa, compared to a total of 2,500 wholesalers in the country.
These brokers handle roughly 16 percent of the total marketed surplus. Due to their central
position, brokers are keenly aware of prices and flows in the market, and their presence
enables the Addis Ababa market to function as a clearinghouse for grain in Ethiopia.

2.6. Properties of Horticultural Production and Marketing

2.6.1. General properties of horticultural products

Horticultural marketing is influenced by a number of factors that can be attributed to

production, product, and market characteristics. Kohl and Uhl (1985) identified these
attributes as:

Perishability: horticultural crops are highly perishable; they start to lose their quality right
after harvest and continued throughout the process until it is consumed. For this purpose
elaborated and extensive marketing channels, facilities and equipments are vital. This
behavior of horticultural crops exposed the commodity not to be held for long periods and
fresh produce from one area is often sent to distant markets without a firm buyer or price.
Prices may be negotiated while the commodities are en route, and they are frequently diverted

18 
 
from their original destination of a better price can be found. Sellers might have little market
power in determining a price. As a result, a great deal of trust and informal agreements are
involved in marketing fresh vegetables. There could not always be time to write everything
down and negotiate the fine details of a trade. The urgent, informal marketing processes often
leads to disputes between buyers and sellers of fresh horticultural crops. Producers are
normally price takers and are frequently exposed for cheating by any intermediary.

Price /Quantity risks: Due to perishable nature and biological nature of production process
there is a difficulty of scheduling the supply of horticultural crops to market demand. The
crops are subjected to high price and quantity risks with changing consumer demands and
production conditions. Unusual production or harvesting weather or a major crop disease can
influence badly the marketing system. While food-marketing system demands stable price and
supply, a number of marketing arrangements like contract farming provide stability.

Seasonality: horticultures have seasonal production directly influencing their marketing.

Normally they have limited period of harvest and more or less a year round demand. In fact,
in some cases the cultural and religious set up of the society also matter demand to be
seasonal. This seasonality also worsened by lack of facilities to store.

Alternative product forms and markets: While different varieties and qualities could be
grown for the fresh and processed markets, there could also be often alternative markets.
These include form markets (fresh, frozen, dried, and canned), time markets (winter, summer)
and place markets (different towns, foreign market).

Product bulkiness: Since water is the major components of the product, it makes them bulky
and low value per unit that is expensive to transport in fresh form every time. This, therefore,
exposed farmers to lose large amount of product in the farm unsold.

19 
 
2.6.2. Overview of Horticultural Crops production and Marketing in Ethiopia

The potential for irrigation in Ethiopia is estimated to be about two million hectares. Due to
limited experience in water management and control, limited capital available for investment
and the diverse climate and disease vectors characteristics of the lowland areas (where most
irrigation potential is located), irrigated agriculture is far below its potential. Thus production
is heavily dependent on rainfall and uses little capital and technology. Consequently, the
average productivity of both land and labor is extremely low and variable from season to
season. Despite these favorable resource endowments, agricultural production has remained
mostly close to subsistence level.

Horticultural crops are rich in vitamins, carbohydrates and other nutrients that contribute to a
major portion to an Ethiopian daily dish mix. Some nutritional deficiencies like vitamin A and
C, and iron can be corrected by use of selected vegetable and root crops as well as fruits. In
some areas of the country, root crops particularly potatoes and sweet potatoes are used as
staple food for considerable portion of the population. Root crops in general and sweet potato
in particular are drought resistant and serve as security food crops in drought prone areas.
Furthermore, vegetables and root crops generate foreign currency earnings in the country.

Horticultural crops play a significant role in developing country like Ethiopia, both in income
and social spheres for improving income and nutrition status. In addition, it helps in
maintaining ecological balance since horticultural crops species are so diverse. Further, it
provides employment opportunities as their management being labor intensive, production of
these commodities should be encouraged in labor abundant and capital scarce countries like
Ethiopia. Ethiopia is a country with great variety of climate and soil types that can grow
diversity of horticultural crops for home consumption and foreign markets. Currently, the
majority of the horticultural crops product comes from the peasant smallholder farms.
However, their areas of production and their contribution to the country’s total agricultural
output were not known much. Based on the survey per capital consumption of the annual
fresh production assorted vegetables is about 2.86 million tons. From the total volume of
horticultural products 95% is fresh vegetable production. There is no processing of vegetables

20 
 
in the peasant smallholder farm. Production of canned and bottled vegetables is mainly in the
Ministry of State Industry (MSI) and Ministry of State Farm (MSF).

The success of the horticultural sector is largely based on the efficiency and flexibility of the
marketing system. Though grown widely for subsistence purpose, most horticultural products
contribute to the generation of income at household and country level. A bulk share of the
potential demand of horticultural products is in urban areas and in foreign markets. This
underscores the importance of efficient marketing strategies for various commodities.
According to Ethiopian Export Promotion Agency, the current distribution chain of
horticultural commodities in Ethiopia varies depending on the commodity and its level of
commercialization (Sisay, 2004).

Most of the fruits and vegetables produced in Ethiopia are consumed locally and are produced
by smallholder farmers. After harvest, they are transported to rural market centers for local
consumers or are bought at the farm by neighbors. Others are transported to bigger market
centers where many producers utilize the open-air markets that are patronized occasionally,
once or twice a week. Limited post harvest improvement is done for locally consumed fruits
and vegetables. However, fruits like banana, orange, lemon, pineapples and avocadoes
exported to Europe and Middle East are graded and packaged appropriately. Recently
vegetables are also exported to Djibouti. Fruits, vegetables and flowers export consists of 1.27
% of the total export in Ethiopia in 2002 (Moti, 2007).

2.6.3. Horticultural Crop Production and Marketing in Fogera Woreda

Vegetables are produced in both rice based and cereal based farming systems. The major
vegetables in the rice system are onion, pepper and tomatoes are important. In the
Cereal/livestock system, pepper tomatoes and onions are important crops. Production
problems related to vegetables are lack of knowledge, marketing problem and high risk due to
poor shelf life. In addition, there are a number of diseases and pests that are affecting the
productivity of these vegetables. Water management issue due to silting up of shallow wells is
also a problem because it requires annual digging of these shallow wells (IPMS, 2005).

21 
 
2.6.3.1. Production problems

According to Abay (2007) the horticultural crop production in Fogera Woreda is constrained
by number of problems like absence of appropriate post harvest handling practice such as
onion farm field watering one or two days prior uprooting/harvesting in order to increase
weight during selling was the usual practice that resulted in poor quality, easily damageable
onion and eventually low price. The other problems are problem of pest and disease like root
rot in the case of onion/ shallot and problem of African ball warm, cutworm, and fruit disease
in the case of tomato and surface water shortage. In addition there is a problem related to poor
production and marketing extension support and unorganized input delivery. Farmers used to
get seeds from open market. There were no certification, quality test, and failure guarantees.
As a result, in 2005 about 7.6 quintals of onion seed after distributed to farmers and sown,
failed to grow and a large number of farmers lost. There is also a problem related to poor
agronomic practices such as tillage, application of chemical fertilizer, watering and weeding
in the production of horticultural crops in the area.

2.6.3.2. Marketing problems

The Fogera Woreda horticultural crop is characterized by imperfect information which gives
the opportunity for the presence of brokerage institutions. The imperfect information creates
problems in the bargaining inefficiency in which informed market actors increase their own
benefit while those actors who do not have information are marginalized. Since most of the
farmers produce the same type of horticultural products at the same time, the supply of the
product is in glut during the season compared to the demand leading to lower producer price
associated with product bulkiness, perishablity and seasonality in the production. Moreover,
there is no grading and standardization of the product, weight cheating is a common practice
and market power is taken by the brokers and traders. The fail of cooperatives to coordinate
farmers in marketing of horticultural crops such as onion leads to farmers price takers than
makers. Lack of adequate marketing research information in the area is also another problem
which hinders the government to take decisions in improving the market channel and the hole
system.

22 
 
2.6.3.3. Production opportunities

The major opportunities for Fogera are the emergence of commercial agriculture with respect
to horticultural crop production due the presence of high irrigation potentials in the area by
the rivers Rib and Gumara. There are also natural spring water sources which are used for
irrigation. The Fogera farmers have a comparative advantage of producing horticultural crops
due to the cheap labor and no application of chemical fertilizer as the plain is filled with soil
of the highland areas. Experience (learning effect) and neighborhood effect are much more
important in technology adoption and production. The start of on farm onion seed production
is also one of the opportunities for production increment as there is no problem of supply
improved horticulture seed. The infrastructural facility such as road and telecommunication
also plays vital role in marketing by attracting wholesalers from different parts of Ethiopia.
The presence of farmers training centers and development agents in each kebeles also play
great role in the production and improving farmer’s management practices of horticultural
crops.

2.7. Impact Evaluation Methods

To know the effect of a program on a participating individual, we must compare the observed
outcome with the outcome that would have resulted had that individual not been participating
in the program. The "with" data can be collected without great difficulty. But, the "without"
data’s are fundamentally unobserved since an individual cannot be both a participant and a
non participant of the program. Thus, the fundamental problem in any social program
evaluation is the missing data problem (Ravallion, 2005).

Estimating impact of a program requires separating its effect from intervening factors which
may be correlated with the outcomes, but not caused by the program. This task of “netting
out” the effect of the program from other factors is facilitated if control groups are introduced.
“Control groups” consist of a comparator group of individuals or households who did not
receive the intervention, but have similar characteristics as those receiving the intervention,
called the “treatment groups”. In social sciences, choice of a particular approach depends,

23 
 
among other things, on data availability, cost, and ethics to experiment (Ezemenari et al.,
1999). In what follows, brief descriptions of the main impact evaluation methods are
presented.

2.7.1. Experimental methods

In the experimental methods, the design involves gathering a set of individuals (or other unit
of analysis) equally eligible and willing to participate in the program and randomly dividing
them into two groups: those who receive the intervention (treatment group) and those from
whom the intervention is withheld (control group). This allows the researcher to determine
program impact by comparing means of outcome variable for the two groups (Regalia, 1999).

A random assignment of individuals to treatment and non-treatment groups ensures that on

average any difference in outcomes of the two groups after the intervention can be attributed
to the intervention. The main advantage of a randomized experiment is its ability to avoid
problem of selection bias, which arises when participation in the program by individuals is
related to their unobservable or unmeasured characteristics (like motivation and confidence),
which in turn determine the program outcome. Obviously, randomization must take place
before the program begins. Experimental or randomized designs are generally considered as
the most robust of the evaluation methodologies. The other benefit of this technique is the
simplicity in interpreting results-the program impact on the outcome is the difference between
the means of the samples of the treatment group and the control group. The random
assignment does not remove the selection bias but instead balances the bias between the
participant (treatment) and non-participant (control) groups, so that it cancels out when
calculating the mean impact estimate (Ezemenari et al., 1999; Jalan and Ravallion, 1999).

2.7.2. Quasi and non-experimental methods

Quasi-experimental design involves matching program participants with a comparable group

of individuals who did not participate in the program. This simulates randomization but need
not take place prior to the intervention. A quasi-experimental method is the only alternative

24 
 
when neither a baseline survey nor randomizations with other methods are feasible options
(Jalan and Ravallion, 2003). This evaluation design can be used when it is not possible to
randomly select a control group, identify a suitable comparison group through matching
methods or use reflexive comparisons. In such situations, program participants can be
compared to non-participants using statistical methods to account for differences between the
two groups (Ezemenari et al., 1999).

A non-experimental approach is used in cases where program placement is intentionally

located. There are two broad categories of non-experimental approach; before and after
estimator and cross-sectional estimator. The essential idea of the before and after estimator is
to compare the outcome variable for a group of individuals after participating in a program
with the same group or a broadly equivalent group before participation and to view the
difference as the estimate of average treatment effect on the treated. Cross-section estimators
use non-participants to derive the counterfactual for participants in which case it becomes
quasi-experimental method (Jalan and Ravallion, 2003).

The most widely used type of quasi-experimental method is propensity score matching, in
which the comparison group is matched to the treatment group by using the propensity score
(predicted probability of participation given observed characteristics). A good comparison
group comes from the same economic environment and is administered the same
questionnaire as the treatment group. It is challenged since the unobservable characteristics
may influence the outcome and it needs expertise knowledge (Jalan and Ravallion, 1999).
Considering the advantages and drawbacks of each of the impact assessment methodologies,
propensity score matching is selected for this study.

Reflexive comparison is a quasi-experimental design, which is particularly useful in

evaluations of full-coverage interventions such as nationwide policies and programs in which
the entire population participate and there is no scope for a control group. This methodology
is used, whereby the direct beneficiaries of the project were asked to assess its impact on their
performance. The subjective nature of "self-evaluations" is of the shortfalls of the approach.
In addition, the situation of program participants before and after the intervention may change

25 
 
owing to myriad reasons independent of the program (Regalia, 1999). In the case where there
can be a possibility for a control group, this method will not be applied.

Instrumental Variable is a technique that identifies a factor that determines receipt of a

project, but which does not influence outcomes of interest. This factor is then used to simulate
who would have been in the treatment group, and who would have been in the control group
if receipt of the project was based on that factor. The difference in outcomes between these
simulated treatment and control groups is then the impact of the project. The “instrumental
variables” are first used to predict program participation; then one sees how the outcome
indicator varies with the predicted values (Alberto et al., 2002). Unlike the PSM, strong
underlying assumption, the exclusion restriction that the instrumental variable is independent
of outcomes given participation, has to be assumed here. The validity of the exclusion
restriction required by the method is particularly questionable with only a single cross-
sectional data set; while one can imagine many variables that are correlated with participation,
such as geographic characteristics of an area, it is questionable on a priori grounds that those
variables are uncorrelated with outcomes given placement (Ravallion, 2005).

Multivariate regression analysis is a non-experimental technique used to control for possible

observable characteristics that distinguish participants and non-participants. Thus, if it is
possible to control for all possible reasons why outcomes might differ, then this method is
valid to estimate the treatment effect (Regalia, 1999). The widely used multivariate regression
method requires the same conditional independence assumption as PSM, but also imposes
strong arbitrary functional form assumptions concerning the treatment effects and the control
variables. By contrast, PSM does not require a parametric model linking program
participation to outcomes. Thus PSM allows estimation of mean impacts without arbitrary
assumptions about functional forms and error distributions (Ravallion, 2005).

Since PSM optimally balances observed covariates between the treatment and comparison
groups, the difference-in-difference is a proposed method for solving this problem. In a
difference-in-difference method of non-experimental impact evaluation, the difference in a
given outcome between recipients of the project (the treatment group) and a comparison or

26 
 
control group is computed before the project is implemented. The difference in outcomes
between treatment and control groups is again computed some time after the project is
implemented. Under the difference-in-difference technique, the impact of the project is the
second difference less the first difference (Maffioli et al., 2008). Nonetheless, the
methodology has its own limitations. There is a potential bias in difference-in-difference
estimators when the changes over time are a function of initial conditions that also influence
program placement. There is also the well-known bias for inferring long-term impacts that
can arise when there is a pre-program difference of the participating and non-participating
households (Ravallion, 2005).

Propensity score matching and multivariate regression methods control for selection on
observables whereas instrumental variable methods control for selection on unobservable
explanatory variables. The validity of quasi and non-experimental evaluation depends on how
well the model is specified (Jalan and Ravallion, 2003).

2.8. Propensity Score Matching

Among quasi-experimental design techniques, matched comparison techniques are generally

considered a second-best alternative to experimental design (Baker, 2000). Intuitively, PSM
tries to create the observational analogue of an experiment in which everyone has the same
probability of participation. The difference is that in PSM it is the conditional probability
(P(X)) that is intended to be uniform between participants and matched comparators, while
randomization assures that the participant and comparison groups are identical in terms of the
distribution of all characteristics whether observed or not. Hence, there are always concerns
about remaining selection bias in PSM estimates (Ravallion, 2005).

Unlike econometric regression methods, PSM compares only comparable observations and
does not rely on parametric assumptions to identify the impacts of projects and it does not
impose a functional form of the outcome, thereby avoiding assumptions on functional form
and error term distributions, e.g., linearity imposition, multicollinearity and heteroscedasticity
issues. In addition, the matching method emphasizes the problem of common support, thereby

27 
 
avoiding the bias due to extrapolation to non-data region. Results from the matching method
are easy to explain to policy makers, since the idea of comparison of similar group is quite
intuitive.

Matching the treated and the control subjects becomes difficult when there is a
multidimensional vector of characteristics (Rosenbaum and Rubin, 1983). The PSM solves
this type of problem by summarizing the pre-treatment characteristics of each subject into a
single index variable, and then using the propensity score (PS) to match similar individuals.
This constitutes the probability of assignment to treatment conditional on pre-treatment
variables (Rosenbaum and Rubin, 1983). Matching estimates is more reliable if: (i)
participants and controls have the same distribution of unobserved characteristics; (ii) they
have the same distribution of observed characteristics; (iii) the same questionnaire is
administered to both groups; and (iv) treated and control households are from the same
economic environment. In the absence of these features, the difference between the mean
impact of the participants and the matched non-participants is biased estimate of the mean
impact of the project (Jalan and Ravallion, 1999).

PSM is not without its potentially problematic assumptions and implementation challenges.
First, PSM requires large amounts of data both on the universe of variables that could
potentially confound the relationship between outcome and intervention, and on large
numbers of observations to maximize efficiency (Bernard et al., 2010) .Second, related to the
previous point we can never be entirely sure that we have actually included all relevant
covariates in the first stage of the matching model and effectively satisfied the conditional
independence assumption (CIA). Furthermore, PSM is non-parametric: we do not make any
functional form assumptions regarding the average differences in the outcome. Although the
first stage involves specification choices - e.g., functional form like logit and probit, empirical
analyses tend to find impact estimates that are reasonably robust to different functional forms.
Moreover, if unobservable characteristics also affect the outcomes, PSM approach is unable
to address this bias (Ravallion, 2005).

28 
 
Irrespective of its shortcomings, PSM is extensively used in the recent literature on economic
impact evaluation (Jalan and Ravallion 2003). It is very appealing to evaluators with time
constraints and working without the benefit of baseline data given that it can be used with a
single cross-section of data, where this study envisaged to employ.

2.9. Empirical Studies on Horticultural Marketing Systems and the Role of Brokerage
Institutions in Developing Countries and Ethiopia

Different scholars have undertaken different studies in horticultural crops marketing and the
roles played by brokerage institutions. Different findings are assessed as follows:

The essential role of intermediaries in agricultural markets has been documented for a number
of Sub-Saharan Africa countries. For example, it has been found that brokers compensate for
the lack of networks of business partners at traders’ disposal in Benin and Malawi (Fafchamps
and Gabre-Madhin, 2001); they encourage impersonal exchange by acting as guarantors for
the parties involved in trade in Tanzania (Eskola, 2005); they provide information, funding
and technical assistance to wholesalers of fresh fruits and vegetables in Uganda (Bear and
Goldman, 2005); and they represent the first alternative for farmers to other forms of
collective action such as producer marketing groups in Kenya (Shiferaw et al., 2009). Also, in
the livestock sector brokers facilitate pig marketing in the Northern part of Nigeria (Ajala and
Adesehinwa, 2007) and livestock trade in Nairobi, which is a leading terminal market for
livestock from throughout the Greater Horn of Africa. Given the cross border nature of these
trading networks, trust between brokers and traders is essential (Bailey et al., 1999).

The important role played by brokers has also been reported outside Africa. In Brazil, for
example, they support farmers by helping to minimize price risk in futures and derivatives
agricultural markets (Pessoa and Jank, 2002), while in Peru commission agents promote long-
distant trade (Scott, 1985). In India, in the traditional marketing system, small landholding
farmers depend on intermediaries for credit (Lokanathan and De Silva, 2010).

29 
 
Eleni (2001) depicted the benefits that the use of brokers could bring to wholesalers while
explaining why traders use brokers in the first instance. Using primary data collected in
Ethiopia in 1996, the study demonstrated how the use of brokers by traders is positively
related to transaction costs of search, defined as the shadow opportunity costs of search labor
and of working capital kept in the form of grain stocks, and inversely related to social capital
availability. The study also suggested that traders’ use of brokers is closely related to traders’
attempt to minimize prohibitively high transaction costs and depending on whether they are
located in a surplus or deficit production region. Transaction cost economics essentially
asserts that market institutions minimize transaction costs associated with market exchange
and that markets evolve over time following changes in the nature and sources of transaction
costs (Kherallah and Kirsten, 2001).

Jabbar et al. (2008) further argue that traders own different assets (such as physical, financial,
human and social capital) and adopt various trading practices, including the use of brokers, in
order to reduce transaction costs. Among trading assets, the existing literature has given
particular relevance to social capital. A geographic disaggregation of Ethiopia is therefore
specified in this paper following Chamberlin et al., (2006) which allows the heterogeneity of
production and marketing contexts prevailing in the country to be taken into account.

Staal et al., (1997) and Eleni (2006) found that, apart from location, travelled distance and
physical infrastructure availability also have an impact on traders’ ability to minimize
transaction costs. The inadequacy of physical infrastructure (such as road networks,
telecommunications and storage facilities) pushes searching, screening and bargaining costs
up. Moreover, the farther wholesalers are from their main markets the more these costs rise.
Schmidt and Shiferaw (2009) add that ‘The shortest route in kilometers may not always be the
fastest route’. Hence, in order to investigate wholesalers’ use of brokers aimed at minimizing
transaction costs, Euclidean distance between traders’ base and main market centers is
considered in connection with dummy variables assessing the quality of roads linking these
markets.

