VALUE CHAIN ANALYSIS OF WHEAT (Triticum aestivum L.

): THE
CASE OF LANFORO DISTRICT OF SILTE ZONE, SOUTHERN
ETHIOPIA

MSc THESIS

NEFISA MOHAMMED

JUNE 2018
HARAMAYA UNIVERSITY, HARAMAYA
Value Chain Analysis of Wheat (Triticum Aestivum L.): The Case of Lanforo
District of Silte Zone, Southern Ethiopia

A Thesis Submitted to School of Agricultural Economics and Agribusiness,

Postgraduate Program Directorate
HARAMAYA UNIVERSITY

In Partial Fulfillment of the Requirements for the Degree of

MASTER OF SCIENCE IN AGRICULTURE
(AGRIBUSINESS AND VALUE CHAIN MANAGEMENT)

Nefisa Mohammed

June 2018
Haramaya University, Haramaya
 HARAMAYA UNIVERSITY

POSTGRADUATE PROGRAM DIRECTORATE

As Thesis Research advisors, we hereby certify that we have read and evaluated this thesis
prepared, under our guidance, by Nefisa Mohammed entitled “Value Chain Analysis of Wheat
(Triticum Aestivum L.): The Case of Lanforo District of Silte Zone, Southern Ethiopia”. We
recommend that it be submitted as fulfilling the thesis requirement.

Mengistu Ketema (PhD) ___________ _________

Major Advisor Signature Date
Alelign Ademe (PhD) ___________ _________
Co-Advisor Signature Date

As member of the Board of Examiners of the MSc. Thesis Open Defense Examination, We
certify that we have read, evaluated the Thesis prepared by Nefisa Mohammed and examined
the candidate. We recommended that the Thesis be accepted as fulfilling the Thesis
requirement for the Degree of Master of Science in Agriculture (Agribusiness and value chain
management).

____________________ ___________ _________

Chairperson Signature Date
___________________ ___________ _________
Internal Examiner Signature Date
___________________ ___________ _________
External Examiner Signature Date

ii
 DEDICATION
I dedicated the manuscript of this Thesis to my father MOHAMMED ABDULSHIKUR and
my mother REWDA LALU as well as to all my family for their encouragement and support
in the success of my Thesis work.

iii
 STATEMENT OF THE AUTHOR

By my signature below, I declare and affirm that this Thesis is my own work. I have followed
all ethical and technical principles of scholarship in the preparation, data collection, data
analysis and completion of this Thesis. Any scholarly matter that is included in the Thesis has
been given recognition through citation.

This Thesis is submitted in partial fulfillments for MSc degree at Haramaya University. The
Thesis is deposited in Haramaya University Library and is made available to borrowers under
the rule of the library. I solemnly declare that this Thesis has not been submitted to any other
institution anywhere for the award of any academic degree, Diploma or certificate.

Brief quotations from this Thesis may be made without special permission provided that
accurate and complete acknowledgement of the source is made. Requests for permission for
extended quotations from or reproduction of this Thesis in whole or in part may be granted by
the Head of the school if in his or her judgment the proposed use of the material is in the
interest of scholarship. In all other instances, however, permission must be obtained from the
author of the Thesis.

Name: Nefisa Mohammed Signature: __________

Date: _________________
School/Department: Agricultural Economics and Agribusiness

iv
 BIOGRAPHICAL SKETCH

The author was born in Woreda 03; Nifas Silk Lafto sub city in Addis Ababa in November
1994. She attended her primary education at Mekanisa Elementary School and her secondary
school at Fana 02 Secondary School. She attended her preparatory school education at Higher
23 Preparatory School in Addis Ababa. After completion of her preparatory school education,
she joined Haramaya University College of Agricultural and environmental sciences in
October 2013 and graduated with BSc. Degree in Agricultural Economics. The author joined
the School of Graduate Studies of Haramaya University in October 2016 to pursue her MSc
Degree in Agribusiness and Value Chain Management in regular program.

v
 ACKNOWLEDGEMENTS

First of all, I would like to thank for Allah for being with me in all aspects during my stay at
Haramaya University. I would like to extend my heartfelt thanks to my major advisor Dr.
Mengistu Ketema for his valuable advice, insight and guidance to the completion of the
research work. I am again thankful to my co-advisor, Dr. Alelign Ademe for his valuable
guidance and support throughout my research work. Both have worked hard starting from
proposal development to keep me on the right track and accomplishment of the study.