30 
 
Bezabih and Hadera (2007) identified disease and pests, drought, shortage of fertilizer, low
level of improved agricultural technologies and price of fuel for pumping water as the major
constraints of horticulture production in Eastern Ethiopia. Other problems which they
reported also include poor know how in product sorting, grading, packing, and traditional
transporting affecting quality. Moreover, due to the increasing population pressure the land
holding per household is declining leading to low level of production to meet the consumption
requirement of the household. As a result, intensive production is becoming a means of
promoting agro-enterprise development in order to increase the land productivity.
Horticultural production gives an opportunity for intensive production and increases small
holders’ farmers’ participation in the market. The study also confirmed that the flow of
products is dictated by seasonal deficit where at times surplus producing site might also be
receiver from the earlier receiving area at times of deficit. The absence of direct transaction or
linkage between the producer and the large buyer was very common. Buyers follow contact
persons who identify vegetables to be purchased, negotiate the price, and purchase and deliver
the products. It categorized actors in the marketing channel as producers, intermediaries/
brokers, traders and consumers.

Another interesting property that they found out is that brokers play a decisive role in the
marketing system and determine the benefit reaching the producer. Onion and tomato are
quite often purchased in the field with brokers. According to the study, three types of brokers:
the farm level broker, local broker and urban broker exist. Each has their one separate task
where the farmer level broker identifies plots with good produces and links the producer with
a local broker. The local broker in turn communicates with the farmer and conveys the
decisions made to the urban broker or collector. In this process the producer have contact with
local agents and do not have direct contact with the other intermediaries.

The third broker, urban broker, gets the information from ultimate buyers and sets the price.
Here neither the farmer nor the traders set actual prices for the products. If the farmer insists
on negotiating the price, the brokers gang up and boycott purchasing of the product leaving
the product to rot. The farm level and local brokers get Birr 5 while the urban broker gets 10
Birr per quintal. If there are several brokers in an area, they negotiate not to compete on the

31 
 
price offered by the broker. The changes in the value of products as they move away from
production along the marketing channel to the consumer is the increased utility by making the
goods available rather than adding value in terms of increased shelf life or increased safety.

Moti (2007) analyzed horticulture marketing in central and eastern Ethiopia. The study
assessed the role of horticulture for export earnings stability, farm resource allocation between
food crops and cash crops, household decision making in crop choice-land allocation and
market out let choice, and the influence of asymmetric price information on bargaining power
of horticulture farmers. According to the study horticulture could be one of the way for
agricultural commercialization of small-scale farmers with relatively better agricultural
resource potential. It reported that diversifying the export base towards non-traditional
agricultural commodities, as horticulture is important. The study added linking small-scale
farm household horticultural production with export could help both in reducing export
earning instability and enhancing farm household’s income. In addition, it pointed out that the
production of high value and labor-intensive horticulture products contributes to poverty
reduction and rural development through generating higher income and better employment
opportunities for landless households. The study also added the role of well functioning
markets for Ethiopia where cooling and storage facilities are none for perishable crops. It
advised improvement in market information and availability of alternative market outlets for
subsistence farming to commercialize.

Abay (2007) used Heckman two stage selection model and the result for market participation
determinants showed that distance from main road, frequency of extension contact and
number of oxen were found significant for onion while only experience of the farmers and
distance from road for tomato. Similarly among the different variables that were hypothesized
as determining factors for volume of market supply only sex of the respondent, active labor
power, total size of owned land and quantity produced for onion and total size of farmland
and quantity produced for tomato were significant.. This all show how much farmers did not
consider price offer but clearing off. The recursive model result showed that volume handled
by rural assembler, volume handled by other competing actors, and allocated land size that
were significant for a choice of rural assembler for tomato. Selling price, volume handled by

32 
 
rural assembler, volume handled by other competing actors and allocated land size came up
with significant coefficients for onion. For decision choice of wholesaler volume handled by a
wholesaler, volume handled by other competing actors and allocated land size were
significant for both tomato and onion crops.

Jema (2008) assessed the marketing performance of vegetables in eastern and central
highlands of Ethiopia. Results showed that despite its poor performance, contract enforcement
is mainly due to mutual trust and brokers’ mediation. Information access, trader-specific
investments, farmer’s age, whether the buyer is a trader, dependency on the trader,
relationship duration, transaction frequency, and distance to the trader were found to be the
significant factors affecting contract enforceability through brokers. Risks related to
perishability and seasonality of supply, illiteracy, and client-buyer’s type were found to be the
significant factors causing contract breaches by the traders. In addition, traders’ produce
pricing behavior in the procurement of vegetables from growers is analyzed. Results showed
that traders capture a significant proportion of the marketing surplus due to market power and
audacity to absorb risk with this share varying along the degree of Perishability and across
cities.

Quattri et al. (2011) used Heckman two stage models and examined that the brokerage
services are particularly valuable for wholesalers lacking social capital and storage capacity,
who are based in areas with low population density, and who trade at a distance especially
when roads are not asphalted. Buyers in drought-prone domains rely on brokers more for their
long-distance purchases, while sellers in moisture-reliable domains employ brokers more for
their long-distance sales. These results provide useful indications regarding where and how
the recent formalization of brokerage functions through the Ethiopian Commodity Exchange
(ECX) could be most beneficial for the functioning of Ethiopian agricultural markets.

33 
 
 3. RESEARCH METHDOLOGY

3.1. Description of the Study Area

Based on the BOFED (2011), Amhara Region has a population of 18.54 million of which 9.13
million were men and 9.07 million were women. Urban inhabitants were 2.4 million or 12.6%
of the total population. With an estimated area of 157,126.85 square kilometers, this region
has an estimated population density of 115.9 people per square kilometer. For the entire
region 3,953,115 households were counted. This results to an average of 4.3 persons per
household. The average family size in urban and rural area is 3.3 and 4.5 persons respectively.
Vegetable producing Woreda’s located in the north western part of the region include, Bahir
Dar Zuria, Achefer, Mecha, Adet, Libo Kemkem, Fogera, Dera, Gondar Zuria and Chiliga.

Fogera Woreda is one of the 106 Woreda’s of the Amhara Regional State and found in South
Gondar Zone. It is situated at 110 58 N latitude and 370 41 E longitude. Woreta is the capital
of the Woreda and is found 625 km from Addis Ababa and 55 km from the Regional capital,
Bahir Dar. The woreda is bordered by Libo Kemkem Woreda in the North, Dera Woreda in
the South, Lake Tana in the West and Farta Woreda in the East. The Woreda is divided into
27 rural Peasant Associations and 3 urban kebeles.

3.1.1. Land use pattern and population of Fogera Woreda

The total land area of the Woreda is 117,414 ha. The current land use pattern includes 44
percent cultivated land, 24 percent pasture land, 20 percent water bodies and the rest for
others. The total population of the Woreda is 251,714. The rural population is estimated at
220,421. The proportion of male and female population is almost similar in both rural and
urban areas. The number of agricultural households is 44,168. The mean annual rainfall is
1216.3 mm, with Belg and Meher cropping seasons. Its altitude ranges from 1774 up to 2410
masl allowing a favorable opportunity for wider crop production and better livestock rearing
(IPMS, 2008). Most of the farm land was allocated for annual crops where cereals covered
51,472 hectares; pulses cover 9819.98 hectares; oil seeds 6137 hectares; root crops 1034.29

34 
 
hectares; and vegetables 882.08 hectares. The major crops include teff, maize, finger millet
and rice, in order of area coverage. According to IPMS (2005), average land holding was
about 1.4 ha with minimum and maximum of 0.5 and 3.0 ha, respectively.

Agricultural production in the Woreda is mainly rain fed far from its wide irrigation potential.
Being one of the eight Woreda’s bordering Lake Tana; Fogera shared a water body of 23,354
hectares from the total lake size. It’s plain topography created the opportunity for a good size
of irrigation potential. Actually, farm field water lodging in the rainy months (July up to half
of September) is the common phenomena in the plain areas. Horticultural crops such as onion,
garlic, tomato, potato, leafy vegetables and green paper are widely grown in the area. Bahir
Dar and Gondar are the two big vegetable receivers in the area. These two towns are at 55 and
130 K.ms from Woreta. Gondar is found to the north of Woreta while Bahir Dar is to the
south. The study area is one of the surplus crop producing areas and has a good potential for
horticultural crop production which are produced mainly using irrigation. The area gets much
of the flood water that accumulates around Lake Tana and the two big rivers, i.e., Rib and
Gumara. The rivers bring eroded soil from uphill and deposit on the low land plain.

Table 1. Land use pattern of Fogera Woreda

Land Use Area Coverage per Ha % of Coverage

Land planted with annual crops 51472 44%
Grazing Land 26999 24%
Area covered with water (wet land ) 23354 20%
Infrastructure including settlement 7075 6%
Un productive land (hills) 4375 3.70%
Forest land 2190 1.80%
Swamp land 1698 1.40%
Perennial crops 2190 0.20%
Total 117414 100%

Source: ILRI /IPMS, 2008

35 
 
3.1.2. Priority farming systems

According to the Woreda Office of Agriculture, there are three agro-ecological Zones in the
Woreda which grow different types of crops and are suitable for different species of livestock.

Table 2. Farming System by Ecological Zone in Fogera Woreda

Altitude range (masl) No of PAs Dominant crop and livestock

8 Rice, Finger millet, horticultural crops, noug, fish,
cattle, sheep
1900 – 2000 15 Cereals (maize, teff, finger millet), noug, vegetables,
apiculture, cattle, goats.
2000 – 2400 4 Barley, Horse beans, potato, apiculture, sheep, cattle
Total 27

Source: ILRI /IPMS, 2008

36 
 
Sourrce: IPMS, 22005

Figurre 1: Map of the study area

37 
 
3.2. Methods of Data Collection

Both primary and secondary data were used for this study. Secondary data were collected
from office of Agriculture and Rural Development, Research Institutes, NGOs and
Universities etc. The primary data for the study were collected from market actors starting
from production to the end retailers which were conducted through interview and discussion.
A semi-structured questionnaire and check-list were used for data collection. The information
gathered was both quantitative and qualitative data.

The enumerators recruited for the study districts were senior technical assistants in Amhara
Regional Agricultural Research Institute, who are trained and experienced on methods of data
collection and interviewing techniques. Moreover, the technical assistants were enumerators
of the research center in the area. The researcher has trained and explained the contents of the
questionnaire to the enumerators. Field trips were made before the actual survey to observe
the overall features of the selected villages, smallholder horticultural producers and to
undertake Rapid Market Appraisal (RMA). The questionnaire were pre-tested for key
informants and checked by development agents, Woreda experts and enumerators. Its contents
were refined on the basis of the results obtained during the pre-test. The researcher has made
personal observations and informal discussions with farmers, development agents, district
agricultural experts of Ministry of Agriculture and Rural Development using checklists.
Continuous supervision monitoring of the area were also made to reduce error during data
collection and to correct possible errors.

3.3. Sampling Procedures

Multi-stage random sampling techniques were employed. The sample has covered farmers,
brokers, rural assemblers; wholesalers and retailers on proportionate to size basis and research
objectives.

38 
 
3.3.1. Farmers sampling

Two-stage random sampling strategies were adopted. First five kebeles of the Woreda were
selected randomly. Second, the farmers were grouped as participants and non participants in
brokerage institutions service for linkage to wholesalers then 143 farmers were selected by
using random selection from both participants and non participants (Table 3). Participants
who have more than five years of experience in using brokerage institutions were considered
to easily understand the impact. The samples were selected based on representativeness of the
population using sample size determination formula and then the selected farmers were
interviewed. The survey was made from 8-28 on December, 2011.

Table 3. Sampling frame and the sample size

Kebeles Total households Sample households Total

Participant Non- Participants Non-

participant participant
Diba sifatera 77 67 6 5 11
Abewana 126 111 10 8 18
Kokit
Kuhar 115 101 9 8 17
michaiel
Shena 201 178 15 13 28
Bebeks 478 422 36 33 69
Mariyam

3.3.2. Brokers, rural assemblers and wholesalers sampling

Monitoring of the area for four months (January, February, March and April) were undertaken
during time of marketing in order to understand the system, identify brokers working in the
area and wholesalers coming from different parts of Ethiopia. Five days per week, the

39 
 
researcher has monitored and identifies the brokers, wholesalers and the transaction process.
For this study, 55 brokers were selected and interviewed, snow ball sampling technique was
used in order to find and interview the brokers in the area. Since there were only two licensed
and registered brokers in the Woreda, the researcher asks the two brokers first and then the
two brokers show other brokers working in the area, In addition, observing the actual
transaction process the researcher identify brokers undertaking the brokerage activity and
interview using semi-structured questionnaires.

During monitoring the researcher identify a place known as Peaceful Café and Pension,
which is found in front of the Commercial Bank of Ethiopia in Woreta town. It is the place
where agreement between brokers and wholesalers undertaken. People engaged in
horticultural trading always sit discussing the price, transaction and payment is also
undertaken in this place. The researcher becomes friends with brokers (Baye and Huno) and
wholesalers (Mengistu, Setegn and Gizat) of the area in order to easily access the wholesalers
coming from different parts of Ethiopia. Within four months during season of horticultural
trading, among one hundred four (104) wholesalers fifty two (52) wholesalers were
interviewed using random sampling methods from both participants and non participants of
the brokerage institutions. Twenty (20) rural assemblers were randomly selected and
interviewed from the seventy (70) rural assemblers in the Woreda. Frequent rapid informal
and observational surveys were also done covering Fogera Woreda, Gondar, Addis Zemen,
Debre Tabour and Bahir Dar.

3.3.3. Retailers sampling

Based on sample size determination formula, forty five (45) vegetable retailers in the four
main retail markets; Gondar, Bahir Dar, Gumara and Woreta were selected randomly from
two hundred (200) retailers and interviewed using semi-structured questionnaire.

40 
 
3.4. Methods of Data Analysis

Both the descriptive statistics and econometric methods were used for the analysis of data.

3.4.1. Descriptive statistics

In order to achieve the first objective descriptive statistics such as percentages, frequencies,
tables, standard deviation, independent sample t-test and chi squared test were done.

3.4.2. Econometric models

3.4.2.1. Propensity score matching model

In order to achieve the second and third objectives, this study used with and without approach
which best suits the purpose of this particular study i.e. brokerage institution participants and
non participants comparison using propensity score matching model. The steps are:

1. Estimation of the propensity scores

The first step in estimating the treatment effect is to estimate the propensity score. To get this
propensity scores any standard probability model can be used (for example, logit, probit or
multi-nominal logit) (Rajeev et al., 2007). Since the propensity to participate in use of
brokerage institution is unknown, the first task in matching is to estimate this propensity. Any
resulting estimates of brokerage institution effect rest on the quality of the participation
estimate. This can be routinely carried out using a choice model. Which choice model is
appropriate depends on the nature of the brokerage institution being evaluated. If it offers a
single treatment, the propensity score can be estimated in a standard way using, for example,
a probit or logit model, where the dependent variable is ‘participation whether to use brokers
or not’ and the independent variables are the factors thought to influence participation and
outcome.

41 
 
Following Pindyck and Rubinfeld (1981), the cumulative logistic probability function is
specified as:

⎡ m
⎤ ⎡ 1 ⎤
P i = F (Z i ) = F ⎢ α + ∑ βX⎥ = ⎢
i i
− [α + ∑ β i X i ] ⎥
⎣ i =1 ⎦ ⎣1 + e ⎦ (1)

Where; e: represents the base of natural logarithms (2.718…)

Xi: represents the ith explanatory variable
Pi: the probability that a farmer participates in the brokerage institution services
α and βi: are parameters to be estimated.

Interpretation of coefficients will be easier if the logistic model can be written in terms of the
odds and log of odds (Gujarati, 2004). The odds ratio implies the ratio of the probability that
an individual will be a participant (Pi) to the probability that he/she will not be a participant
(1-Pi). The probability that he/she will not be a participant is defined by:

[1 − P ] = ⎡⎢
i
1 ⎤
Zi ⎥
⎣1 + e ⎦ (2)

Using equations (1) and (2), the odds ratio becomes

⎡ Pi ⎤ ⎡ 1 + e ⎤
Zi

⎢⎣1 − Pi ⎥⎦ ⎢1 + e − Zi ⎥ = e
= Zi

⎣ ⎦ (3)

Alternatively,

⎡ m ⎤
⎢α + ∑ βtXti ⎥
⎡ Pi ⎤ ⎡ 1 + e ⎤
Zi
⎣⎢ ⎦⎥
=
⎢1 − Pi ⎥ ⎢1 + e − Zi ⎥ = e t =1

⎣ ⎦ ⎣ ⎦ (4)

42 
 
Taking the natural logarithms of equation (4) will give the logit model as indicated below.
⎡ Pi ⎤
Zi = ln ⎢ ⎥ = α + β 1 X 1i + β 2 X 2 i + ............ + β mXmi
⎣1 − Pi ⎦ (5)
If we consider a disturbance term, ui, the Logit model becomes
m
Zi = α + ∑ β t Xti + Ui
t =1 (6)

So the binary Logit will become:

Pr (PBS ) = f ( X ) (7)
Where PBS is participation in brokerage institution service, f(X) is the dependent variable
brokerage institution participation and X is a vector of observable covariates of the
households;

X = [X i ] (8)

2. Identify the common support region

As suggested by Bernard et al. (2007) in order to ensure maximum comparability of the

participants and nonparticipants of smallholders in the brokerage institution, the sample used
for matching is restricted on those households who are located in the common support region.
The common support region is where the values of propensity scores of both participant and
non participant smallholders can be found. The basic criterion of this approach is to delete all
observations whose propensity score is smaller than the minimum and larger than the
maximum in the opposite group (Caliendo and Kopeinig, 2008).

The ATT are only determined in the region of common support. Hence, an important step is
to check the overlap and the region of common support between displaced and comparison
group. To do so several ways are suggested in the literature, where the most straightforward
one is a visual analysis of the density distribution of the propensity score in both groups.

43 
 
3. Matching using matching algorithms

After obtaining the predicted probability values conditional on the observable covariates (the
propensity scores) from the binary estimation, matching will be done using a matching
algorithm that is selected based on the data at hand. Alternative matching estimators can be
employed in matching the participant and non participant households in the common support
region. The final choice of a matching estimator can be done taking selecting criterion like
balancing test, pseudo-R2 and matched sample size. A matching estimator which balances all
explanatory variables (i.e., results in insignificant mean differences between the two groups),
a model which bears a low pseudo R2 value and results in large matched sample size is a
preferable matching algorism (Dehejia and Wahba, 2002; Habtamu, 2011). The different
matching techniques are Kernel Matching (KM), Nearest Neighbor Matching (NNM) and
Radius Caliper Matching (RCM).

4. Balancing test

Balancing test in this context is a test conducted to know whether there is a statistical
significant difference in the mean values of covariates for participant and non participant
smallholders in the brokerage institution. The higher the number of covariates with equal
mean after matching, the more balanced the covariates are. Keeping other selection criterion,
the balancing test indicates the quality of the matching algorithm implemented.

5. Estimation of average treatment effect

Then the impact of farmer’s participation in the services provided by brokerage institution on
a given outcome (outcome in this study is percentage of marketed surplus, household’s net
income from onion production, amount of onion produced and land allocated to onion
production) (Yi) is specified as:

τ = Y (D = 1) − Y (D = 0)
i i i i i
(9)

44 
 
Where; τi: is treatment effect (effect due to participation in the service of brokers), Yi: is the
outcome on household i, Di: is whether household i has got the treatment or not (i.e., whether
a household participated in the brokers service or not).

However, one should note that Yi (Di = 1) and Yi (Di = 0) cannot be observed for the same
household at the same time. Depending on the position of the household in the treatment
(brokerage institution participation), either Yi (Di = 1) or Yi (Di = 0) is unobserved outcome
(called counterfactual outcome). Due to this fact, estimating individual treatment effect τ i is
not possible and one has to shift to estimating the average treatment effects of the population
than the individual one. Most commonly used average treatment effect estimation is the
‘average treatment effect on the treated (τ ATT), and specified as:

τ = E (τ D = 1) = E [Y (1) D = 1] − E [Y (0) D = 1]
ATT (10)

As the counterfactual mean for those being treated, E[Y(0) D = 1] is not observed, one has to
choose a proper substitute for it in order to estimate the average treatment effect (ATT). One
may think to use the mean outcome of the untreated individuals, E[Y(0) D = 0] as a substitute
to the counterfactual mean for those being treated, E[Y(0) D = 1] . However, this is not a
good idea especially in non-experimental studies. Because, it is most likely that components
which determine the treatment decision also determine the outcome variable of interest. In
this particular case, variables that determine household’s decision to participate in the services
developed by the brokers could also affect household’s gross income from onion production,
percentage of marketed surplus, quantity of production and land allocation etc. Therefore, the
outcomes of individuals from treatment and comparison group would differ even in the
absence of treatment leading to a self-selection bias.

By rearranging, and subtracting E[Y(0) D = 0] from both sides, one can get the following
specification for ATT.

E [Y (1) D = 1] − E [Y (0) D = 0] = τATT + E [Y (0) D = 1] − E [Y (0) D = 0] (11)

45 
 
Both terms in the left hand side are observables and ATT can be identified, if and only if
E[Y(0) D = 1] − E[Y(0) D = 0] = 0 . i.e., when there is no self-selection bias. This condition
can be ensured only in social experiments where treatments are assigned to units randomly
(i.e., when there is no self-selection bias). In non-experimental studies one has to introduce
some identifying assumptions to solve the selection problem. The following are two strong
assumptions to solve the selection problem.

Conditional independence assumption

Given a set of observable covariates (X) which are not affected by treatment (in our case,
participation in brokerage institutions service), potential outcomes (household’s gross income
from onion production, percentage of marketed surplus, quantity of production and land
allocation) are independent of treatment assignment (independent of how the brokerage
service participation decision is made by the household). This assumption implies that the
selection is solely based on observable characteristics, and variables that influence treatment
assignment (participation in broker service decision is made by the household) and potential
outcomes are simultaneously observed.

Common support

This assumption rules out perfect predictability of D given X. That is:

0 < P (D = 1| X) < 1

This assumption ensures that persons with the same X values have a positive probability of
being both participants and non-participants in broker’s service.

Given the above two assumptions, the PSM estimator of ATT can be written as:

τ ATT
PSM
= EP( X / D=1) {E[Y(1) D = 1, P( X )] − E[Y(0) D = 0, P( X )] (12)

46 
 
Where; P(X) is the propensity score computed on the covariates X. Equation (12) is explained
as; the PSM estimator is the mean difference in outcomes over the common support,
appropriately weighted by the propensity score distribution of participants.

6. Bootstrapping
 

Because analytical standard errors are not computable for the Kernel-density matching
methods, Bernard et al (2007) have used 100 bootstrap replications to compute robust
estimates for standard errors of the outcome indicator. Thus, the bootstrapped standard error
must be reported on the ATT.

7. Sensitivity analysis

Since it is not possible to estimate the magnitude of selection bias with non-experimental data,
the problem can be addressed by sensitivity analysis. Rosenbaum (2005) proposes using
Rosenbaum bounding approach in order to check the sensitivity of the estimated ATT with
respect to deviation from the CIA. The basic question to be answered here is whether
inference about treatment effects may be altered by unobserved factors or not.

Specification tests

In regression analysis, multicollinearity and heteroscedasticity are the issues which should be
considered before making any inference based on the estimation results. The explanatory
variables used in the logit model should be checked for the absence of strong
multicollinearity. Variance Inflation Factor (VIF) technique were employed for checking the
occurrence of multicollinearity in the model for the independent variables (Gujarati, 2004). A
large VIF (VIF approaching 10) could dictate for a strong linear relationship between the
explanatory variables while smaller value (VIF approaches to 1) indicate the model is free of
multicollinearity.

47 
 
Another problem in regression analysis is the problem of heteroscedasticity in the data. The
traditional standard error estimate for logistic regression model based on maximum likelihood
from independent observations is no longer proper for data sets with cluster structure since
observations in the same clusters tend to have similar characteristics and are more likely
correlated each other. Robust standard error estimates are needed to take into account of the
intra-cluster correlation. In the present study there was no heteroscedasticity problem. Data
were analyzed using STATA version 11 with propensity scores matching algorithm developed
by Leuven and Sianesi (2003).

Variable definition and measurement

The quality of the matching basically depends on the selection of observable variables which
determine the probability of participation of the household. Rubin and Thomas (1996)
recommended that unless a variable can be excluded because there is a consensus that it is
unrelated to outcome or is not a proper covariate, it is advisable to include it in the propensity
score model even if it is not statistically significant.

Demographic variables (like age, sex, family size), resources for production (like livestock
ownership, either rain fed or irrigable land holding) and institutional factors (like distance
from the market, Woreda town and extension office) are considered in the research to
determine the decision of the household whether to participate or not. Some of the covariates
selected for the purpose are time in variant (like sex and in most cases, distance parameters)
while some of the variables may vary with time. Indicators for the presence of a change in the
response of the household for intervention are defined based on literatures in similar works
and on the nature of impact that should result after the intervention.

The models we formulated and the way we interpret the results are guided by a
comprehensive conceptual framework to avoid potential biases. Here are some of the
theoretical relationships between dependent and independent variables used in the research
and models to answer the research problems.

48 
 
AgHH (Age of the household head): is a continuous variable in the study measured in year
of experiences. IFPRI (2007) reported that the age of the head of the household negatively
affected the participation decision in cooperatives. Dehejia and Wahba (2002) also found the
age of the household head negatively affects the decision to participate in the program. Since
communication and negotiation ability reduces with age, the study hypothesized age has
positive effect on participation decision.

EHP (Experience of the household in horticultural production): It is a continuous variable

in the study measured in year of experiences. Experience in horticultural production increases
understanding of the overall marketing system and market chain, hence the study
hypothesized that it has negative effect on participation decision.

SxHH (Sex of the HH head): is a dummy variable which takes, 0=female and 1= male.
Female headed households are less likely to participate in labor intensive and risky market
development projects. Sometimes, female households are more likely to participate if those
projects need less amount of initial investment. A study by IFPRI (2007) found that male
headed households are more likely to participate in cooperatives while Yibeltal (2008) found
this variable insignificantly affected the participation decision of the household. So in this
case, sex is expected to have negative effect on participation since females in the area are
busy in house work such as child care and cooking they are less likely to participate in labour
intensive tasks.

MsHH (Marital status of the HH head): It is a dummy variable which takes the value 0=
not married and 1= for married household heads. It is expected to have a positive effect
because direct linkage to the wholesaler needs more time in searching market information.
Thus married farmers are busy in family responsibility and more likely to participate in the
broker’s service.

ELHH (Education level of the HH head): It is a continuous variable which takes the value
of formal education level completed by the household and zero for adult’s education and
illiterate. As to the report by Yibeltal (2008) and IFPRI (2007), literacy level of the household

49 
 
is insignificant to the participation decision of the household. Dehejia and Wahba (2002)
found the year of schooling of the household head positively affects the decision to participate
in a training program for the work force. Here it is expected to have negative effect on the
participation decision because education is the most determining factor in any decision by
improving the communication and negotiation capacity of households. Educated people also
have no problem of weighing and numerical calculation.

TLU (Tropical Livestock Unit of the HH): It is a continuous variable which is converted to
TLU. A study by IFPRI (2007) reported that the ownership of livestock has no significant
effect on the participation decision of cooperatives. This may be due to the fact that the study
was carried out in multipurpose cooperatives and it may result insignificant influence of the
variable. It is expected to have a positive effect on participation because it is one source of
asset and households tend to manage their livestock’s than wasting time in search of market
information.

FSiHH (Family size of the household): It is a continuous variable converted to conversion

factors. Yibeltal (2008) found that this variable is insignificant in affecting the participation
decision of food security program while IFPRI (2007) reported that farmers with larger family
size were more likely to participate in cooperatives. It is hypothesized to have negative effect
on participation as more labor means more time to search market information for direct
market linkage.

TLSha (Total land holding): It is a continuous variable and measured in hectares. The land
holding of the farm household positively influences the participation decision of the
household. Maffioli et al. (2008) reported that land holding of the household had positively
affected the participation of households in agricultural extension delivery system. It is
expected to have positive effect on participation as it is one source of asset and households
tend to participate in order to save time to manage the land.

ILHa (Irrigable land holding): It is a continuous variable and measured in hectares.

Irrigated land is of the influencing factors of the household to participate in vegetable and

50 
 
fruit development projects. A study in Argentina by Maffioli et al. (2008) reported that as the
irrigated farm size of household’s increases, they are likely to participate in agricultural
development projects. It is hypothesized to affect participation negatively because more
irrigable land means more production as horticultural products are produced using irrigation
in the area. More production has in turn a comparative advantage of attracting wholesalers for
direct linkage as it reduces transaction cost of having full of a car at a time.

DRDA (Distance of residence from development agents’ office): It is a continuous variable

measured in Kilo meters. The access for extension service has a positive effect on the
participation decision of the household for market development projects. Yibeltal (2008) also
found in his study that households nearer to office of the development (agricultural extension)
agents’ office are more likely to be participated in the program. It is expected to affect
participation positively because households far from development agents have less probability
of obtaining extension service related to product marketing and market information

DRFMAR (Distance of residence from main asphalt road): It is a continuous variable

measured in Kilo meters. Yibeltal (2008), distance from the market (the time it takes to the
nearest market) had negatively affected the participation affected the participation decision in
a development project. It is expected to affect participation positively because households far
from main asphalt road have less comparative advantage in attracting wholesalers for direct
linkage due to high transaction cost.

DRWM (Distance to the Woreda town/Woreta market): It is a continuous variable

measured in Kilo meters. In addition to the extension service, most of the organizational
support services and technologies, market facilities and information centers are found in
towns. As the distance from the Woreda town increases, the access for these facilities
decreases and this in turn will limit the knowledge of the household about marketing. It is
expected to affect participation positively because households far from Woreta town have less
probability of obtaining wholesalers and information related to product marketing

51 
 
HAMP (Household access for mobile or cell phone): It is a dummy variable which takes
the value 0= for the households who do not have cell phone and 1= for those who do have cell
phone. It is expected to affect participation negatively because households who own cell
phone have high probability obtaining market information and wholesalers.

NRC (Number of regular customers (wholesalers)): It is a continuous variable measured

by considering regular wholesaler customers. It is expected to affect participation negatively
because a household with more regular wholesalers means more demand for the product
produced and no problem of market and information.

NTRC (Number of trading contacts to the main (Woreta) market): It is a continuous

variable measured by considering the frequency of contact to Woreta market related to
horticultural marketing. It is expected to affect participation negatively because households
with more contact have high market information and understanding of market actors.

To analyze the data different variables (dependant and outcome) were used. Table 4
represents the measurement of the variables that were considered.

Table 4. Variable Definition and Measurements for Propensity Score Matching model

Variables Type Definitions Measurements

Dependant variable
UBRFM Dummy Farmers participation in brokerage Where, 1= yes, 0= no
institutions
Outcome variables
NIO Continuous Net income from onion production ETB
PMSU Continuous Percentage of marketed surplus Percent
AOP Continuous Amount of onion produced Quintals
LAOP Continuous Amount of land allocated to onion Hectare
production

52 
 
3.4.2.2. The Ordinary Least Square (OLS) regression

In order to achieve the fourth objective, Ordinary Least Square (OLS) regression estimates
were used. The equations below were developed under the assumption: traders follow a
sequential decision process, with a discrete choice on ‘whether or not’ to use brokerage
institutions and a subsequent continuous decision on ‘how much’ or intensity to use brokerage
institutions.

The selection equation describes whether a wholesaler is using brokerage institutions or not,

Ti = 1, [Z iα + ui > 0]

Ti = 0, [Z iα + ui < 0] (13)

Ti, a brokerage-use indicator, is a dummy variable and the realization of a latent continuous
variable {Zi’α + ui}. When Ti =1, the marginal benefits of using brokers exceed the marginal
costs (or lost profit due to brokerage fees and increase in purchase price). Only when the
binary participation decision Ti equals unity is the ‘brokerage-use intensity’ Bi observed. Bi
explains how much whole seller i uses brokerage institutions and represents the share of
brokered transactions out of total transactions. Therefore,

Bi = Bi*, if Ti = 1
Bi= not observed, if Ti = 0 (14)

Where, Bi* (the potential share of brokered transaction, a latent variable corresponds to)
Bi * = X i β + ε i (15)

Therefore, once whole seller i decide to use brokers (Ti) = 1, the observed Bi is positive.
According to Wooldridge, 2002; equations 13, 14 and 15 are valid under the assumptions: (Xi,
Zi and Ti) are observed, there correlation between the two error terms (there is selection bias),
normal distribution of error terms and (Xi, Zi) are exogenous vector of the covariates for i=1,
…,N Heckman (1979) and Melino (1982).
53 
 
Testing for independences

Testing for multicollinearity using Variance Inflation Factor (VIF) and heteroscedasticity
using Breusch-Pagan / Cook-Weisberg test were done.

Estimation methods

The estimation method has two ways: when there is sample selection problem, the use of
Heckman two stage selection models is recommended which handles the selection bias by
incorporating the inverse mills ratio in the second equation. However, if there is no selection
bias the use of Double Hurdle model is highly recommended. In this study, since there was a
non comparable sample size between the participant and non participants in the brokers
service which is 46 (forty six) and 6 (six) respectively, the study used the OLS estimation
method for the outcome equation by rejecting the selection equation. The procedure is;
without estimating the selection equation (13) for the entire sample of N observations, the
estimates of β would be derived by running an Ordinary Least Squares (OLS) regression on
the model.

Bi = X i β + vi , with E (vi X i , Ti = 1) = 0 (17)

The OLS estimation would use all observations for which Ti = 1, which means the subsample
of whole sellers using brokers.

Variable definition and measurement

The quality of the result is highly affected by the selection of appropriate independent and
dependant variables with their units of measurements.

Demographic variables (like age, marital status), human capital (like number of persons
working on the business, education level), social capital (number of trading contacts to
Woreta, wholesalers having regular customers purchasing from them or not, Number of

54 
 
regular farmer customers, number of regular retailer customer and number of regular
wholesaler customer), Trading experience (years of horticultural trading experience to the
area and years of broker using), physical infrastructure (like distance from the Woreda main
market, access to asphalt road, access to storage facility and capacity used as selling place),
financial assets (working capital and credit access) and marketing costs (including transaction
cost, transportation cost, brokerage fee etc.) are considered in the research to determine the
decision of the wholesalers whether to participate in the brokerage institutions or not and
share of brokered transaction. Here the theoretical dependent and independent variables and
their measurements are indicated for the research with respect two Heckman two stage models
to answer the research problems.

DRFWM (Distance of residence of wholesaler from Woreta market): It is a continuous

variable measured in Kilo meters. A study in Ethiopia by Quattri et al. (2011) indicated that
the conditional marginal effect of distance on brokered transaction is positive and significant
(0.092) value, meaning that an increase in distance raises the share of brokered purchases for
those buyers already using brokers. It is expected to have a positive effect on participation to
the broker’s service and intensity of brokerage use because when distance increases it will
become very difficult for wholesalers to get market information about producers.

TRDA (Type of road accessed by the wholesaler): It is a dummy variable which takes the
value 0= for the wholesaler who do not have access to asphalt road and 1= for those who do
have access for the asphalt road. It is hypothesized to have negative effect on participation
and intensity of brokerage use because gravel roads took more time for transportation thus use
of brokerage institutions is important in order to supply frequently on time and reduce time of
searching market information.

AGWS (Age of the wholesaler): It is a continuous variable measured in years. Since

communication and negotiation ability reduces with age, the study hypothesized age has
positive effect on participation decision.

55 
 
EXWSHT (Experience of the wholesaler in horticultural trading): It is a continuous
variable measured in years of experiences. Experience in horticultural trading increases
understanding of the overall marketing system, market chain and creation of social
relationship, hence the study hypothesized that it has negative effect on participation decision
and intensity of brokerage activity.

MSWS (Marital status of the wholesaler): It is a dummy variable which takes the value 0=
not married and 1= for married wholesalers. It is expected to have a positive effect because
direct linkage to the producers needs more time in searching market information. Thus
married wholesalers are busy in family responsibility and more likely to participate in the
broker’s service. Thus, it is expected to have positive effect on participation and intensity of
brokerage.

ELWS (Education level of the wholesaler): It is a continuous variable which takes the value
of formal education level completed by the household and zero for adult’s education and
illiterate. Here it is expected to have negative effect on the participation decision and intensity
of brokerage use because education is the most determining factor in any decision by
improving the communication and negotiation capacity of wholesalers. Educated wholesalers
also have no problem of calculation of profit.

NPWB (Number of persons working on business): It is a continuous variable which takes

the value the number of persons converted to conversion factors. It is expected to have
negative effect on the participation decision and intensity of brokerage use because more
persons in the business means more time and labor in searching market information about
producers for direct linkage.

CWCWS (Current working capital of the wholesaler): It is a continuous variable which

has the value in birr (ETB). It is expected to have positive effect on the participation decision
and intensity of brokerage use because wholesalers having less capital tend to do not
participate in the brokers service so as to reduce the commission payment.

56 
 
ACWS (Access to credit for the wholesaler): It is a dummy variable which takes the value
0= if the wholesaler do not accessed credit for the business and 1= if accessed credit for the
business. It is expected to have a negative effect on participation and intensity of brokerage
use because direct linkage to the producers avoids commission payment. Thus, wholesalers
who have accessed credit tend to do not participate in the broker’s service so as to pay the
credit by saving the benefits that will go to brokers.

HOSF (Have own storage facility): It is a dummy variable which takes the value 0= if the
wholesaler do not have own storage facility for the business and 1= if have own storage
facility for the business, which can function as a selling place for the horticultural product. It
is expected to have a positive effect on participation and intensity of brokerage use because
direct linkage to the producers needs more time in searching market information. Thus,
wholesalers who do have their own storage facility need to participate in the broker’s service
so as to frequently supply in order to satisfy the demand.

CASF (Capacity of the storage facility): It is a continuous variable and measured in the
number of quintals of the storage facility that it can carry at a time. It is expected to have
positive effect on participation because if the wholesaler has large storage facility more
supply is must to full the storage. Thus, the wholesalers tend to participate to satisfy the
supply.

NRBC (Number of regular Broker customers): It is a continuous variable measured by

considering the number of regular broker customers to the wholesaler. It is expected to affect
intensity of brokerage use positively because a wholesaler with more regular broker
customers means more supply of the product using brokers with reduced FERQ because of
the already established relationship

NRFC (Number of regular farmer customers): It is a continuous variable measured by

considering the number of regular farmer customers who always sole their product to the
wholesaler. It is expected to affect participation and intensity of brokerage use negatively

57 
 
because a wholesaler with more regular farmer customers means more supply for the product
he want to purchase and no problem of market and information.

HRCAPO (Have regular customers always purchasing onion from you): It is a dummy
variable which takes the value 0= if the wholesaler do not have regular customer who always
purchase onion from him and 1= if he has. It is hypothesized to affect participation positively.
Wholesalers having regular buyers need to frequently supply to their customers and in order
to satisfy the demand there will be higher probability of use of broker’s service.

NRRC (Number of regular retailer customers): It is a continuous variable measured by

considering the number of regular retailer customers who always purchase from the
wholesaler. It is hypothesized to affect participation and intensity of brokerage use positively.
Wholesalers having regular retailer customers need to frequently supply to their customers
and in order to satisfy the demand there will be higher probability of use of broker’s service.

NRWCOA (Number of regular wholesaler customers in other areas): It is a continuous

variable measured by considering the number of regular wholesaler customers in other areas
who always purchase from the wholesaler. It is hypothesized to affect participation and
intensity of brokerage use positively. Wholesalers having regular wholesaler customers found
in other areas need to frequently supply to their customers and in order to satisfy the demand
there will be higher probability of use of broker’s service.

NTCFWM (Number of trading contacts to the Fogera Woreda market): It is a continuous

variable measured by considering the frequency of contact to Fogera Woreda market (Gumara
and Abewana Kokit) related to horticultural marketing. It is expected to affect participation
and intensity of brokerage use negatively because wholesalers with more contact have high
market information and understanding of market actors.

EUB (Experience in using brokers) It is a continuous variable measured in years of

experiences of wholesaler using brokers for market linkages. It is expected to affect intensity

58 
 
of brokerage use positively because more experience with brokers means more trust based
relationship with brokers.

TMCOST (Total marketing cost): It is the amount of total marketing cost (transaction,
transportation, brokerage fee and other costs) measured in birr (ETB) for descriptive statistics,
while it is a cost of not using brokers in the OLS estimation. It is expected to affect the
intensity of brokerage use positively. When the cost of not using brokers is very high due to
increased transaction cost, wholesalers tend to use more of the brokers service so as to reduce
the transaction cost.

To analyze the data one dependant variables were used. Table 5 represents the measurement
of the dependant variables that were considered in the OLS method.

Table 5. Variable Definition and Measurements for OLS estimation

Dependant Type Definitions Measurements

Variables
PBT Continuous Percentage of brokered Percent
transaction out of total
transaction

59 
 
 4. RESULTS AND DISCUSSION

4.1. The Brokerage Institutions

In this section, the research describes the socioeconomic profile, characteristics, economic
role, constraints and opportunities of brokerage institutions in linking smallholder
horticultural crop (onion) producers with market outlets (wholesalers). This section has ten
different sub-topics so as to independently discuss the above issues

4.1.1. Socioeconomic profile of brokerage institutions

Table 6. Frequency distributions of brokers

Variable Category Frequency Percent (%)

Male 55 100
Sex
Female 0 0
Orthodox Christian 55 100
Religion
Others 0 0
Single 9 16.40
Marital status
Married 46 83.60
Illiterate 2 3.60
Education level Adults education 9 16.40
Literate (formal) 44 80.00
Farmer 32 58.201
Main occupation Youth 12 21.802
Trader 11 20.00
1. The 30.20% are upper-tier farmer brokers working for urban and peri-urban brokers, 14.4%
are upper-tier farmer brokers who have direct linkage to wholesalers by their own and the rest
13.6% are lower-tier farmer brokers are employed by upper-tier farmer brokers and youth
brokers (see figure 2)
2. The 7.20 % of the youth brokers are working for urban and peri-urban brokers and 14.60%
work by their own by directly contacting to the wholesalers

60 
 
The descriptive statistics analysis (Table 6) above showed that only males are engaged in the
brokerage activity. The reason is that the task needs movement from place to place, better
communication and forming friendship which needs more time and labor intensive. Females
in the area are very busy on the works undertaken in the house such as child care and cooking.
Since the proportion of Orthodox Christians is much higher than other religions all of the
brokers in the study are Orthodox Christians. Most of the brokers are married while there are
few numbers of brokers who are single.