I would like also to express my sincere gratitude to ministry of education for funding fee for
my research and for giving me chance to pursue my post graduate study. And also I would like
to thanks Lanforo district office of agriculture and rural development. I would like to extend
my heartfelt gratitude to my brother Abdulrehman Mohammed for supporting me by data
collection.

Finally, I would like to thanks all other for sharing their precious time with me. In addition,
friends and family members have made an enormous contribution for the success of my work.

vi
 ACRONYMS AND ABBREVIATIONS

ATA Agricultural Transformation Agency

BLUE Best Linear Unbiased Estimator
BMGF Bill and Melinda Gate Foundation
CIAT International Center for Tropical Agriculture
CLR Classical Linear Regression
CSA Central Statistical Agency
DAs Development Agents
DOoA Districts Office of Agriculture
DWH Durbin-Wu-Hansman
FAO Food and Agriculture Organization of the UN
GAIN Global Agricultural Information Network
GMM Gross Marketing Margin
GTZ German Technical Cooperation
IDRC International Development Research Council
IPMS Improving Productivity and Market Success
LDARDO Lanforo District Agricultural and Rural Development Office
MAFAP Monitoring African Food and Agricultural Policies
MVN Multivariate Normal Distribution
MVP Multivariate Probit
NPS Nitrogen Phosphors Sulfur
OLS Ordinary Least Squares
RMA Rapid Market Appraisal
SNNPR Southern Nations Nationalities and People Regional
2SLS Two Stage Least Square
TGMM Total Gross Marketing Margin
TLU Tropical Livestock Unit
UNIDO United Nation International Development Organization
VIF Variance Inflations Factor

vii
 TABLE OF CONTENTS

STATEMENT OF THE AUTHOR iv

BIOGRAPHICAL SKETCH v
ACKNOWLEDGEMENTS vi
ACRONYMS AND ABBREVIATIONS vii
LIST OF TABLES xi
LIST OF FIGURES xii
LIST OF TABLES IN THE APPENDIX xiii
ABSTRACT xiv
1. INTRODUCTION 1
1.1. Background of the Study 1
1.2. Statement of the Problem 3
1.3. Objectives of the Study 5
1.4. Research Questions 5
1.5. Significance of the Study 5
1.6. Scope and Limitation of the Study 5
1.7. Organization of the Thesis 6
2. LITRATURE REVIEW 7
2.1. Basic Concepts and Definitions 7
2.2. Theoretical Framework of Value Chain 10
2.3. Value Chain Analysis 11
2.4. Value Chain Governance 12
2.5. Importance of Value Chain Analysis 13
2.6. Value Chain Performance Analysis 14
2.7. Methodological Framework 15
2.7.1. Value chain analysis 15
2.7.2. Factors affecting wheat marketed surplus 16
viii
 TABLE OF CONTENTS (CONTINUED)
2.7.3. Determinants of market outlet choice decisions of wheat producers 16
2.8. Wheat Production in Ethiopia 17
2.9. Review of Empirical Studies 18
2.9.1. Factors affecting marketed surplus of wheat 18
2.9.2. Determinants of wheat market outlet choices 19
2.10. Conceptual Framework of the Study 21
3. RESEARCH METHODOLOGY 22
3.1. Description of the Study Area 22
3.2. Data Types, Sources and Methods of Data Collection 23
3.3. Sampling and Sampling Size Determination 24
3.4. Methods of Data Analysis 25
3.4.1. Descriptive statistics 25
3.4.1.1. Value chain analysis 25
3.4.1.2. Market performance 26
3.4.2. Econometric analysis 27
3.4.2.1. Factors affecting market supply of wheat 28
3.4.2.2. Determinants of market outlet choice decisions of wheat producers 30
3.5. Definition, Variable Selection and Hypothesis 32
4. RESULTS AND DISCUSSION 41
4.1. Descriptive Results 41
4.1.1. Demographic characteristics of sample households 41
4.1.2. Socio-economic characteristics of sample households 42
4.1.3. Institutional factors 43
4.1.4. Input utilization 45
4.1.5. Wheat production 46
4.1.6. Demographic characteristics of traders 46
4.1.7. Socio-economic characteristics of sampled traders (Birr) 47
4.2. Value Chains Analysis 48
4.2.1. Wheat value chain map 48
ix
 TABLE OF CONTENTS (CONTINUED)
4.2.2. Characteristics and roles of wheat value chain actors 50
4.2.3. Enablers and facilitators 54
4.2.4. Value chain governance 54
4.3. Marketing Channels and Performance Analysis 55
4.3.1. Wheat market channels 55
4.3.2. Analysis of market performance 56
4.3.2.1. Wheat marketing cost and margin analysis 57
4.4. Econometric Results 62
4.4.1. Factors affecting of wheat marketed surplus 62
4.4.2. Determinants of market outlet choice decisions of wheat producers 66
5. SUMMARY, CONCLUSION AND RECOMMENDATIONS 71
5.1. Summary 71
5.2. Conclusion 73
5.3. Recommendations 73
6. REFERENCES 76
7. APPENDICES 82
7.1. Appendix 1: Tables 82
7.2. Appendix 2: Survey Questionnaires 84