Education level plays very important role in any decisions. Brokerage activity by itself is
highly related to education in the area of communication, negotiating, weighing and
numerical calculations of transaction. Most (80.00%) of the brokers are literate from formal
education, 16.4% are with adult education and 3.6 % are illiterate. The illiterate brokers are
community elders within the service of brokers at urban (Woreta), Peri-urban (Gumara and
Abewana Kokit) and their role is negotiating farmers to sell their product to urban and peri-
urban brokers for this service they have a commission of 0.05-0.1 ETB per kilogram.

The highest percentages of brokers are farmers (58.20%). The reason is that the urban and
peri-urban brokers are unable to cover all the kebeles of the producers due to high transaction
cost of negotiating all of the farmers. Thus, the urban and peri-urban brokers form farmer
brokers working for them with commission to reduce the transaction cost of covering all the
areas of the Woreda. Since farmers are found in the residence and know the producers very
well their transaction cost of finding and negotiating producers is very easy and low which
gives them the opportunity to act as a broker. The youth (school dropout, grade 10 and 12
complete) brokers have also a remarkable share (21.8%). They are either employed by urban
and peri-urban brokers or work independently by themselves by directly linking to
wholesalers. The urban and peri-urban brokers (traders of cereals) account only 20.00%.

The age structure of broker’s ranges from 18.00 to 63.00 with mean 33.00, which implies that
most of the brokers are youngsters while urban and peri-urban brokers employ community
elders which are aged farmer brokers to easily negotiate farmers in the area. The average
brokerage experience is greater than 6.00 years. Married brokers have mean of 5.60 family

61 
 
sizes. Farmer brokers have a mean of 6.19 ha (which includes rented in land) of land size and
the average number of cattle ownership for them is 5.47. All of the farmer brokers have motor
pump and known for horticultural production in the area.

Table 7. Descriptive statistics for continuous variables of brokers

Variables Sample (N) Minimum Maximum Mean Std.Dev.

Age 55 18 63 32.65 10.59
Experience in brokerage
activity 55 3 15 6.5 3.02
Family size 46 2 14 5.6 2.93
Land size 32 0.4 7 6.19 6.66
Number of cattle 32 1 12 5.47 2.99
Number of water pump 31 0 7 1.52 1.15

4.1.2. Which horticultural products have significant brokerage activity in the area?

The study has found a significant and strong brokerage activity only on onion marketing.
However, in other horticultural crops marketing such as tomato, potato, leafy vegetables,
carrot and garlic there is no significant brokerage activity. The result of the study showed that
only 4.2% of the farmers use brokerage institutions for marketing of tomato specifically in
Abewana Kokit peasant association. There are only two brokers doing this brokerage activity
in addition to onion. Tomato marketing is undertaken at urban (Woreta), peri-urban (Gumara
and Abewana kokit) and on the main asphalt road (at four places). Farmers take their product
to the asphalt road side, urban and peri-urban market places and they directly sell to retailers,
wholesellers and brokers who act as rural assemblers in this case. Thus, the study has only
considered brokerage activity in onion production for further analysis.

62 
 
4.1.3. Characteristics and economic role of brokerage institutions

Most of the brokers (98.2%) and wholesalers (32.7%) work the business informally without
having license. The distinctions between the two are the brokerage institutions do not own the
product while wholesalers have ownership of the product and brokerage institutions undertake
linkage between the farmer and wholesaler with commission. Thus, brokerage institutions are
commission agents while wholesalers took the onion to the central markets or sell for other
trader in the Woreda by purchasing the onion from the producer. The main brokerage
institutions characteristics and roles in the area include:

They are better informed by buyers and or sellers: The brokerage institutions mostly
include youngsters, educated, resident and very active persons. This makes them
advantageous in high information searching, communication and negotiation ability which in
turn helps them to have better information about the wholesaler and the smallholder producers
in the area.

They are skilled socially to bargain and forge links between buyers and sellers: As
brokers are residents of the area and their high communication capacity helps them to have
more number of regular farmer and wholesaler customers. In addition there contact and social
interaction is very high which helps them in negotiating and bargaining the wholesalers and
farmers.

They bring the "linkage" to wholesalers and farmers who may not communicate with
each other: A wholesaler coming from other area (Oromiya, Amhara, Tigray, SNNP, Somale
and Benshangul gumuz Regions) of the country to the Fogera Woreda is not familiar with the
Woreda and do not know the producers. Thus, it will be difficult for him to find the producers
and undertake the transaction. On the other hand, smallholder producers especially those who
are very far from the main asphalt road have no any information about the wholesaler coming
to the Woreda and as the horticultural products are perishable and bulky the farmer has to be
sure about the market before harvesting. Therefore, both of the farmers and wholesalers
problems are easily solved by the brokerage institutions as they have detailed of information

63 
 
on both of the actors. In this case these institutions bring linkages between farmers and
wholesalers who may not communicate each other and undertake transaction.

They bring economies of scale by accumulating small suppliers and selling to many
wholesalers: There is a very significant difference in the mean of amount of onion produced
in quintal/Kg between participant and non participant households in the brokerage
institutions. Non participant households produce more onion than the participants this gives
them the advantage of directly linking to wholesalers as they produce full of one car and sell it
at a time from the farm which creates the incentive for wholesaler by reducing the transaction
and transportation cost in such a way that a wholesaler reduce the transportation cost by not
moving from farm to farm to full his car and do not negotiate many farmers as he has got
from one farmer. However, the smallholder producers which cannot produce full of a car at
the time have no the incentive of attracting wholesaler for direct linkage. Following this gap
the brokerage institutions contact all the smallholder producers and form groups considering
their onion farm in such a way that each group accumulate the product at one place which can
amount at least one full of car at a time. For example during monitoring the researcher has
observed more than hundreds of groups formed by the brokerage institutions from two to ten
smallholder producers at different places which can be accessed by the car in such a way that
the farmer broker records each smallholder supply and the urban and peri-urban brokers
arrange wholesalers. Each group can load more than one car at a time in one place. This
process is creating economics of scale by accumulating small supplies from many smallholder
producers which creates incentive for the wholesaler by reducing transaction and
transportation cost.

They stabilize market conditions for a supplier or buyer faced with many outlets and
supply sources: One of the justifications for this is that, In February, 2012, the wholesale
selling price for Kg of onion has increased and reached to 7.50 ETB in Addis Abeba.
Following this many demands has come to brokerage institutions from wholesalers of Addis
Abeba using telephone and based on this demand the brokerage institutions respond for this
by sending 18 FSR car (18000 Kg) of onion in one day for three continuous days. This
resulted higher supply in Addis Abeba causing a wholesale selling price reduction from 7.50

64 
 
ETB to 6.00 ETB leading to loss for the wholesalers. At this time the brokerage institutions
has stopped sending the product to Addis Abeba and shift other market centers such as
Oromiya and Tigray Region in order to stabilize Addis Abeba market until the wholesalers
are profitable.

They reduce transaction cost of searching information and marketing cost for both
farmers and wholesalers: As the brokerage institutions are well informed by wholesalers
and producers, residents and have strong social capital they have more information,
communication and negotiation capacity which helps to reduce the transaction cost.
Smallholder producer groups also help wholesalers by reducing the transportation cost by
accumulating the product from different farm lands at one suitable place for car access

Act as a means of trust and facilitate trading during transaction between farmers and
traders: Before harvesting the smallholder producer has to be sure about the market since the
horticultural product is perishable and bulky in nature. Harvesting is undertaken in the area
before one day or more to make the product ready for selling/loading keeping the quality
(removing the mud and cover). Thus, there should be agreement between the farmer and the
wholesaler before harvesting. This agreement is highly susceptible to contract failure in the
area. There are many cases in the area like farmer Workneh Wude has faced in 2011, “The
farmer has directly contacted to the wholesaler and agreed on the price to harvest his product
and make ready for loading before three days, following this agreement the farmer has
harvested the onion and prepared for loading waiting for the coming of the wholesaler.
However, the wholesaler was not come on that day to the farmer farm to load the onion
because he has got and loaded other farmer product that is very near to the main asphalt road
than Workneh with the same price. Because of this contract failure he has lost his benefit in
such a way he has incurred costs in transporting some of his product from the farm to the
main asphalt road and he has sold the remaining onion at lower price in the other day due to
quality problem”. However, this contract failure does not occur if the farmer uses the
brokerage institutions for linkage to wholesalers. The reason is that brokerage institutions
have many regular wholesaler customers requesting onion using phone call and also coming
to the area if one fail they will sell for the other. Thus, the farmers using brokerage institutions

65 
 
are full of trust, have secure market for their product and have no problem of harvesting
before loading time.

Facilitate credit based transaction for the wholesalers being as collateral for the farmer:
Most of the transaction (more than 70%) in the horticultural marketing is under taken based
on thrust. Since the wholesalers have working capital problem the transaction is undertaken
by the arrangement between producer and wholesaler in such a way that first taking the onion
from the farmer as a credit and then selling the product at different central markets after this
the farmer took his payment based on agreed price. This arrangement is undertaken because
of the existence of the brokerage institutions which are residents and well accepted in the
community. The brokerage institutions act as a collateral for the farmer in undertaking the
credit based transaction with the wholesaler. If there are no brokerage institutions surly such
arrangements will not occur because of contract failure. Brokers who are educated have the
ability to enforce the contracts. The researcher have seen two brokers receiving the credit
from the wholesaler by directly going to Gondar wholesale market place in 2012 which
amounts 65,000 ETB.

In different studies agricultural brokers provide credit, market information and share risk for
both the wholesaler and smallholder producer. However in Fogera Woreda, farmers provide
their product to wholesalers as credit taking the brokers as collateral. Then a wholesaler sale a
product and provide the credit (value of the product during transaction) to a broker after that
the broker give to the farmers taking his own share. This contractual bases transaction is
subjected to contract failure as there are no formal contract enforcement mechanisms. The
mean loss due to contract failure in 2011 was 15,403.00 ETB between the wholesaler and
brokers; this has effect on the farmers who provide their product on credit bases to the broker
leading to delay in payment and sometimes farmer may not get whole payment. Of course,
brokers provide market information to farmers related to quality and prices. But, the reality of
price information is questioned by farmers. Brokers provide market information (quality and
price) using telephone, direct discussion and providing sample for the wholesalers. The study
characterized brokers in to two ways, first based on place of work as rural brokers (found in
rural areas), peri-urban brokers (found in peri-urban areas) and urban brokers (found in urban

66 
 
areas). The second characterization is based on their main occupation as farmer brokers
(whose livelihood is dependent on farming), youth brokers (grade 10, 12 and college complete
and school dropout youngsters) and cereal traders (formal traders of cereals such as rice).
Urban brokers are either traders of cereals such as rice or youngsters found in the town
working only the brokerage activity in the case of onion trading.

Table 8. Descriptive statistics of some variables

Variables Sample (N) Minimum Maximum Mean Std.Dev.

Amount of onion
55 50 16000 1721.10 3077.24
transacted in quintal
Income from
55 500 160000 17210.10 30772.40
brokerage activity
Loss due to contract
21 518 85000 15403.00 18944.41
failure (ETB)
Working capital
55 500 100000 3311.50 14801.14
(ETB)
Number of regular
customers 55 0 40 5.80 7.70
(wholesalers)

All urban brokers have employs (farmers and youth brokers) in the rural area working for
them. The peri-urban brokers which are found in small towns of the Woreda such as Gumara
and Abewana Kokit employ farmer brokers with commission in each kilogram of onion. They
are traders of cereals and engaged in agricultural production specially in horticulture
production by arranging contractual agreements with farmers in such a way that brokers
provide seed, motor pump, fuel and chemicals while the farmer provide labor and land. Thus,
half of the production provided for the broker and half for farmer.

67 
 
The farmer brokers, there main occupation and livelihood is dependent on farming and are
found in the villages of rural areas. The farmer brokers are further divided in to two as the
lower-tier groups and upper-tier groups of farmer brokers. The upper-tier groups of farmer
brokers and youth brokers employ the lower-tier groups of farmer brokers with commission
without the knowledge of urban and peri-urban brokers. Thus, the lower-tier groups of farmer
brokers work for the upper-tier groups of farmer brokers and youth brokers. The upper-tier
groups of farmer brokers are either employed by urban and peri-urban brokers or work for
themselves by directly creating linkage to wholesalers.

Figure 2: Broker’s chain and flow of transactions using brokerage institutions

Wholesalers 

Brokers at Woreta, Gumara

and Abewana Kokit (20.00%) 

Upper-tier Farmer
Brokers2 (44.60%) 
Youth Brokers (school
drop outs, grade 10 and
12 complete) (21.80%)

Lower-tier Farmer
Brokers1 (13.60%)

Producers

1. These are lower-tier groups of farmer brokers who are employed by and work for the upper-tier farmer
brokers and youth brokers without the knowledge of urban and peri-urban brokers
2. These are the upper-tier groups of farmer brokers employed by and work for the urban and peri-urban brokers

68 
 
4.1.4. Brokerage institutions and their activity in the context of Fogera Woreda

From different literature, brokers do not take title to the goods traded but link suppliers and
customers. However the case in Fogera Woreda is slightly different even if they have no the
title of ownership of the onion they act as their product once they have agreed with producers
in terms of price and selling the product using them. Brokerage institutions in Fogera Woreda
function as follows:

When the wholesaler comes to Fogera Woreda: when the trader comes to the Fogera
Woreda or the trader is from the Woreda itself, they act in two ways. One is they will contact
the wholesaler with the farmer and the price will be determined by the trader and farmer with
high bargaining power taken by traders. This service or practice works for all the wholesalers
who are found in the Woreda. However, the trader coming from other area must be regular
customer or known trader in the Woreda to get the above service. The broker will have the
payment of only 0.10 ETB for each Kg of onion transacted as a commission. This case
accounts less than 10% of the whole transaction in the Woreda. The second is, when the
trader coming from other area is not well familiar to the area and not regular customer of the
broker, brokers act as a trader in such a way that first they discuss with farmers and fix the
price then they will contact to the trader and negotiate the price after that transaction will be
made with no contact between farmer and wholesalers. Here, in addition to 0.10 ETB
commission fee paid for the broker, there is a price gap of 0.10 ETB to 1.00 ETB between
farm gate price and wholesale purchase price which will be in the pocket of the broker. This is
known as FERQ. This one accounts about 20% of the total transaction.

Trust based transaction: When the wholesaler do not come to Fogera Woreda, the brokers
act as trader even if they have no the title of ownership in such a way that first they discuss
with farmers and fix the price then they will contact to the trader using telephone and
negotiate the price after that transaction will be made with no contact between farmer and
wholesalers. The transaction is undertaken only by telephone orders by wholesalers to the
brokers. Here, in addition to 0.10 ETB commission fee provided to the broker by the whole
seller, there is a price gap of 0.10 ETB to 1.00 ETB between farm gate price and wholesale

69 
 
purchase price depending on the volume of transaction and customer relationships. This gap is
also known as FERQ. This gap matters the relationship for the coming years, if the wholesaler
contact another broker and understood the price difference between wholesale payment and
farm get price in addition to brokerage fee the probability of continuing their customer
relationship become very low.

Brokers in tomato trading: here there is no significant brokerage activity and 46.4% of the
brokers act as rural assemblers and purchase tomato on the five market places of main asphalt
road (road side) and either directly sell to wholesalers, retailers and consumers in the area or
take the tomato to Gondar and Bahir Dar market centers to sell to retailers by renting a
warehouse which can be used as a selling place in the area.

Broker’s attraction mechanism of wholesalers: brokers attract wholesalers by cheating

weight from farmers and reducing the price gap between farm gate price and wholesaler
purchase price. Weight cheating has two advantages for the broker one is that obtaining
regular wholesaler customers for the future and having his own share from it. Weight
cheating ranges from 6% to 20%. The acceptable weight reduction from normal weight during
transaction by the farmers in the area is that a maximum of 6% for the horticultural products
only because there will be weight loss during transportation and delay in selling for the
wholesaler. Weight cheating by brokers and wholesalers is common in the area in both of
participant and non participant households of brokerage institutions during transactions.

4.1.5. The rationale behind the emergence of farmer brokers

Why it is common to obtain farmer brokers in two stages? When the production of
horticultural crops production especially onion scaled up to many of the farmers due to
farmers to farmers extension, NGOs and extension workers, the production has increased
from time to time attracting wholesalers from different parts of Ethiopia. The high demand of
onion by wholesalers creates the opportunity for urban and peri-urban brokers to cover all the
peasant associations of the Woreda. However, it was very difficult for them to cover all the
area due to high transaction cost and labor force. Thus, urban and peri-urban brokers employ

70 
 
upper-tier farmer and youth brokers who are residence of the area and well accepted by the
community with commission from each Kg of onion in order to easily bargain farmers and
compute other brokers in the transaction. Since upper-tier farmer and youth brokers are
residents in the rural area they have relative’s producing the onion which gives them to easily
have suppliers or regular customers. Thus, this in turn gives them the opportunity to easily
join to the brokerage institutions. The study identified that most (more than 90%) of the
farmer brokers started the service by using their relative farmers product.

There are also the upper-tier farmer brokers who do have direct contact to the wholesalers.
These types of brokers are emerged in order to withstand the exploitative act of urban and
peri-urban brokers. First they were employed by urban and peri-urban brokers. In the mean
time through experience in the brokerage activity, these brokers develop regular customers of
wholesalers and using this opportunity they directly create linkage to wholesalers by passing
the urban and peri-urban brokers (previous employers of them). This new linkage creates
other demand opportunity for upper-tier farmer brokers from wholesalers. Experience in the
brokerage activity also helps them to have large number of regular wholesalers. These in turn
create high demand of onion from wholesalers for them. However, the upper-tier farmer
brokers were not able to satisfy the high demand of regular wholesaler customers because
they were unable to cover wide areas especially distant farmers (peasant associations) due to
high transaction cost.

As a result the experienced upper-tier farmer brokers employ lower-tier farmer brokers
working for them with commission. The lower-tier groups of farmer broker’s work for the
upper-tier experienced farmer brokers and youth brokers. Generally, these lower-tier groups
of farmer brokers are formed by the upper-tier farmer brokers and youth brokers in order to
cover very far areas from the main asphalt road for reduction of high transaction costs (labor
and negotiation cost). Therefore, due to the above facts farmer brokers dominate the
brokerage activity in the area.

71 
 
4.1.6. Market outlets or target markets of brokerage institutions

Brokerage institutions base almost all parts of Ethiopia as their own market outlets. They have
regular wholesalers and sell the horticulture product in Amhara Region (almost in all zones)
(15%) , Tigray Region (Mekele, Humera, Shere and Adwa) 13% , Oromiya Region (Wolega,
Nazreth, Doni, Asebe teferi, Metu etc) (10%), Harari Region (Harar) 2%, Somali Region
(Jijiga) 3%, Benshangul Gumz (Assosa, Gilgel Beles and Pawi) 5%, Southern Region
(Welayta Sodo) 2% and Addis Abeba (50%) of the total production of horticulture in the
Woreda. Because of the existence of brokerage institutions the Fogera market is linked to
different parts of Ethiopia. The main reason of domination of Fogera tomato and onion to all
of the above places is that low production costs in which smallholders at Fogera Woreda do
not uses fertilizer and use mainly the cheap labor in the area

4.1.7. Producer’s perception of brokerage institutions

Most (73.4%) farmers (both participant and non participant) believe that brokers play
significant and important role in linking farmers to traders while only 26.6% of the farmers
(all non participants of the brokerage institutions) believe that they have no important role in
onion marketing. According to farmers, there importance is in linkage (35.7%), price
information (0.6%), linkage and price information (0.7%) and linkage, quality information
and price information (36.4%). All of the farmers (100%) believe that brokers cheat in weight,
provide false price information and block direct contact of farmers to traders. Generally, most
farmers believe that brokers are important in the area with formalization of the brokerage
activity to avoid their exploitive act.

4.1.8. Night transaction and loading

Most (more than 92%) of the transaction is undertaken during the night time. This has two
implications. The logic rose by brokerage institutions, they believe that night loading helps to
reduce the perishablity of the horticulture during transportation to distant area. For example if
the onion is loaded at the night time to Addis Abeba, the onion reach for the morning market

72 
 
being fresh and keeping the quality which gives high price incentive for the wholesaler by
attracting retailers and consumers. Thus, brokerage institutions and wholesalers prefer to load
from the farm and transport at the night time in order to keep the quality of the horticulture as
standard. However, this logic is not accepted by the producers. Producers believe that night
loading is the system developed to easily cheat weight and block direct contact of producers
to wholesalers discussing the price of the onion. At the night time both producers and
wholesalers have only one chance which is transacting and loading the product with the
agreed broker price. That means there is no chance of avoiding the FERQ by discussing the
price once the onion is harvested by the producer and the car is ready by the wholesaler. Thus,
any default from the agreement leads to high transaction cost for both the producer and
wholesaler. The researcher has proved from four brokers as night loading increases the
percentage of weight cheating and reduces contract (price agreement) failure by the
discussion between producer and wholesaler.

4.1.9. Constraints of brokerage institutions

The brokerage institutions are constrained by the factors related to working capital, contract
failure and strong competition between brokers. There are no any financial institutions which
provide credit for the brokerage activity and there is no formal contractual agreement during
transaction which makes contract enforcement very difficult in the area during contract
failure. In addition, due to the absence of formal brokerage activity everybody can be a broker
which leads to competition between brokers which in turn causes to conflict. During
monitoring of the brokerage activity, the researcher has observed the conflict between two
brokers for the area of specialization in which one broker enter the territory of the other
broker to undertake transaction between producer and trader/wholesaler leading to another
conflict between the broker family (the one who believes the area is my territory) and the
producer family causing at least three people heavily injured.

73 
 
4.1.10. Opportunities to the brokers

The brokerage activity is not only constrained by problems but there are opportunities for the
business in the area associated with high production of onion from time to time, increasing
demand for the product from different parts of the country, farmers do not know wholesalers,
wholesalers do not know the producers, information and linkage gaps between farmers and
wholesalers which provides the opportunity for the broker to easily enter to the business in
order to form linkage between the two market actors. In addition, since brokers are residents
in the rural area, educated, young and have relatives engaged in the production in the rural
area they have the ability to negotiate and easily communicate with farmers which gives them
the opportunity to simply join the brokerage institutions.

4.2. Brokerage Institutions and Smallholder Market Linkages

This section presents the difference between farmers using brokerage institutions (treated) and
farmers which do not use brokerage institutions (untreated) with respect to demographic
factors, socioeconomic characteristics, social capital, production systems, institutional and
organizational aspects. It also presents the determinants of farmer’s decisions on whether to use
brokerage institutions or not for market linkage to the market outlets/wholesalers and the
impacts of brokerage institutions on smallholder onion producers. The findings are discussed
accordingly.

4.2.1. Descriptive statistics

4.2.1.1. Demographic characteristics of sample households

This study is based on the information collected from 143 sample farm households in Fogera
Woreda, of which 76 were participants in the brokerage institutions while the rest were not.

74 
 
Table 9. Descriptive statistics of sample households on pre-intervention characteristics

Pre- Sample Participant Non participant Difference in T-Value

intervention
Households (N=76) (N=67) means
Variables
(N=143)
Mean Std.Er Mean Std.Er Mean Std.Er Mean Std.Er
AgHH 39.60 0.99 42.54 1. 64 37.01 1.09 -5.52 1.93 -2.86***
SxHH 1.91 0.02 1.87 0.04 1.95 0.03 0.08 0.05 1.70**
MsHH 0.96 0.02 0.95 0.03 0.96 0.02 0.01 0.03 0.16
ELHH 2.53 0.29 1.52 0.36 3.42 0.41 1.9 0.56 3.42***
FSiHH1 3.31 0.11 3.36 0.15 3.26 0.15 -0.10 0.22 -0.47
FSiHH 6.13 0.21 5.94 0.29 6.29 0.30 0.35 0.42 0.83
TLU 5.67 0.25 5.97 0.38 5.40 0.34 -0.57 0.51 -1.11
TLSha 1.57 0.09 1.43 0.08 1.69 0.16 0.27 0.19 1.43
ILHa 0.97 0.09 0.77 0.06 1.16 0.15 0.39 0.18 2.2**
EHP 8.97 0.32 9.18 0.48 8.79 0.42 -0.39 0.64 -0.61
DRDA 3.49 0.30 4.41 0.55 2.69 0.26 -1.71 0.59 -2.92***
DHMP 0.43 0.04 0.18 0.05 0.64 0.06 0.47 0.07 6.32***
DRWM 12.43 0.63 14.64 1.1 10.49 0.63 -4.15 1.22 -3.40***
DRFMAR 2.49 0.22 3.76 0.36 1.37 0.18 -2.39 0.39 -6.16***
NRC 1.52 0.20 0.85 0.19 2.12 0.32 1.27 0.38 3.29***
NTRC 8.07 0.59 7.95 0.74 8.17 0.92 0.22 1.20 0.18
Source: Author’s Survey, 2011
*** and **means significant at the 1 and 5% probability levels, respectively.
1. Labor supply conversion factor (person day equivalent)

The descriptive results showed that (Table 9) the participants and non-participants of the
brokerage institutions were not significantly different in family size, with the average family
size of 5.94 and 6.29 respectively ranging from 2 to 14. The sample is composed of 63 male
headed and 4 female headed non participant households and 67 male headed and 9 female
headed participant households. There is significant difference between participant and non

75 
 
participant farmers with respect to sex. This indicates female headed households tend to
participate in the brokerage institutions to sell the horticulture product. Because, direct
linkage to the wholesalers needs high communication ability, networked interaction, labor
intensive and mobility from place to place but females in the area cannot undertake this
because they are very busy undertaking house works and also social taboos hinder them.

The age structure of the sample households showed that the average age of participants of the
institutions was 42.54 years while it was 37.01 for those who didn’t participate. There is a
significant difference between the two this is because aged people are weak in communication
and interaction which needs moving from place to place and labor intensive. Thus, they tend
to participate in the brokerage institutions. The average years that the family had spend in
horticultural production was 9.18 for those who participate in the brokerage institutions and it
was 8.79 for those who didn’t participate. The average experience in horticultural imply the
farmers from both groups have had more than five year farming experience with no
significant difference between the two groups.

The level of education of the household heads is statistically different for the two groups and
non participants were better-off in their level of education with mean 3.42 while 1.52 for the
participants. Education plays the most important role in any decision. Educated people have
greater communication and negotiation ability in addition they have no problem of calculating
the transaction and profit. Thus, educated households tend to do not participate in the
brokerage institutions in order to remove the FERQ and maximize their profit.

4.2.1.2. Socio-economic characteristics of sample households

Land can be considered as time invariant since land redistribution hasn’t been in practice for
the last ten years. The average size of land holding of the non-participant and participant
households is about 1.43 and 1.69 hectares, respectively and no significant difference between
the two groups. Land is the basic asset of farmers as most investments in the agricultural
sector require land. There is significant difference on irrigable land holding between the non-
participant and participant households. This might be due to the reason that households who

76 
 
have higher irrigable land size have the opportunity to produce more which in turn gives an
incentive for them to attract wholesalers because wholesalers think of the reduced transaction
cost in which they can have full of the car at a time from one producer.

Livestock are mainly kept to be the main source of draft power for agricultural practices in a
mixed farming system. Small ruminants in the area are kept mainly for income
supplementation of households. The livestock ownership is not different between participant
and non-participant households with the mean ownership of about 6 and 5 TLU for
nonparticipants and participants respectively. The minimum amount owned by a household is
0 while the maximum was 17.68 TLU which indicates that there is a high degree of disparity
in the ownership of livestock between the sample households.

4.2.1.3. Institutional and organizational aspects

All of the households have access to formal credit sources such as Amhara Credit and Saving
Institutions (ACSI) as a result a variable access to credit were not considered in the model.
Only 13.2% of households are member of cooperatives while 86.8 % of the households are
not. In all of the kebeles of the Woreda there are development agents. However, there is
significant difference in distance from residence to development agents between participant
and non participant households. Telecommunication facility is the most important service in
marketing of horticultural products by providing recent information and reducing the
transaction cost of trading. The result showed that 81.58% the participant household’s do not
have cell phone (mobile) while only 18.42% have cell phone. However, 35.2% of the non
participant households have cell phone while others do not have. There is significant
difference between the participant and non participant households with respect to cell phone
ownership. Higher percentage of mobile phone ownership helps the non participant
households to easily call and find the wholesalers for selling their horticulture product. There
are two main asphalt roads from Bahir Dar to Gondar and from Woreta to Debre Tabour.
There is significant difference between participant and nonparticipant households with respect
to distance of residence to Woreta (Woreda) market and main asphalt road. The reason is that
when the households are far away from the main asphalt road and Woreta town, the

77 
 
transaction cost of finding market information and wholesalers is very high. Thus, the
households tend to use brokerage institutions in order to reduce the transaction cost.

Table 10. Descriptive statistics of sample households (for dummy variables)

Pre- Category Participant Non participant Total χ2

intervention (N=76) (N=67)
Variables N % N % N %
SxHH Female 10 13.16 3 4.48 13 9.09 2.88*
Male 56 86.84 64 95.52 130 90.91
DHMP No 62 81.58 43 64.18 105 73.43 31.56***
Yes 14 18.42 24 35.52 38 26.57
Source: Author’s Survey, 2011
*** and *means significant at the 1 and 10% probability levels, respectively.

4.2.1.4. Social capital

Social capital plays very significant role in transaction. There is significant difference
between the participant and non participant households with respect to the number of regular
wholesaler customers and number of trading contacts to main (Woreta) market in marketing
of horticultural products. Social capital reduces the transaction cost by reducing the
negotiation and information searching costs. High social capital means less probability of
participation in the brokerage institutions. Since, non participant households have higher
social capital which reduces the transaction cost they tend to directly contact to wholesalers to
sell their product than using brokerage institutions.

78 
 
4.2.2. Propensity score matching model

4.2.2.1. Estimation of propensity scores

As indicated earlier, a binary variable which indicates whether the household is participated in
the brokerage institutions or not was considered as dependent variable. In the estimation
process, households were pooled in such a way that the dependent variable takes a value 1 if
the household uses the brokerage institutions for linkage to wholesalers (participate in
brokerage institutions) and 0 if the household do not use brokerage institutions for linkage.
The variables (demographic, socio-economic, social capital and institutional aspects) included
in the model are assumed to affect household’s participation decision whether to use brokers
or not as a linkage to the market outlet and have influences on the overall outcome of interest.
The model was estimated with STATA 11 computing software using the propensity scores
matching method called psmatch2 developed by Leuven and Sianesi (2003).

Variance inflation factor (VIF) was applied to test for the presence of strong multicollinearity
among the explanatory variables (see appendix 1). There was no explanatory variable dropped
from the estimation model since no serious problem of multicollinearity was detected from
the variance inflation factor (VIF). Breusch-Pagan / Cook-Weisberg test for heteroscedasticity
were used to check the existence of heteroscedasticity of variance and there was no
heteroscedasticity problem in the model. The pseudo-R2 value is (0.4294) (Table 11). A
higher pseudo R2 value in this case means that households with in and out of the brokerage
institutions do have much distinct characteristics.

As indicated below (Table 11) only six of the fifteen explanatory variables which are
theoretically supported to influence the decision to participate in the brokerage institutions for
linkage and considered in the logit model have significant effect on the participation decision
of the household.

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Table 11. Logit results of households’ brokerage institution participation

Variables Coefficients Std.Er Z value

Age .056** .028 2.03
Sex -.157 .996 -0.16
MsHH -.308 1.410 -0.22
ELHH -.163* .086 -1.90
1
FSiHH -.052 .282 -0.19
Livestock .109 .098 1.11
TLSha .183 .586 0.31
ILHa -.022 .574 -0.04
EHP -.021 .065 -0.33
DRDA .156* .087 1.81
DHMP -1.710*** .554 -3.09
DRWM .006 .038 0.16
DRFMAR .631*** .172 3.67
NRC -.331** .164 -2.02
NTRC -.027 .042 -0.65
Constant -2.479 2.458 -1.01
Sample size (N) 143
LR chi2(15) 84.88
Prob > chi2 0.00
Pseudo R2 0.42
Log likelihood -56.394
Source: Own estimation result
***, ** and *means significant at the 1%, 5% and 10% probability levels, respectively.

1. Labor supply conversion factor (person day equivalent)

The interest of the matching procedure is to get a household from broker non-users (non-
participants) in brokerage institutions service with similar probability of participation or using
brokerage institutions given the explanatory variables. If the numbers of explanatory variables

80 
 
affecting the participation decision are limited, it created a good opportunity for matching and
it makes the matching procedure less difficult since matching algorism is implemented to
eliminate significant differences of explanatory variables between participant and non-
participants groups.

Age of the household head significantly and positively affected the probability of
participation in using brokerage institutions service of the household. It coincides with the
hypothesis that as the age of the household head increases, the household decides better to
participate in brokerage institutions. This is due to the fact that aged people have weak
communication and information searching ability in order to directly contact to
traders/wholesalers to sale the onion. In other words, the younger the household head is, and
the more likely will be the probability of not participating in the brokerage institutions for
linkage in the marketing of onion.

Education level of the household has a negative significant effect on the participation decision
of the household in brokerage institutions. People with higher education level are good at
communication, information searching, negotiation and undertaking transaction which leads
to direct contact to traders to sell their product. This indicates that educated people have less
probability of using brokerage institutions for linkage to wholesalers than uneducated people
(illiterate and adult education). In Fogera Woreda the most determining factor for direct
linkage of farmers to wholesalers is the thrust between them during transaction. The
transaction can be undertaken if there is strong thrust between them in weighing and payment.
If the household head is uneducated he has no knowledge about weighing and preferred to use
brokerage institutions for market linkage than direct linkage to wholesalers as he is more
familiar with the broker who lives in the residence and trustful on the broker. Payment place
is also the most important issue for farmers and wholesalers. Farmers prefer to receive their
payment at the farm while wholesalers prefer to pay at Woreta town this disagreement made
uneducated farmers to sale their product using brokerage institutions while educated farmers
have no problem of payment place rather the price itself. Thus, there will be easy agreement
between farmers and wholesalers and they tend to directly contact to wholesalers to sell their
product without using brokerage institutions.

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Distance of residence of the household to development agent’s office has a positive
significant effect on the participation decision of the household in the brokerage institutions.
Households which are far from the development agent office have higher probability to use
brokerage institutions for linkage to the market outlet than households which are near to
development agents. The reason for this fact is that when distance of the household’s
residence to the development agents increase, the household cannot have easy access for
extension services related with product marketing techniques, market information and market
linkages which lead the household to participate in brokerage institutions service for linkage
than direct contact to the wholesalers.

The two most important factors which affects households decisions whether to use brokerage
institutions or not in Fogera Woreda are transaction costs and the issue of obtaining secure
market outlet for the product. Having Cell phone (Mobile phone) or not has a negative
significant effect on the participation decision of the households whether to use brokerage
institutions or not for linkage to the traders/wholesalers. Households who have mobile phone
have a higher probability of not using brokerage institutions for market linkage than those
who do not have. Mobile phone makes communication and information searching very easy
as a result it reduces the transaction cost of finding wholesalers. Therefore, it facilitates the
direct contact of households to the traders.

Distance of residence of the household to the main asphalt road has a positive and significant
effect on the participation decision of the households in the brokerage institutions.
Households which are far from the main asphalt road have higher probability to use brokerage
institutions for linkage to the market outlet than households which are near to the main asphalt
road. The reason for this fact is that when distance of the household’s residence to the main
asphalt road increases, the household cannot access information about the wholesalers and
there will not be thrust between the wholesalers and the farmers in the transaction processes
(payment become very difficult for the wholesalers at the farm which is distant from the
asphalt road, the wholesaler do not thrust the farmer whether he has quality onion or not in the
area and if there is no quality onion there will be high transaction cost for wholesaler to come
out of the farm to the main road. On the other side, the farmer also do not have thrust on the

82 
 
wholesaler in order to receive the payment for his product from the wholesaler in the Woreta
town) which leads to higher probability of using brokerage institutions for market linkages in
which the brokerage institutions are known and the transaction is safe from any default.

Number of regular customers (wholesalers) of the households has a negative and significant
effect on the participation decision of the household in brokerage institutions service.
Households having large number of regular wholesalers have lower probability of
participating in the brokerage institutions for market linkage than those who have lesser
number of regular customers this is due to the fact that households prefer direct market
contact to the wholesalers as they have larger number of regular customers who can purchase
the product. Thus, there is no information problem and higher transaction cost to access them.
In addition direct contact removes the FERQ which is advantageous for both producers and
wholesalers. However, if the household have less number of regular wholesaler customers,
this wholesalers cannot purchase all of his product because they are few which needs
searching another market outlet or wholesaler this in turn leads to higher transaction cost of
searching information and wholesalers. As a result the household prefer to use brokerage
institutions for market linkage under this condition.

4.2.2.2. Common support condition

The next step in propensity score matching technique is the common support condition. Only
observations in the common support region matched with the other group considered and
others should be out of further consideration. Once the region of common support is defined,
households that fall outside this region have to be disregarded and the treatment effect cannot
be estimated for this households.

83 
 
Figure 3: Kernel density of propensity scores before matching

Kernel density estimate

2 

1.5
Density

.5

0  .5 1
psmatch2: Propensity Score

Kernel density estimate

kdensity _pscore
kdensity _pscore
kernel = epanechnikov, bandwidth = 0.1169

Figure 3 showed the distribution of the total households, participant and non-participant
households, with respect to estimated propensity scores. As it is described in the figure, most
of the participant and non-participant households are densely located in the right and left of
the distribution. Since most of the participant and non-participants households are located in
the right and left side of the distribution respectively, it makes the matching procedure
complex.

The predicted probability for those who are participating in the brokerage service ranges from
0.060 to 0.999 with the mean probability of participation being 0.725. On the other hand, the
probability of not participating of the non participant households in the brokerage institutions
service ranges from 0.003to 0.895 with mean of 0.242. From the result, observations with the
predicted probability between 0.060 and 0.895 are in the common support region with the
possibility of getting good match from the other group. Observations with predicted

84 
 
probability less than 0.060 and greater than 0.895 have been disregarded out from further
analysis

Figure 4: Kernel density estimates of participants before and after common support

Kernel density estimate

2 

1.5

Density 
1 

.5 

0 

0  .5 1
psmatch2: Propensity Score

Kernel density estimate

kdensity _pscore
kernel = epanechnikov, bandwidth = 0.1070

As we can see from (Figure 4) most of the participant observations lie towards the right part
of the graph. The common support condition obliges to drop down observations with
probability of participation greater than 0.895. Accordingly, fifty seven of the observations
from the participants satisfy the common support condition while nineteen observations are
ignored from further consideration.

On the other hand most of the non participant observations lie towards the left part of the
graph. The common support condition obliges to drop down observations with probability of
participation less than 0.060. Accordingly, twenty four observations from the non participant
household’s fall out of the common support region and forty three observations saved for the
matching (Figure 5).

85 
 
Figure 5: Kernel density estimate of propensity scores of non-participants households before
and after common support

Kernel density estimate

2 

1.5
Density

.5

0
0  .2 .4 .6 .8 1
psmatch2: Propensity Score

Kernel density estimate

kdensity _pscore
kernel = epanechnikov, bandwidth = 0.0888

4.2.2.3. Matching of participant and non-participant households

In an impact assessment study, households should have their good match from the control
group. This will be maintained through balancing the covariates of the participant group to the
covariates of the non-participant group. (Table 12) elaborates how this indicator is maintained
in the research. The unmatched sample fails to satisfy the property in that participant
households are on average significantly different in several aspects from the control
households. Against the unmatched sample, matched samples using kernel with band width of
0.25 satisfy the property of balanced matching for all of the covariates.

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Table 12. Balancing test of matched sample

Explanatory Before matching (143) Kernel matching (Band width 0.25)

variables (100)
Participant Control T Participant Control T
HHs HHs HHs HHs
AgHH 42.54 37.01 -2.86*** 40.09 38.45 0.67
**
SxHH 1.87 1.95 1.70 1.93 1.92 0.15
MsHH 0.95 0.96 0.16 .98 .97 0.12
***
ELHH 1.52 3.42 3.42 1.67 2.42 -1.15
1
FSiHH 3.36 3.26 -0.47 3.28 3.15 0.49
TLU 5.97 5.40 -1.11 5.59 5.57 0.04
TLSha 1.43 1.69 1.43 1.39 1.41 -0.12
ILHa 0.77 1.16 2.2** .80 .81 -0.10
EHP 9.18 8.79 -0.61 7.44 7.55 -0.13
DRDA 4.41 2.69 -2.92*** 2.93 3.44 -0.66
DHMP 0.18 0.64 6.32*** .23 .32 -0.94
DRWM 14.64 10.49 -3.40*** 12.42 12.37 0.03
DRFMAR 3.76 1.37 -6.16*** 2.23 2.27 -0.13
NRC 0.85 2.12 3.29*** 1.00 .91 0.27
NTRC 7.95 8.17 0.18 7.70 8.64 -0.56
Source: Author’s Survey, 2011
*** and **means significant at the 1 and 5% probability levels, respectively.
1. Labor supply conversion factor (person day equivalent)

As it is clearly indicated in (Table 13) below, the three criteria were implemented to each
matching algorism to identify the best matching technique. Kernel matching algorism with a
band width of 0.25 was found to be the best estimator by balancing all the observable
covariates, ends with low pseudo-R2 and large number of observations in the common
support. Accordingly, the research used the kernel matching algorism with band width of 0.25
for comparing the participants and non-participants of the brokerage institutions service with
respect to the impact

87 
 
Table 13. Performance of matching estimators under the three criteria

Matching estimator Performance criteria

Balancing test* Pseudo-R2 Matched sample size
Radius Caliper matching
0.01 15 1.000 32
0.05 15 0.240 51
0.1 15 0.098 57
0.25 15 0.062 65
0.5 15 0.086 74
Kernel Matching
With no band width 15 0.065 100
With 0.08 band width 15 0.052 100
With 0.1 band width 15 0.046 100
With 0.25 band width 15 0.045 100
With 0.3 band width 15 0.046 100
With 0.5 band width 15 0.060 100
Neighbor matching
1 neighbor 14 0.207 100
2 neighbor 14 0.082 100
3 neighbor 15 0.080 100
4 neighbor 15 0.063 100
5 neighbor 15 0.050 100

Source: Own Estimation Result

* means the number of explanatory variables which have no significant difference between
the participant and non-participant households after matching

4.3. Impacts of the Brokerage Institutions

In this section, the research describes the impacts of brokerage institutions in linking
smallholder horticultural crop (onion) producers with market outlets (wholesalers) in terms of
net return, percentage of marketed surplus, land allocated to onion production, amount of

88 
 
onion produced and sensitivity of the impacts. This section has four different sub-topics so as
to independently discuss the impacts.