x
 LIST OF TABLES

Table Page

1. Sample distribution of households in four Kebeles 24

2. Description of dependent and independent variables used in 2SLS model 40
3. Description of dependent and independent variables used in MVP model 40
4. Sex and marital status of wheat growers (farmers) 41
5. Age, family size and wheat farming experience of sample households 42
6. Socio economic characteristics of sample households 43
7. Cooperative member, access to transport facility, market information 43
8. Sources of market information for respondents 44
9. Credit utilization and distance from nearest market 44
10. Farmer’s extension agent contact frequency 45
11. Amount of seed and fertilizers used per hectare by the respondents in kilogram 46
12. Area cultivated, production and yield of wheat 46
13. Sex marital status and education level of sampled traders 47
14. Initial working capital of sampled trader (Birr) 47
15. Source of initial working capitals and loan of sampled traders 48
16. Source of improved seed, fertilizer and herbicide of sampled traders 50
17. Average cost of production of wheat in 2016/17 year (Birr/ha) 57
18. Average marketing costs and benefits of actors for different market agents (Birr/qt) 59
19. Marketing margin for different channels (Birr/qt) 60
20. Factors influencing marketed supply of wheat (2SLS) 65
21. Multivariate probit estimations for determinants of wheat producers’ outlets choice 69
22. Estimated correlation matrix 70

xi
 LIST OF FIGURES

Figure Page

1. Conceptual framework of the study 21

2. Map of the study area 23
3. Wheat value chain map in the study area 49
4. Wheat marketing channel 56

xii
 LIST OF TABLES IN THE APPENDIX

Appendix Table Page

1. Conversion factors used to compute adult equivalent 82
2. Conversion factors used to compute tropical livestock units (TLU) 82
3. Test for multicollinearity of explanatory variables 83
4. First-stage regression summary statistics for quantity of wheat produced 83
5. Endogeneity and over identification test for quantity of wheat produced 83
6. Factors affecting quantity of wheat produced 84

xiii
Value Chain Analysis of Wheat (Triticum Aestivum L.): The Case of Lanforo
District of Silte Zone, Southern Ethiopia

ABSTRACT

This study attempted to analyze bread wheat value chain in Lanforo District of Silte Zone of
Southern Ethiopia. For this study both qualitative and quantitative data type were used. Data
were collected from both primary and secondary sources. Primary data were collected from
137 farmers, 27 wheat traders, 6 flour factories and 19 processed product traders using
structured and non structured questionnaires. Descriptive statistics and econometrics models
(Two stages least square model and multivariate probit model) were used to analyze the
collected data. Results confirmed that input suppliers, producers, rural assemblers,
wholesalers, flour factories, retailers, primary cooperatives, bakeries, flour wholesalers, flour
retailers, consumers and supportive actors were identified as wheat value chain actors in this
study. The chain is governed mainly by flour factories. Eleven market channels were identified
for wheat. Total gross marketing margin is highest in channel V (Producers- rural
assemblers- wholesalers- flour factories- flour wholesalers- flour retailers- consumers) which
was 56.39% and lowest in channel II (Producers- retailers- consumers) which was 17.68%.
Producer’s share was highest in channel II which accounts 82.32% from the total consumer’s
price. The result of 2SLS model indicated that livestock holding, quantity of wheat produced,
farming experience, lagged market price and frequency of extension contacts are positively
and significantly influencing wheat supplied to the market. Multivariate probit model results
also signified that the alternative market outlets choice significantly affected by frequency of
extension contact, quantity of wheat supplied to market, education level of the household,
distance to nearest wheat market, access to transport facilities and membership to
cooperatives. Therefore, policy aiming at strengthening the linkage among wheat value chain
actors, increase connection with research institutes and other supportive institutions,
increasing wheat production, expanding accessibility of market infrastructure and
encouraging education through extension service is recommended.