Table 14. Impact of Brokerage institutions

Outcomes ATT Std.Err1 T

NIO 4393.62 1781.51 2.53**
PMSU 13.55 13.84 2.86**
AOP -5.084 36.72 -0.25
LAOP -0.053 0.22 -0.24
1. The bootstrapped SE is obtained after 100 replications
**, significant at 5% probability levels
Source: Own estimation result

4.3. 1. Impact on net return from onion production

Brokerage institutions in Fogera Woreda create linkage between farmers and the market outlet
(wholesalers). Thus, farmers using brokerage institutions have easy access to wholesalers
which reduces the transaction cost of searching traders, market information, loss due to
perishablity and transportation cost which in turn reduces the overall marketing cost. As net
return is revenue reduced the total cost, a reduction in marketing cost means a reduction in
total cost which leads to high net return. As indicated in the (Table 14) above, smallholder
farmers using brokerage institutions have got 4393.62 ETB higher net incomes from onion
production than those farmers who do not use brokerage institutions for linkage to the market
outlet. This indicates that brokerage institutions are playing a significant and positive role in
linking smallholder farmers to the market outlets.

4.3. 2. Impact on percentage of marketed surplus

Smallholder’s use of brokerage institutions is highly associated with the issue of obtaining
secure market for their product in all the production years. According to Woreda Experts and
Development Agents there is significant fluctuation either increasing or decreasing in
89 
 
horticultural production every year following the increase or decrease in price of the previous
year respectively. In 2011 production year, It was very good year for horticultural production
and onion production was high in the area following the high price incentive in 2010. Thus, in
2011 the price of onion has reached to 0.25 ETB for Kg of onion because the supply was
much more than the demand and even most of the farmers specially farmers who do not use
brokerage institutions do not sell much of their product, following this the farmers reduced
allocation of more land to onion production and the supply in 2012 become very low relative
to demand. Based on the monitoring of the study area for about four months (January,
February, March and April) the price score for a Kg of onion was between 4.00-7.00 ETB.

In 2011, due to the high supply of onion, lower demand compared to production and
perishable nature of the product brokerage institutions played great role in linking their
smallholder customer farmers (broker users) to the market outlets and the percentage of non
marketed onion from total production was lower than 27.27% while farmers who do not have
the experience of using brokerage institutions specially those their residence is far from the
main asphalt road were unable to sell their product and the non marketed onion from total
production has reached to up to 79%. This is due to the fact that brokers have much higher
regular wholesaler customers than farmers who do not use brokers, more information and
very high communication capacity which leads them to control most of the wholesalers
coming to the area. In addition, in the time of much supply brokerage institutions provide
service first for their very experienced farmer customers that is based on experience in
transaction. As shown in the (Table 14) above, the result of the study revealed that
smallholder farmers who participated in brokerage institutions for linkage have 13.55% of
greater marketed surplus than those smallholders who do not participate. This implies that
brokerage institutions have significant and positive impact on marketed surplus in Fogera
Woreda

4.3. 3. Impact on Amount of Onion Produced and Land Allocated to Onion Production

As shown in the (Table 14) above, the result of the study indicated that brokers have no
significant and positive impact on the amount of onion produced and land allocated to onion

90 
 
production. The reason is that higher land allocation and high production is affected by other
factors like previous year price.

4.3.4. Sensitivity Analysis

It should be clear that matching estimators are not robust against ‘hidden biases’. Different
researchers become increasingly aware that it is important to test the robustness of results to
departures from the identifying assumption. Since it is not possible to estimate the magnitude
of selection bias with non-experimental data, the problem can be addressed by sensitivity
analysis. Rosenbaum (2002) proposes using Rosenbaum bounding approach in order to check
the sensitivity of the estimated ATT with respect to deviation from the CIA (Conditional
Independence Assumption). The basic question to be answered here is whether inference
about treatment effects may be altered by unobserved factors or not.

Table 15. Result of sensitivity analysis using Rosenbaum bounding approach

Outcomes eᵞ=1 eᵞ=1.25 eᵞ=1.5 eᵞ=1.75 eᵞ=2 eᵞ=2.25 eᵞ=2.5 eᵞ=2.75 eᵞ=3

NIO 5.0e-12 6.4e-09 6.9e-07 .000018 .000192 .001141 .004497 .013149 .030763
PMSU P<0.000 P<0.000 P<0.000 1.1e-16 8.0e-15 2.3e-13 3.3e-12 2.9e-11 1.8e-10
AOP P<0.000 P<0.000 P<0.000 P<0.000 P<0.000 P<0.000 P<0.000 P<0.000 P<0.000
LAOP P<0.000 P<0.000 P<0.000 P<0.000 P<0.000 P<0.000 P<0.000 P<0.000 P<0.000

Source: Own estimation

eᵞ(Gamma)=log odds of differential due to unobserved factors where Wilcoxon significance
level for each significant outcome variable is calculated

The first column of the (Table 15) shows those outcome variables which bears statistical
difference between treated and control households in our impact estimate above. The rest of
the values which corresponds to each row of the significant outcome variables are p-critical at
different critical value of eᵞ.

Result showed that the inference for the effect of the brokerage institutions is not changing
though the participants and non participant households in the brokerage institutions has been

91 
 
allowed to differ in their odds of being treated up to 200% (eᵞ=3) in terms of unobserved
covariates. That means for all outcome variables estimated, at various level of critical value of
eᵞ, the p- critical values are significant which further indicate that the study have considered
important covariates that affected both participation and outcome variables. The study
couldn’t get the critical value eᵞ where the estimated ATT is questioned even if the research
have set largely up to 3, which is larger value compared to the value set in different literatures
which is usually eᵞ=2 (100%).Thus, it is possible to conclude that the research impact
estimates (ATT) are insensitive to unobserved selection bias and are a pure effect of
brokerage institutions in the area.

4.4. Brokerage Institutions and Wholesaler Market Linkages

In this section, the research describes the interaction between the brokerage institutions and
wholesaler market linkages, the socioeconomic profile of wholesalers and the determinants of
decisions of wholesalers on share of brokered transaction. This section has five different sub-
topics so as to independently discuss each subtopic.

4.4.1. Demographic profiles of the wholesalers

The descriptive and inferential statistics analysis (Table 16) showed that most of the
wholesalers are males. This is due to the fact that the business needs financial capital, high
communication ability, moving from place to place and labor intensive. Since, females are
busy in house in caring the family and cooking, they are not engaged in this business activity.
There is a significant difference in distance of residence of wholesaler from the Fogera
Woreda market place between participant and non participant wholesalers in the brokerage
institutions. This indicates wholesalers far from the Fogera Woreda are more likely to
participate in the brokerage institutions as they do not know the producers in order to reduce
the transaction cost of searching information.

92 
 
Table 16. Descriptive statistics of sample wholesalers (for continuous variables)

Variables Sample wholesalers Participant (N=46) Non participant T-Value

(N=52) (N=6)
Mean Std.Er Mean Std.Er Mean Std.Er
DRFWM 149.27 23.47 165.48 25. 47 25.00 21.00 -1.96*
AGWS 31.11 0.95 31.50 0.98 28.17 3.28 0.26
EXWSHT 5.28 0.44 5.30 0.47 5.17 1.40 -0.10
ELWS 9.00 0.51 8.69 0.55 11.33 0.71 1.69*
NPWB 1.71 0.13 1.76 0.14 1.33 0.33 -1.05
CASF 32.56 4.18 35.17 4.43 12.50 9.81 -1.77*
CWCWS 23923 2163 24086 1995 22666 11769 -0.21
NRFC 4.36 1.06 2.91 0.74 17.83 4.69 5.72***
NRRC 3.67 0.51 4.15 0.54 0.00 0.00 -2.77***
NRWCOA 2.61 0.27 2.84 0.27 0.83 0.83 -2.53**
NTCFWM 47.67 6.60 8.24 6.22 120.00 0.00 4.70**
TMCOST 543653 45843 547231 50234 516225 107204 -0.21
EUB 4.96 0.47 5.61 0.44 0.00 0.00 -4.51***
Source: Author’s Survey, 2012
***, ** and* means significant at the 15% and 10% probability levels, respectively

Wholesalers who are non participant in the brokerage institutions are more educated than
participants. Education increases the ability to communicate and negotiate easily. This
indicates that educated wholesalers tend to directly link to smallholder producers rather than
using brokerage institutions as means of linkage. There was no significant difference between
participant and non participant wholesalers in terms of years of age and experience in the
horticultural trade. There was also no difference in sex, religion and marital status between
the two groups.

93 
 
4.4.2. Socio-economic characteristics and assets of wholesalers

There was no significant difference in number of persons working on the business, total
marketing cost and current working capital between participants and nonparticipants of
wholesalers in the brokerage institutions. There is a significant difference in social capital
between the two groups (Table 16) which indicates that non participants have higher number
of regular farmer customers, lower number of trader customers purchasing from them (lower
number of regular retailer customers and lower number regular wholesaler customers in other
areas) and higher number of trading contacts to Fogera Woreda market place than participants
in the brokerage institution. The reason is that social capital is one of the most important
factors in determining the decision of wholesaler whether to use brokerage institutions or not
by affecting the transaction cost of searching information and negotiation. The study indicated
significant difference between participant and non participant wholesalers in ownership of
horticultural storage facility which can function as a selling place. The reason is that
wholesalers who do have their own storage facility tend to use brokerage institutions for
linkage to smallholder producers as they have a permanent selling place in order to frequently
supply to the market. However, the capacity of storage facility was insignificant between the
two groups because horticultural products are perishable and cannot be stored.

4.4.3. Institutional and organizational aspects

There is a significant difference between the participant and non participant wholesalers in
terms of distance from residence to the Fogera Woreda market place. Participants mean
distance is higher than the non participants which have negative effect on market information
and communications which increases transaction cost and increases participation. However,
there was no significant difference between the two groups in credit access and the type of
road (gravel or asphalt) accessed by the wholesaler.

94 
 
Table 17: Descriptive statistics of sample wholesalers (for dummy variables)

Pre- Category Participant Nonparticipant Total χ2

intervention (N=46) (N=6)
Variables N % N % N %
TRDA Gravel 3.00 6.50 0.00 0.00 3.00 5.80 0.41
Asphalt 43.00 93.50 6.00 100 49.00 94.20
SXWS Female 1.00 2.20 0.00 0.00 1.00 1.90 0.13
Male 45.00 97.80 6.00 100.00 51.00 98.10
MSWS Single 14.00 30.43 3.00 50.00 17.00 32.69 0.92
Married 32.00 69.57 3.00 50.00 35.00 67.31
RLWS Muslim 4.00 8.70 1.00 16.67 5.00 9.61 0.38
Orthodox 42.00 91.30 5.00 83.33 47.00 90.39
HOSF No 8.00 17.39 4.00 66.67 12.00 23.08 7.26***
Yes 38.00 82.61 2.00 33.33 40.00 76.92
ACWS No 40.00 86.96 5.00 83.33 45.00 13.46 0.06
Yes 6.00 13.04 1.00 16.67 7.00 86.54
HRCAPO No 8.00 17.39 5.00 83.33 82 57.34 12.31***
Yes 38.00 82.61 1.00 16.67 61 42.66
Source: Author’s Survey, 2012
***, means significant at 1 % probability levels

4.4.4. Wholesaler’s perceptions of brokerage institutions

Most (96.2%) of the wholesalers (both participant and non participant) believe that brokerage
institutions play significant and important role in linking wholesalers to producers while only
3.8% of the wholesalers (all non participants of the brokerage institutions) believe that they
have no important role in onion marketing. According to wholesalers, their importance’s are
in linkage and providing market (price and quality) information using telephone, sample and
taking the wholesaler to the farm which helps to reduce the transaction cost. All of the
wholesalers (100%) believe that brokers provide false market information and block direct

95 
 
contact of wholesalers to producers. Generally, most wholesalers believe that brokers are
important in the area with formalization of the brokerage activity to avoid their exploitive act
which is FERQ in addition to brokerage fee.

4.4.5. Determinants of share (percentage) of brokered transactions

Table 18. Results of OLS estimation

Variables Coefficients Robust Std. Err. T-Value

DRFWM .025** .009 2.67
TRDA 5.753 10.864 0.53
EXWSHT -1.346* .746 -1.80
NRBC .561** .269 2.09
MSWS 7.493 5.495 1.36
ELWS .013 .447 0.03
NPWB -1.253 2.081 -0.60
HOSF 5.727 6.074 0.94
CWCWS .00007 .0001 0.56
ACWS -.873 3.804 -0.23
NRFC -2.872*** .743 -3.87
NRRC .284 .558 0.51
NRWCOA 4.226*** 1.342 3.15
NTWM -.102 .070 -1.45
TMCOST1 .00002*** 8.53e-06 2.74
_cons 59.406 15.398 1.26
F( 15, 30) = 14.23
Prob > F = 0.0000
R-squared = 0.835
Root MSE = 11.242
Source: Author’s Survey, 2012
*, ** and ***means significant at the 10%, 5% and 1% probability levels.
1. cost of not using brokers
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The result of OLS regression showed that (Table 18), only six of the explanatory variables
affected the intensity of brokerage use by wholesalers out of fifteen explanatory variables
expected to affect percentage of brokered transaction. The significant variables are discussed
below:

DRFWM (Distance of residence of wholesaler from Woreta market): It has a significant

and positive effect on the intensity of brokerage use. A unit increases in distance increases the
percentage of brokered transaction by 0.025. This is because when distance increases the
transaction cost of finding market information and producers is very high. Thus, wholesalers
tend to use brokers intensively for reducing transaction cost.

EXWSHT (Experience of the wholesaler in horticultural trading): It has a significant and

negative effect on the intensity of brokerage use. A unit increases in years of experience
reduces the percentage of brokered transaction by 1.346. This is due to the fact that, years of
experience in horticultural trading helps to understand the marketing system and actors which
helps to reduce the transaction cost of searching market information and producers. Thus,
wholesalers tend to reduce the intensity of brokerage use by directly contacting to the
producers.

NRBC (Number of regular broker customer): It has a significant and positive effect on the
intensity of brokerage use. A unit increases in number of regular broker customer increases
the percentage of brokered transaction by 0.561. This is because when a wholesaler develops
regular broker customers, the wholesaler has the advantage of reduced FERQ due to the
already established trust based relationship. Thus, wholesalers tend to use brokers intensively
for reducing transaction cost of directly contacting producers.

NRFC (Number of regular farmer customer): It has a significant and negative effect on the
intensity of brokerage use. A unit increases in number of regular farmer customer reduces the
percentage of brokered transaction by 2.872. This is because when a wholesaler develops
regular farmer customers, the wholesaler has the advantage of directly forming linkage to the
producers with reduced transaction cost due to the already established relationship. Moreover,

97 
 
more number of regular farmer customers means more supply of onion to the wholesaler
without brokers. Thus, wholesalers tend to reduce the intensity of brokerage use by directly
contacting to the producers.

NRWCOA (Number of wholesaler customers in other areas): It has a significant and

positive effect on the intensity of brokerage use. A unit increases in number of regular
wholesaler customer found in other areas always purchasing onion from the wholesaler
increases the percentage of brokered transaction by 4.226. This is because when a wholesaler
develops regular buyer wholesaler customers found in other areas, the wholesaler has more
demand for his product this in turn needs frequent supply of onion for him. Thus, wholesalers
tend to increase the intensity of brokerage use to frequently supply for his buyer wholesale
customers and reduce transaction cost.

TMCOST (Total marketing cost): This cost is calculated based on opportunity cost, what
will be the cost if the wholesalers do not use brokers. It has a significant and positive effect on
the intensity of brokerage use. A unit increases in the total marketing cost of not using
broker’s increases the percentage of brokered transaction by 0.00002. This is because when
the cost of not using brokers increases due to high transaction cost, the wholesalers tend to
increase the intensity of brokerage use in order to reduce transaction cost.

98 
 
 5. SUMMARY, CONCLUSIONS AND RECOMMANDATIONS

In this section, summary of the whole findings of the study, conclusions based on the findings
and their implications are presented in three sub sections.

5.1. Summary

The main concern of this thesis was to analyze the brokerage institutions and smallholder
market linkages to the wholesalers in vegetable marketing in Fogera Woreda, North Western
Amhara Region particularly focusing on onion and tomato. The choice of the crops
intentionally was based on their relative importance, marketability and existence of significant
brokerage activities. The specific objectives included are assessing the characteristics,
economic roles, constraints and opportunities of the brokerage institution, measuring the
impacts of brokerage institutions on farmers market participation and income generation
capacity under imperfect market condition and identifying the determinants of wholesalers
decisions on whether and for how much to use brokers under imperfect market condition of
vegetable marketing.

Both secondary and primary data were collected for the study. Primary data were collected
from a very wide range of respondents at all stages of the market channel where brokers are
expected to act. Two stage sampling techniques were used to select the sample. A total of 143
smallholders producing vegetable crops (67 from participants of brokerage institutions and 76
from non participants) drawn from 5 Kebeles in Fogera Woreda, 55 brokers in the Woreda, 52
wholesalers (including wholesalers coming from different areas of the country) in the
Woreda. For the study 45 retailers from four towns (Gondar, Bahir Dar, Gumara and Woreta)
and 20 rural assemblers at Fogera Woreda were interviewed using structured questionnaires.
Informal survey such as observation and rapid market appraisal with the help of focused group
discussion and key informant discussion using checklists were the other primary data
collection tool employed in the process. The data were collected in two phases, in phase one
cross-section data were collected for twenty days and in the second phase data were collected
by monitoring the area for about four months during the season of marketing.

99 
 
Descriptive and econometric statistical models were employed for data analysis using STATA
software. The study implemented the propensity score matching technique using explanatory
variables which were theoretically supported to influence the decision of the smallholder
farmers whether to use brokerage institutions or not and the outcome variables of interest. The
study has also used OLS to identify the determinants of wholesaler’s share of brokered
transaction.

The result of the study showed that all of the brokers are males. It also indicated that most of
the brokers are youngsters and literate. The brokerage institutions are characterized by place
of work as urban brokers (found at Woreta town), peri-urban brokers (found at villages of the
main asphalt road such as Gumara and Abewana Kokit) and farmer brokers who are found in
the rural villages. They are also characterized by their main occupation as farmer brokers
(their livelihood is dependent on farming), youth brokers (grade 10, 12, college and school
dropout jobless youngsters). The highest percentage of brokerage institutions are farmer
brokers. Most farmer brokers are either employed by youth brokers or trader (cereal) brokers.
The youth and trader brokers are characterized as urban and peri-urban brokers.

The study also revealed that there is significant brokerage activity only for onion marketing
and in the case of tomato marketing most of the brokers act as rural assemblers. The main
brokerage institutions characteristics and roles in the area are brokers bring economics of
scale, create linkage, reduce transaction cost of searching information and marketing cost for
both farmers and wholesalers, act as a means of trust and facilitate trading during transaction
between farmers and wholesalers and facilitate credit based transaction between the farmer
and the wholesalers being as a collateral for the farmer or taking the product as credit from the
farmer.

In different studies agricultural brokerage institutions provide credit, market information and
share risk for both the wholesaler. However in Fogera Woreda, farmers provide their product
to a wholesaler as credit and a broker act as a collateral in this trust based transaction. After
transaction, the wholesalers send the money to the broker and then the broker give money to
the farmers taking his own share. Of course, brokerage institutions provide market

100 
 
information to farmers related to quality and prices. But, the reality of price information is
questioned by farmers. Brokerage institutions provide market information (quality and price)
using telephone, direct discussion and providing sample for the wholesalers. Most of the
horticultural trading in the area is undertaken by credit and trust based. This contractual bases
transaction is subjected to contract failure as there are no formal contract enforcement
mechanisms.

Since the brokerage activity in the area is trust based there is high price gap between farm get
price wholesale purchase prices which ranges from 0.10 ETB to 1.00 ETB in addition to
brokerage fee of 0.10 ETB for each Kg of transacted onion. This gap is known as FERQ. It is
highly dependent on customer relationship, amount of onion transacted and transaction
experience. Brokerage institutions attract wholesalers by cheating weight from farmers and
reducing the price gap between farm gate price and wholesaler purchase price. Weight
cheating has two advantages for the broker one is that obtaining regular wholesaler customer
for the future and having his own share from it. All of the farmers believe that brokers cheat
in weight, provide false price information and block direct contact of farmers to traders.
Generally, most (73.5%) farmers believe that brokers are important in the area with their
problems but formalization of the brokerage activity is very crucial to make them more
beneficial to the farmers.

The brokerage institutions are constrained by the factors related to working capital, contract
failure, strong competition and conflict between brokers. Increase in production, information
and linkage gaps between farmers and wholesalers are the opportunities for the broker to
easily enter to the business in order to form linkage between the two market actors.

Logistic regression estimation of the Propensity Score Matching (PSM) algorithm revealed
that six of the fifteen variables hypothesized to affect participation were found to be
statistically significant. Age, education level, distance of residence from development agent
office, distance of residence from Woreta market, distance of residence from main asphalt
road, access to cell phone (mobile phone) and number of regular wholesaler customers
significantly affected the participation decision of the smallholders in the brokerage

101 
 
institutions or not. Kernel Matching with band width of 0.25 was found to be the best
matching algorithm after a series of tests (the balancing test, pseudo-R2 test and maximum
possible number of observations matched). The result of the study revealed that, smallholder
farmers using brokerage institutions have got 4393.62 ETB higher net income from onion
production than those farmers who do not use brokerage institutions for linkage to the market
outlet. It also showed that smallholder farmers who participated in brokerage institutions for
linkage have 13.55% of greater marketed surplus than those smallholders who do not
participate. However, the result of the study indicated that brokers have no significant and
positive impact on the amount of onion produced and land allocated to onion production.

Ordinary Least Square (OLS) regression estimation revealed that six of the fifteen variables
hypothesized to affect intensity of brokerage use of wholesalers were found to be statistically
significant. Distance, years of experience in trading, number of regular broker customer,
number of regular farmer customers, number of regular buyer wholesaler customers, and total
marketing cost (calculated in terms of cost of not using brokers) significantly affected the
participation decision of the wholesalers.

5.2. Conclusions and Recommendations

The overall analysis of the study can be concluded that brokerage institutions are
characterized as farmer, peri-urban and urban brokers including farmers, youth brokers
(school dropout and high school complete youngsters) and traders of cereals like rice. The
brokerage institutions have strong chain in the Woreda and most of the transactions are
undertaken by them and are playing role by searching different market outlets to almost all
parts of Ethiopia.

Since brokerage institutions are well informed by buyers and producers, are residents of the
Woreda, educated and youngsters, they have easy information access and play significant role
by providing market information, linking smallholders to wholesalers, creating economies of
scale from many smallholders, easily bargain both smallholders and wholesalers and act as a
collateral for both of actors which helps the smallholders and wholesalers to reduce

102 
 
transaction cost under market imperfections. If brokerage institutions were not there, it was
very difficult for wholesalers coming from the area to find smallholder producers. Therefore,
empirically the idea that brokerage institutions are not important along the value chain is
highly challenged here and brokerage institutions are the most important actors in the
marketing of perishable products like onion which implies that greater attention should be
given for them in order to sustain production and market linkages.

Brokerage institutions are source of secure market for smallholder producers because they
have many regular wholesaler customers coming from the different areas of the country.
Thus, if a farmer have regular customer of broker and plan to produce onion he is secured for
the market because of brokers. This in turn implies that brokerage institutions form market
outlets for the smallholders.

Most of the transaction in vegetable market such as onion is undertaken in trust and credit
based and a wholesaler at Jijiga and Assosa can take onion from Fogera Woreda without
coming to the Fogera with help of brokers simply by communicating using mobile phone.
This in turn has great effect by reducing marketing and transaction cost for the wholesaler.
Thus, avoiding brokerage institutions in the market chain means totally distorting the already
established market linkages, as a result the study recommends the decision makers in the
Woreda to consider the brokerage institutions as one of the important actors along the market
chain.

The impact evaluation of brokerage institutions indicated that brokerage institutions play
significant and positive role by increasing smallholder’s net income from onion production
and percentage of marketed surplus. Brokerage institutions also play great role in creating
employment role for youth groups which includes school dropouts, high school, preparatory
school and college complete students. However, the brokerage institution at Fogera
horticulture market, while fulfilling a market coordination role useful in linking farmers to
markets, has limitations that arise mainly from its informality. The uncontrolled and
unregulated business practices of brokers are subject to manipulation to cheat farmers (and
wholesalers) in terms of product prices and weight. The institution lacks informal rules and

103 
 
norms either to govern the business practices of the brokers. Moreover, the informality of the
institution and the associated difficulty to have legally enforceable contracts make farmers
highly exposed to the problem of default risk. The brokers themselves are also victims of their
informality in that they lack access to credit services from financial institutions and to other
support services.

Generally, the informality of the brokerage institution is considered a source of incompetence,

inefficiency, risk, and conflict. In view of this, we share the ideas of farmers and brokers
extended during the discussions in recommending the formalization of the brokerage
institution to improve its efficiency, performance, and impact. However, the trade-off of
formalizing the institution and its net impacts on market coordination need to be well
understood beforehand.

Finally, the study recommends that a formalized and upgraded brokerage institution is
commendable only as a third pillar for a better market coordination in the area. That is to say,
in the best circumstances, even a formalized and upgraded brokerage institution should be
considered only as a complement to, rather than as a substitute for, improved market
institutions and effective producer organizations. The formalization activity can be adopted
from the Ethiopian Commodity Exchange (ECX) experience. The study also recommends the
ECX to include the horticultural crops such as onion in its commodity crop services. In
addition, the study recommends training to farmers on marketing and weighing,
standardization of weighing and provision of market information for the farmers in order to
increase the benefit and income of farmers which helps them to come out of poverty.

104 
 
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7. APPENDICES
 

111 
 
Appendix 1. Multicollinearity test for explanatory variables in PSM

Variables VIF
Age 1.65
Sex 1.14
MsHH 1.27
ELHH 1.26
FSiHH 2.08
Livestock 1.40
TLSha 4.90
ILHa 4.53
EHP 1.21
DRDA 1.22
DHMP 1.48
DRWM 1.50
DRFMAR 1.75
NRC 1.72
NTRC 1.33

112 
 
Appendix 2. Multicollinearity test for explanatory variables in OLS regression

Variables VIF
DRFWM 1.64
TRDA 1.75
EXWSHT 1.65
NRBC 1.74
MSWS 1.49
ELWS 1.35
NPWB 1.38
HOSF 1.45
CWCWS 1.45
ACWS 1.25
NRFC 3.25
NRRC 2.26
NRWCOA 2.60
NTWM 3.05
TMCOST 2.93

Appendix 3. Conversion factor used to calculate TLU

Livestock Category TLU

Calf 0.34
Heifer 0.75
Cow and Ox 1.0
Horse 1.1
Donkey 0.7
Sheep and goat(adult) 0.13
Chicken 0.013
Source: Storck et al., 1991 

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Appendix 4. Labor supply conversion factor (person day equivalent)

Age group in years Male Female

<10 0.0 0.0
10-13 0.35 0.35
15-50 1.0 0.80
>50 0.55 0.5
Source: Storck et al., 1991

114 
 
 Survey Questionnaire for Farmers

First of all, I would like to thank in advance for your willingness to answer the questionnaire designed
to collect data to study The Brokerage Institutions and Smallholder Market Linkages in Fogera
Woreda. The information collected in this questionnaire is confidential and will be used for
academic purposes only.

I. General Information
1. Peasant Association ____________________ 2. Village____________________
3. Questioner No. _____________ 4. Name of enumerator______________________
5. Date of data collection _____________________ 6. Signature_______________
II. Households characteristics
1. House Holds Head Name_________________________ 2.Age ______ years
3. Sex ______ 1) Male 2) Female 4. Experience in agriculture _____years
5. Religion
1) Orthodox Christian 2) Muslim 3) Catholic 4) Protestant 5) Others__________
6. Marital Status
1) Single 2) Married 3) Divorced 4) Widow
7. Educational level
1) Illiterate 2) Adults education 3) ______year of formal education
8. Family member
Sex Age category Number
Male <6 years
6-10 years
10-15 years
16-65 years
>65 years
Female <6 years
6-10 years
10-15 years
16-65 years
>65 years

9. Number of family members working on the farm Male___________ Female_______

10. Number of permanently hired laborer in 2003 E.C? _______________
11. Did you or your family member earn income from off-farm activities? 1) Yes 2) No
12. If yes, what are the activities and income earned per year (in 2003 E.C)?
Activities Income in birr/ year
_______________________ _________________
_______________________ _________________

115 
 
III. Resource ownership in 2003 E.C
13. Fixed assets
Resources 1) Yes Number
2) No
1. Houses
Grass roofed
Iron sheet
2. Water pump
3. Others

14. Livestock ownership

Type of livestock No. owned in 2003 E.C Sold in number Income from
sale(Birr)
Oxen
Cows
Heifers
Yearling
Calves
Donkeys
Horses
Mules
Sheep
Goats
Bee Colony
Poultry
Others

15. Land use

1) Land Holding

Land Holding(Timad Cultivated land Grazing Forest Irrigable land Non irrigable
Land Land land
Own land
Rented in land
Obtained as Gift
Total land
Under operation

116 
 
2) Type of crops grown from the cultivated land in 2003 E.C
Type of crops Total land used 1) Rain fed Amount Amount Income
(In Timad) 2) Irrigation Produced (Qt) soled
Rice
Chick Pea
Guaya
Teff
Onion
Tomato
Potato
Others

16. Do you use intercropping with horticultural crops? 1) Yes 2) No

17. If yes, with what crop you intercropped horticultural crops? ________________

IV. Production
18. A) Types of horticultural crops produced in 2003 E.C
Types of horticulture Land allocated (ha) Amount Amount sold Income
produced (quintal)
(quintal)
Onion
Tomato
Garlic
Cabbage and leafy
vegetables
Potato
Green pepper
Others

B) Horticultural production schedule (months)

Types of horticulture Land preparation time Sowing time Harvesting time
Onion
Tomato
Garlic
Cabbage and leafy
vegetables
Potato
Green pepper
Others

117 
 
19. What were the inputs used to produce horticultural crops/ onion in 2003 E.C production
Year
Type of inputs 1 )Yes Amount used Source* Price/litter/kg 1) Credit
2) No per timad in 2) Cash
kg/litter
Fertilizer
DAP
Urea
Organic
Seeds used

Insecticides
Herbicides
Others

Source* (Multiple answers are possible)

1) Market 2) Agricultural office
3) Ethiopian Improved Seed Agency 4) Ethiopian Spice Factories 5) Own production

20. What were the fixed costs used for horticultural production?

Type of Capital goods Price/unit

_______________________ _________________
_______________________ _________________
21. What was the Labor used in Man day in 2003 E.C Production year for onion?
Activities Man days/timad Wage/day

Land Preparation _____________ ____________

Sawing _____________ ____________
Weeding _____________ ____________
Chemical application ________________ ______________
Harvesting _____________ ___________
22. If producers do not use improved input in question 19, what was the main reason?
22.1 Not to use fertilizers
1) Lack of information 2) It is expensive
3) Not available 4) Shortage of money
5) Others_________________________
22.2 Not to use improved seed
1) Lack of information 2) It is expensive
3) Not available 4) Shortage of money
5) Others_________________________
22.3 Not to use chemicals 1) Lack of information 2) It is expensive
3) Not available 4) Shortage of money
5) Others_________________________

118 
 
 23. Do you use hired labor for horticultural production?
1) Yes 2) No
24. If yes, at what time do you hire labor? (Multiple answers are possible)
1) Land Preparation 2) Sawing
3) Weeding 4) Harvesting
5) Others (specify)……………………….
26. Did you store horticultural crop after harvest?
1) Yes 2) No
27. If you store, how do you store horticultural crop? (Multiple answers are possible)
1) using gotera 2) filling in sack and putting in kot
3) Others___________________
28. What is the reason for storage? (Multiple answers are possible)
1) In expectation of future higher price 2) For own consumption
3) Low demands during harvest 4) Others___________________
29. For how long do you store horticultural crop? _______________Months
30. Are you benefited from storage/ from the expected increase price? 1) Yes 2) No
31. Have you lost from storage? 1) Yes 2) No
32. If yes for Q31 what was the loss in terms of Birr………………
33. What are the packaging materials used for sale? (Multiple answers are possible)
1) Plastic sacks/madabera 2) Sisal sacks/jonia
3) Akmada 4) Baskets
5) Others___________________
34. How do you measure quality of horticultural crop? (Multiple answers are possible)
1) Color 2) Sizes
3) Tastes 4) Absence of foreign materials
5) Others___________________________________
35. When did you start production of horticulture (experience)? __________years
36. How is the trend of horticultural production since 2003 E.C?
1) Increasing 2) Decreasing
3) No change 4) some years increase and the other years decrease
37. How much was the average productivity of onion per hectare in 2003 E.C?___quintal
38. How much was the average productivity of tomato per hectare in 2003? ___quintal
39) Irrigation Practices
A) Do you use irrigation for horticultural production? 1) Yes 2) No
B) If yes for QA what are the main horticultural crops produced using irrigation
C) Irrigation schedule
Horticultural Water sources Distance of water Irrigation No of Watering
crops source from farm materials used per month
land
Onion
Tomato
Potato
Others

119 
 
D) Irrigation costs for onion production
Items No of units Total cost
Labor
Fuel
Irrigation materials (pump…)
Others

V) Support Services
40. Is there a Development Agent in your Kebele? 1) Yes 2) No
41. Have you got extension services in 2003 E.C Production year to produce horticulture?
1) Yes 2) No
42. If yes, how often the extension agent contacted you?
1) Once a week 2) Once a month
3) Once per two week 4) Once per 3 months
5) Twice a year 6) Others_________________________
43. How far is your residence from the Development Agent? ________Km
44. What are the extension services you got from the Development agent on horticultural
production? (Multiple answers are possible)
1) Crop production 2) Input utilization
3) Seedling raising 4) Post harvest handling
5) How to market the product 6 Others_______________________
45. From whom did you get extension services for horticultural production and marketing in addition
to the Development Agent? (Multiple answers are possible)
1) Woreda office of Agriculture 2) Woreda Cooperatives expertise
3) The nearby multipurpose cooperative 4) Innovative farmers
5 Others___________________________
46. How far is your homestead from the input supplier? ______________km
47. Do you have access to credit to produce horticulture? 1) Yes 2) No
48. Did you take credit in 2003 E.C production year? 1) Yes 2) No
49. If yes, how much money did you take? _____________Birr
50. Is the credit sufficient for production? 1) Yes 2) No
51. How much was the interest rate? ___________birr/100 birr/year
52. How is the interest rate?
1) High 2) Fair 3) Low
53. What was the main purpose of taking a credit for horticulture production?
1) To purchase fertilizer 2) To purchase improved seed
3) To purchase pesticides and fungicide 4) To buy oxen
5) To purchase farm equipment 6) Others___________________
54. From whom did you get the credit?
1) Amhara Credit and Saving Institute (ACSI ) 2) Through Cooperatives
3) From Development Bank of Ethiopia 4) Commercial Bank of Ethiopia
5) Individual lenders 6) NGOS
7) Others___________________________

120 
 
55. Do you have access to market information for horticultural production and marketing? Such as
price of inputs and output? 1) Yes 2) No
56. What is the market information you got for horticulture production?
(Multiple answers are possible)
1) About the price of input 2) About the price of out puts
3) When and where to purchase inputs 4) Post harvest handling and quality
5) Storage and packaging 6) Others_____________________
57. Where do you get market information?
1) Radio 2) friends and neighbor 3) Development Agent 4) Brokers
5) Telephone 6) Others___________________

VI. Marketing
58. Do you participate in horticultural marketing? 1/ yes 2/ no
59. If the answer is no for Q 58 why?
………………………………………………………………………………………………………
60. Market places
Market places Distance from the residence Market days
(Km)
Woreta
Road side
Others
61. When did you supply horticulture to the market?
1) Right after harvest 2) after a month 3) After 3 month 4) after 6 months
5) After a year 6) others _________________
62. For whom you sold the product?
1) Directly to consumers 2) Retailers 3) Wholesalers 4) Cooperatives
5) Rural assemblers 6) Others_________________
63. Do you have regular customers? 1) yes 2) no
64. If yes what is the number of regular customers?______________________
65. What are the numbers of trading contacts related to horticulture that you have made to the main
markets 2003 E.C?________________________
66. Prices of horticultural crops
Type of horticulture Prices per Kg
Minimum price Maximum price
Onion
Tomato
Garlic
Cabbage and leafy vegetables
Potato
Green pepper

121 
 
67. Months in which prices of horticulture become expensive?...........................................
68. Months in which prices of horticulture become minimum?.....................................
69. How was the term of trade? 1) Cash 2) Credit 3) Both
70. Where did you sale your product?
1) In the village market 2) Woreta Marke 3) Bahir Dar 4) Gondar 5) Others___
71. Who set the selling price in 2003 E.C?
1) Producers 2) Broker 3) Buyers 4) By negotiation 5) Others___
72) Do you have used brokers for the last five years for marketing of horticultural/onion products 2003
? 1) Yes 2) No
73. If the answer is yes for Q72 what was your reason for using brokers?
…………………………………………………………………………………
74. If the answer is yes for Q72 what is your experience in using brokers?.................years
75. If yes for Q72 what is the brokered transaction for onion (qt)……and for tomato (qt)……
76. If yes for Q72 what is the brokerage fee?..........................................
77. If your answer for Q72 is No why?
………………………………………………………………………………………………………
78. If your answer for Q72 is No what was the loss because of not using brokers?...........Birr
79. Do you believe that brokers have benefit in linking to the market? 1) Yes 2) No
80. If yes how?
………………………………………………………………………………………………………
81. If no why?
………………………………………………………………………………………………………
82. Do you have information about the market price before you sell?
1) Yes 2) No
83. How did you transport horticulture to the market? (multiple answers are possible)
1) Pack animals 2) Animal court 3) Cars 4) Back loading 5) Other--------------
84. Are you a member of cooperatives? 1/ yes 2/ no
85. If you are member of cooperatives by how much do you sale one kg of horticulture-----birr
88. How much was the marketing costs in 2003 E.C for onion
No. Expenses type Total cost (birr)
1 Packing material/jonya
2 Loading
3 Unloading
4 Transport
5 Salary
6 Store rent
7 Storage losses
8 Telephone
9 Guard
10 Personal expenses
11 Brokers fee
12 Loss due to un soled onion
13 Others

122 
 
86. What are the problems encountered in horticulture production and marketing?
No. Type of the problem Cause of the problem Suggested solution

Survey Questionnaire for wholesalers

First of all, I would like to thank in advance for your willingness to answer the questionnaire designed
to collect data to study Market imperfections, the Brokerage Institutions and Smallholder Market
Linkages in Fogera Woreda.

I. General Information
1. Zone __________________ 2.Woreda _________________
3. Questioner No. ____________ 4. Name of enumerator_____________________
5. Date of data collection ___________________ 6. Signature_______________
II. Traders characteristics
7. Age ______ years
8. Sex ___1) Male 2) Female 9. Experience in horticultural trade ____years
10. Religion
1) Orthodox Christian 2) Muslim 3) Catholic 4) Protestant 5) Others__________
11. Marital Status 1) Single 2) married 3) Divorced 4) Windows
12. Educational level 1) Illiterate 1) Adults education 3) ______year of formal education

III. Assets owned

13. Fixed Assets owned
Assets No. average Capacity Total Value(in birr)
Shop
Store
With residence
Separately
Weighting balance -
Telephone fixed -
Telephone mobile -
Vehicle(truck)
Motor vehicle -
Bicycle -
Animal court
Hand pool cart
Pack animals -
Grinding machine -
others

123 
 
IV. Financial resources own

14. How much is your working capital currently (2012)?__________birr

15. What is the source of your working capital? (Multiple answers are possible)
1) Loan 2) Own capital 3) Share 4) Gift
16. If the source is from loan what are the lending institutions? (Multiple answers are possible)
1) Small and Micro Enterprise 2) Amhara Credit and Saving Institute (ACSI)
3) Commercial bank of Ethiopia 4) Development Bank of Ethiopia
5) Private Banks 6) Others____________________
17. How much was the interest rate? ________birr for formal lendersr
________ birr for informal lenders

VI. Buying and selling practices

18. How did you attract your suppliers? 1) By giving fair price 2) By using proper weighting
3) Promotion methods 4) Others______________________
19. From whom you purchase the product?
1) Directly from producers 2) From retailers
3) From rural assemblers 5) Others__________________
20. From which market you prefer to buy horticulture/onion?
1) Road side 2) farmers residence (at farm)
3) Woreta 4) Bahir Dar 5) Gondar 5) Others______________
21. Did you have regular suppliers of the product? 1) yes 2) no
22. If yes for Q 21 number the regular suppliers? Farmers………………… brokers…………….
23. Where do you get market information?
1) Radio 2) friends and neighbors
3) Television 4) Brokers 5) from Government sources and NGOs
6) Telephone 7) Others___________________
24. Do you use brokers for your horticultural/onion marketing systems? 1) yes 2) no
25. If yes for Q 24 what was the brokered transaction in quintal?_________and brokerage
fee__________birr
26. If yes for Q what is your reason for using brokers?
……………………………………………………………………………………………………………
……………………………………………………
27. If No for Q why?
……………………………………………………………………………………………………………
…………………………………………………………………………………
28. Do you believe that brokers have benefit in linking wholesalers to the market or farmers? 1) Yes
2) No
29. What is the cost of not using brokers?.....................................birr
30. What is your experience in using brokers?___________________________years

124 
 
31. Horticultural transaction in 2003 E.C
Types of Amount Amount Purchase Selling Market For whom do
horticulture purchased sold price/Kg price/Kg places you sell
(quintal) (quintal)
Onion
Tomato
Garlic
Cabbage and
leafy vegetables
Potato
Green pepper
Others

32. How did you measure the product during purchase?

1) Using weighting balance 2) Using sack 3) Using basket 4) Others_____________
33. Who set purchase price of horticulture?
1) Myself 2) Sellers 3) By negotiation 4) based on central market price/Addis Ababa price
5) By the forces of demand and supply 6) Others_______________________
34. Who sets the Selling price of horticulture?
1) Myself 2) Buyers 3) By negotiation 4) Based on central market price/Addis Ababa price
5) By the forces of demand and supply 6) Others_______________________
35. If you set the purchase and selling price yourself how did you decide?
1) Based on the last year price 2) In consultations with other traders
3) Considering demand and supply 4) Others_____________________
36. Was the purchase and selling price the same for all competitors? 1) Yes 2) No
37. When did you purchase the product?
1) After harvest 2) Throughout the year 3) Others___
38. How did you sale the product?
1) Directly to consumers 2) For retailer 3) Using brokers 4) Others_____________
39. How did you differentiate quality during buying?
1) Based on its origin 2) Taste 3) Color 4) Degree of adulteration 5) Others_________
40. Is there price difference during buying and selling based on quality? 1) Yes 2) No
41. Did you store horticulture before you sale? 1) Yes 2) No
42. If yes, for how long you store the maximum before you sold? __________months
43. Do you have regular customers? 1) yes 2) no
44. If yes what is the number of regular customers?______________________
45. What are the numbers of trading contacts that you have made to Fogera 2003 E.C?________
46. What is the transaction cost ?______________________birr
47. Are you a licensed trader? 1) Yes 2) No
48. Are there unlicensed horticulture traders in the area? 1) Yes 2) No
49. What is the basis of taxation?
1) Volume of transaction handled 2) Fixed payments
3) Subjective counting 4) Others______________________
50. Did you have records or balance sheet for your transaction? 1) Yes 2) No

125 
 
51. What is the source of your information on demand, supply and price of the markets?
1) Radio 2) Television 3) Other traders 4) Telephone/brokers 5) Others_________
52. What modes of transportation do you used from point of purchase to store?
1) Pack animals 2) Human portages 3) Vehicles 4) Animal cart 5) Others______
53. Do you have trade associations? 1) Yes 2) No
54. Did you undertake any processing activities? 1) Yes 2) No
55. How much was the marketing costs in 2012 for onion
No. Expenses type Total cost What if u do not use brokers for users (total
cost)
1 Packing material/jonya
2 Loading
3 Unloading
4 Transport
5 Salary
6 Store rent
7 Storage losses
8 Telephone
9 Guard
10 Personal expenses
11 Brokers fee
12 Searching and negotiation costs
13 Others
56. What are the major problems encountered causes and suggested solutions in your business?
No. Type of the problem Causes of the problem Suggested solution

126 
 
 Checklist for focus group discussion for producers, development agents and Woreda experts

I. General Information
1. Zone __________________
2. District _________________
3. Name of the PA________________
4. Name of the facilitator___________________
5. Date of data collection ___________________
6. Number of participants Male_________ Female___________Total____________
7. Signature_______________

II. Production

1. What are the inputs used for horticulture production in 2011?

2. What are the problems you faced to produce horticulture?
3. What are the factors that affect your decision to produce horticulture?

III. Finance

4. What are the sources of your finance for horticulture production?

5 What are the problems you faced related to credit availability, amount and interest rate?

IV. Marketing

6. From whom you got market information? What types of market information?
7. Who are your main input suppliers?
8. What are the problems you encountered with the time of input supply, amount and price?
9. What are the problems you encountered without put supply and price?
10. Who are the main customers for your output?
11. How do you set price of output?
12. How do you transport, store and process the product?
13. Are there brokers in your area? Who are they?
14. Are they important?
15. What is their role and function?
16. What will occur if the Government stops the brokers?
17. What is the problem related to brokers?

18. What is your comment and suggestion for horticulture production and
Marketing?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_______________________________

127 
 
 Secondary data collection formats from different organizations
I. Production
1. Cultivated land and total production for horticulture
Production year Cultivated land Total production Productivity/ha
2011/12
2010/11
2009/10
2008/09
2007/08

2. Inputs supplied
Production Type of inputs used for horticulture production
year Fertilizer(Q) Improved seed(Q) Chemicals(litter) Farm implements
2011/12
2010/11
2009/10
2008/09
2007/08

II. Marketing

3. Retail Price of onion and tomato in different markets

year Markets Monthly retail price of horticulture (onion, tomato) (birr/kg ) in different markets
J F M Ap May J Ju Au S O N De AV.pri
2011/12 woreta
2010/11 woreta
2009/10 woreta
2008/09 woreta
2007/08 woreta
2011/12 Bahir Dar
2010/11 Bahir Dar
2009/10 Bahir Dar
2008/09 Bahir Dar
2007/08 Bahir Dar
2011/12 Gondar
2010/11 Gondar
2009/10 Gondar
2008/09 Gondar
2007/08 Gondar

128 
 
5. Number of licensed traders
Year Number of horticulture licensed traders in different markets
Woreta Bahir Dar Gondar Total
2011/12
2010/11
2009/10
2008/09
2007/08
Total
6. Number of horticulture processors
Markets Number of processors
Male Female Total
Woreta
Bahir Dar
Gondar
Total

7. Number of buyers and sellers and volume of transaction in 2011/12 in Woreta market
Wholesalers retailers Buyers
Name Volume of Name Volume of Number Volume of
transaction transaction transaction
handled in handled in purchased in
Quintal Quintal Quintal

8. Number of investors involved in horticulture production?

Status
Area No of Capital Pre-
in ha. investors registered implementation implementation operational
<5
6-10
11-20
20-30
>30

129 
 
 Survey Questionnaire for Brokers

First of all, I would like to thank in advance for your willingness to answer the questionnaire designed
to collect data to study The Brokerage Institutions and Smallholder Market Linkages in Fogera
Woreda.

I. General Information
1. Zone __________________ 2.Woreda _________________
3. Questioner No. ____________ 4. Name of enumerator_____________________
5. Date of data collection ___________________ 6. Signature_______________
II. Socioeconomic characteristics
7. Age ______ years
8. Sex ______ 1) Male 2) Female 9). Experience in horticultural trade ____years
10. Religion 1) Orthodox Christian 2) Muslim 3) Catholic 4) Protestant 5) Others__________
11. Marital Status 1) Single 2) married 3) Divorced 4) Windows
12. Educational level 1) Illiterate 1) Adults education 3) ______year of formal education
13. Main occupation 1) farmer 2) student 3) unemployed 4) others________
III. Assets owned
14. Fixed Assets owned
Assets No. Total Value(in birr)
Shop
Iron sheet house
Grass roofed house
Weighting balance
Telephone fixed
Telephone mobile
Vehicle(truck)
Motor vehicle
Bicycle
Animal court
Hand pool cart
Pack animals
Grinding machine
Others
IV. Financial resources own
15. How much is your working capital currently (2012)?__________birr
16. What is the source of your working capital? (Multiple answers are possible)
1) Loan 2) Own capital 3) Share 4) Gift
17. If the source is from loan what are the lending institutions? (Multiple answers are possible)
1) Small and Micro Enterprise 2) Amhara Credit and Saving Institute (ACSI)
3) Commercial bank of Ethiopia 4) Development Bank of Ethiopia
5) Private Banks 6) Others____________________
18. How much was the interest rate?____birr for formal lenders
__ birr for informal lenders

130 
 
V. Brokers role and practices
19. What is your role in the horticulture/onion marketing system? Your mechanism
__________________________________________________________________________________
__________________________________________________________________________________

How do you act?................................................................................................................................

How do you start this business?..............................................................................................................
20. Service provision for farmers and wholesalers
Type of service To When where how
Price information Farmers
wholesalers
Quality and quantity Farmers

wholesalers

Credit provision Farmers

wholesalers
Sharing risks Farmers
wholesalers
Transportation /others Farmers
wholesalers
20. Did you have regular customers? 1) yes 2) no
21. If yes for Q20 number of the regular customers? Farmers……… Wholesalers………
Retailers……
22. Where do you get market information? 1) Radio 2) friends and neighbors 3) Television 4)
from Government 5) Telephone/ central market 6) Others___________________
23. Who set purchase price of horticulture? 1) Myself 2) Sellers 3) By negotiation 4) based
on central market price/Addis Ababa price 5) By the forces of demand and supply 6)
Others______
24. If you set the purchase price yourself how did you decide? 1) Based on the last year price
2) In consultations with other traders 3) Considering demand and supply 4)
Others____________
25. Was the purchase price the same for all actors? 1) Yes 2) No
26 If no for Q 25 why?..........................................................
27. How did you differentiate quality during buying?
1) Based on its origin 2) Taste 3) Color 4) Degree of adulteration 5)
Others_______
28. Was there a price difference during buying and selling based on quality? 1) Yes 2) No
29. how much difference in birr………………………..
30. Are you a licensed broker? 1) Yes 2) No
31. If no why?......................................................................................................................
32. Are there unlicensed horticulture brokers in the area? 1) Yes 2) No
33. Do you pay tax for the government? 1) Yes 2) No
34. What is the basis of taxation? 1) Volume of transaction 2) Fixed 3) Subjective 4) Others__
35. Did you have records or balance sheet for your transaction? 1) Yes 2) No
36. Have you faced contract failure in 2012 1) yes 2) no
37. If yes for Q35 how much ?.................................

131 
 
38. Destinations or market outlets of brokers in 2012
No Destination markets Means of transaction Transacted amount/qt

35. What are the major problems encountered causes and suggested solutions in your business?
No. Type of the problem Causes of the problem Suggested solution

41. What are the opportunities of the business?...................................................................................

Survey Questionnaire for Rural Assemblers

First of all, I would like to thank in advance for your willingness to answer the questionnaire designed
to collect data to study Market imperfections, the Brokerage Institutions and Smallholder Market
Linkages in Fogera Woreda.
I. General Information 1. Zone __________________ 2.Woreda _________________
3. Questioner No. ____________ 4. Name of enumerator_____________________
5. Date of data collection ___________________ 6. Signature_______________
II. Traders characteristics
7. Age ______ years
8. Sex ______ 1) Male 2) Female 9. Experience in horticultural trade ____years
10. Religion 1) Orthodox Christian 2) Muslim 3) Catholic 4) Protestant 5) Others__________
11. Marital Status 1) Single 2) married 3) Divorced 4) Windows
12. Educational level 1) Illiterate 1) Adults education 3) ______year of formal education
III. Assets owned
13. Fixed Assets owned
Assets No. Total Value(in birr)
Shop
Iron sheet house
Grass roofed house
Weighting balance
Telephone fixed
Telephone mobile
Vehicle(truck)
Motor vehicle
Bicycle
Animal court
Hand pool cart
Pack animals
Grinding machine
Others

132 
 
IV. Financial resources own

14. How much is your working capital currently (2012)?__________birr

15. What is the source of your working capital? (Multiple answers are possible)
1) Loan 2) Own capital 3) Share 4) Gift
16. If the source is from loan what are the lending institutions? (Multiple answers are possible)
1) Small and Micro Enterprise 2) Amhara Credit and Saving Institute (ACSI)
3) Commercial bank of Ethiopia 4) Development Bank of Ethiopia
5) Private Banks 6) Others____________________
17. How much was the interest rate? ________birr for formal lendersr
________ birr for informal lenders

VI. Buying and selling practices

18. How did you attract your suppliers? 1) By giving fair price 2) By using proper weighting
3) Promotion methods 4) Others______________________
19. From whom you purchase the product? 1) Directly from produc 2) Others________

20. From which market you prefer to buy horticulture/onion?

1) Road side 2) farmers residence (at farm)
3) Woreta 4) Bahir Dar 5) Gondar 5) Others______________
21. Did you have regular suppliers of the product? 1) yes 2) no
22. If yes for Q 21 number the regular suppliers? Farmers………………… brokers…………….
23. Where do you get market information?
1) Radio 2) friends and neighbors
3) Television 4) Brokers 5) from Government sources and NGOs
6) Telephone 7) Others___________________
24. Do you use brokers for your horticultural/onion marketing systems? 1) yes 2) no
25. If yes for Q 24 what was the brokered transaction in quintal?_________and brokerage
fee__________birr
26. If yes for Q what is your reason for using brokers?
……………………………………………………………………………………………………………
……………………………………………………
27. If No for Q why?
……………………………………………………………………………………………………………
…………………………………………………………………………………
28. Do you believe that brokers have benefit in linking wholesalers to the market or farmers? 1) Yes
2) No
29. What is the cost of not using brokers?.....................................birr
30. What is your experience in using brokers?___________________________years

133 
 
31. Horticultural transaction in 2003 E.C
Types of Amount Amount Purchase Selling Market For whom do
horticulture purchased sold price/Kg price/Kg places you sell
(quintal) (quintal)
Onion
Tomato
Garlic
Cabbage and
leafy vegetables
Potato
Green pepper
Others

32. How did you measure the product during purchase?

1) Using weighting balance 2) Using sack 3) Using basket 4) Others_____________
33. Who set purchase price of horticulture?
1) Myself 2) Sellers 3) By negotiation 4) based on central market price/Addis Ababa price
5) By the forces of demand and supply 6) Others_______________________
34. Who sets the Selling price of horticulture?
1) Myself 2) Buyers 3) By negotiation 4) Based on central market price/Addis Ababa price
5) By the forces of demand and supply 6) Others_______________________
35. If you set the purchase and selling price yourself how did you decide?
1) Based on the last year price 2) In consultations with other traders
3) Considering demand and supply 4) Others_____________________
36. Was the purchase and selling price the same for all competitors? 1) Yes 2) No
37. When did you purchase the product? 1) After harvest 2) Throughout the year 3) Others__
38. How did you sale the product? 1) Directly to consumers 2) For retailer 3) Using brokers
4) Others___
39. How did you differentiate quality during buying?
1) Based on its origin 2) Taste 3) Color 4) Degree of adulteration 5) Others_________
40. Is there price difference during buying and selling based on quality? 1) Yes 2) No
41. Did you store horticulture before you sale? 1) Yes 2) No
42. If yes, for how long you store the maximum before you sold? __________months
43. Do you have regular customers? 1) yes 2) no
44. If yes what is the number of regular customers?______________________
45. What are the numbers of trading contacts that you have made to Fogera 2003 E.C?________
46. What is the transaction cost ?______________________birr
47. Are you a licensed trader? 1) Yes 2) No
48. Are there unlicensed horticulture traders in the area? 1) Yes 2) No
49. What is the basis of taxation? 1) Volume of transaction handled 2) Fixed payments
3) Subjective counting 4) Others______________________
50. Did you have records or balance sheet for your transaction? 1) Yes 2) No
51. What is the source of your information on demand, supply and price of the markets?
1) Radio 2) Television 3) Other traders 4) Telephone/brokers 5) Others_________

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52. What modes of transportation do you used from point of purchase to store?
1) Pack animals 2) Human portages 3) Vehicles 4) Animal cart 5) Others______
53. Do you have trade associations? 1) Yes 2) No
54. Did you undertake any processing activities? 1) Yes 2) No
55. How much was the marketing costs in 2012 for onion
No. Expenses type Total cost What if u do not use brokers for users (total
cost)
1 Packing material/jonya
2 Loading
3 Unloading
4 Transport
5 Salary
6 Store rent
7 Storage losses
8 Telephone
9 Guard
10 Personal expenses
11 Brokers fee
12 Searching and negotiation costs
13 Others
56. What are the major problems encountered causes and suggested solutions in your business?
No. Type of the problem Causes of the problem Suggested solution

Survey Questionnaire for Retailers

First of all, I would like to thank in advance for your willingness to answer the questionnaire designed
to collect data to study The Brokerage Institutions and Smallholder Market Linkages in Fogera
Woreda.

I. General Information
1. Zone __________________ 2.Woreda _________________
3. Questioner No. ____________ 4. Name of enumerator_____________________
5. Date of data collection ___________________ 6. Signature_______________
II. Traders characteristics
7. Age ______ years
8. Sex ______ 1) Male 2) Female 9. Experience in horticultural trade ____years
10. Religion 1) Orthodox Christian 2) Muslim 3) Catholic 4) Protestant 5) Others__________
11. Marital Status 1) Single 2) married 3) Divorced 4) Windows

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12. Educational level 1) Illiterate 1) Adults education 3) ______year of formal education

III. Assets owned

13. Fixed Assets owned
Assets No. Total Value(in birr)
Shop
Iron sheet house
Grass roofed house
Weighting balance
Telephone fixed
Telephone mobile
Vehicle(truck)
Motor vehicle
Bicycle
Animal court
Hand pool cart
Pack animals
Grinding machine
Others

IV. Financial resources own

14. How much is your working capital currently (2012)?__________birr

15. What is the source of your working capital? (Multiple answers are possible)
1) Loan 2) Own capital 3) Share 4) Gift
16. If the source is from loan what are the lending institutions? (Multiple answers are possible)
1) Small and Micro Enterprise 2) Amhara Credit and Saving Institute (ACSI)
3) Commercial bank of Ethiopia 4) Development Bank of Ethiopia
5) Private Banks 6) Others____________________
17. How much was the interest rate? ________birr for formal lendersr
________ birr for informal lenders
VI. Buying and selling practices

18. How did you attract your suppliers?

1) By giving fair price 2) By using proper weighting
3) Promotion methods 4) Others______________________
19. From whom you purchase the product?
1) Directly from producers 2) From wholesalers
3) From rural assemblers 5) Others__________________
20. From which market you prefer to buy horticulture/onion?
1) Road side 2) farmers residence (at farm)
3) Woreta 4) Bahir Dar 5) Gondar 5) Others______________
21. Did you have regular suppliers of the product? 1) yes 2) no
22. If yes for Q 21 number the regular suppliers? Farmers………………… brokers…………….

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23. Where do you get market information?
1) Radio 2) friends and neighbors
3) Television 4) Brokers 5) from Government sources and NGOs
6) Telephone 7) Others___________________
24. Do you use brokers for your horticultural/onion marketing systems? 1) yes 2) no
25. If yes for Q 24 what was the brokered transaction in quintal?_________and brokerage
fee__________birr
26. If yes for Q what is your reason for using brokers?
……………………………………………………………………………………………………………
……………………………………………………
27. If No for Q why?
……………………………………………………………………………………………………………
…………………………………………………………………………………
28. Do you believe that brokers have benefit in linking wholesalers to the market or farmers? 1) Yes
2) No
29. What is the cost of not using brokers?.....................................birr
30. What is your experience in using brokers?___________________________years
31. Horticultural transaction in 2003 E.C
Types of Amount Amount Purchase Selling Market For whom do
horticulture purchased sold price/Kg price/Kg places you sell
(quintal) (quintal)
Onion
Tomato
Garlic
Cabbage and
leafy vegetables
Potato
Green pepper
Others
32. How did you measure the product during purchase?
1) Using weighting balance 2) Using sack 3) Using basket 4) Others_____________
33. Who set purchase price of horticulture? 1) Myself 2) Sellers 3) By negotiation 4) based on
central market price/Addis Ababa price 5) By the forces of demand and supply 6) Others_____
34. Who sets the Selling price of horticulture? 1) Myself 2) Buyers 3) By negotiation 4)
Based on central market price/Addis Ababa price 5) By the forces of demand and supply 6)
Others_______________________
35. If you set the purchase and selling price yourself how did you decide?
1) Based on the last year price 2) In consultations with other traders
3) Considering demand and supply 4) Others_____________________
36. Was the purchase and selling price the same for all competitors? 1) Yes 2) No
37. When did you purchase the product? 1) After harvest 2) Throughout the year 3) Others___
38. How did you sale the product? 1) Directly to consumers 2) For retailer 3) Using brokers 4)
Others_____________

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39. How did you differentiate quality during buying?
1) Based on its origin 2) Taste 3) Color 4) Degree of adulteration 5) Others_________
40. Is there price difference during buying and selling based on quality? 1) Yes 2) No
41. Did you store horticulture before you sale? 1) Yes 2) No
42. If yes, for how long you store the maximum before you sold? __________months
43. Do you have regular customers? 1) yes 2) no
44. If yes what is the number of regular customers?______________________
45. What are the numbers of trading contacts that you have made to Fogera 2003 E.C?________
46. What is the transaction cost ?______________________birr
47. Are you a licensed trader? 1) Yes 2) No
48. Are there unlicensed horticulture traders in the area? 1) Yes 2) No
49. What is the basis of taxation? 1) Volume of transaction handled 2) Fixed payments
3) Subjective counting 4) Others______________________
50. Did you have records or balance sheet for your transaction? 1) Yes 2) No
51. What is the source of your information on demand, supply and price of the markets?
1) Radio 2) Television 3) Other traders 4) Telephone/brokers 5) Others_________
52. What modes of transportation do you used from point of purchase to store?
1) Pack animals 2) Human portages 3) Vehicles 4) Animal cart 5) Others______
53. Do you have trade associations? 1) Yes 2) No
54. Did you undertake any processing activities? 1) Yes 2) No
55. How much was the marketing costs in 2012 for onion
No. Expenses type Total cost What if u do not use brokers for users (total
cost)
1 Packing material/jonya
2 Loading
3 Unloading
4 Transport
5 Salary
6 Store rent
7 Storage losses
8 Telephone
9 Guard
10 Personal expenses
11 Brokers fee
12 Searching and negotiation costs
13 Others

56. What are the major problems encountered causes and suggested solutions in your business?
No. Type of the problem Causes of the problem Suggested solution

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