Keywords: Lanforo; Multivariate probit; Two-stage least square regressions; Wheat value
chain analysis

xiv
 1. INTRODUCTION

1.1. Background of the Study

Cereal production and marketing are the means of livelihood for millions of households in
Ethiopia (Demeke and Di Marcantonio, 2013). Smallholder farmers, whose output is
predominantly cereal crops, account for 95% of agricultural production in Ethiopia. Maize,
wheat, and teff are the most important cereals in terms of volume, accounting for a combined
total of 77% of all cereal production (ATA, 2016).

Ethiopia is the second largest wheat producing country in Africa next to South Africa. Wheat
is the major staple food crops for urban and rural households. Normally, smallholder farmers
sell the bulk of their produce immediately after harvest, to pay taxes and loans and to meet
their other needs. Wheat is widely produced in the highlands and mid-altitudes of Ethiopia
(Marco, 2014). Ethiopia's Wheat production self-sufficiency is only 75% and the remaining
25% of Wheat has to be imported commercially and through food aid. The Oromia and
Amhara regions produce 59% and 28% of the country’s Wheat, respectively, with an
additional 10% coming from the (SNNPR) and 3% coming from other regions (GAIN, 2014).

According to the Nicholas et al. (2015), there are 4.7 million wheat farmers in Ethiopia. From
these, more than three-quarters (78%) live in Oromia and Amhara. SNNPR accounts for 13%
and Tigray 8%. Less than 1% of wheat farmers live in other regions of Ethiopia. The average
wheat area per farm is largest in Oromia, where farmers plant an average of 0.43
hectares/farm. This is partly the result of the large farms in Bale, Arsi, and West Arsi, the main
wheat growing zones of the country. In contrast, the smallest areas cultivated with wheat are
found in SNNPR, where the average is just 0.19 ha/farm. The average wheat area in Amhara,
Tigray and other regions is between 0.28 and 0.39 ha/farm. Small-scale farmers dominate
Ethiopian wheat production (and Ethiopian agriculture in general), there are some large-scale
commercial farms growing wheat. Large-scale commercial wheat production covers about 50-
80 thousand hectares of land and produces 150- 200 thousand tons of wheat.

There are two major species of wheat grown in Ethiopia: durum wheat (Triticum turgidum var
durum L.) and bread wheat (Triticum aestivum L.). Durum wheat is preferred for spaghetti and
 2

macaroni and also traditionally grown on heavy black clay soils (vertisols) of the highlands.
Bread wheat is the major variety of wheat grown in Ethiopia. However, farmers grow durum
and bread wheat (mixed together) in some parts of the country. The productivity of wheat in
Ethiopia is low compared to other wheat producing countries of the world. Reasons for this
are: (1) the use of traditional production systems; (2) the influence of biotic (e.g. diseases
particularly rust) and a biotic factors; (3) the lack of production inputs (e.g. improved seeds)
and/or suboptimal use of recommended packages (GAIN, 2014).

Bread wheat is among the most important crops grown in Ethiopia, both as a source of food
for consumers and as a source of income for farmers. Wheat and wheat products represent
15% of the total caloric intake in Ethiopia. This makes wheat the second-most important food,
behind maize (19%) and ahead of teff, sorghum, and enset (10-12% each) (FAO, 2015). With
regard to the area of cultivation, wheat is the fourth most widely grown crop after teff, maize,
and sorghum. In terms of the gross value of production, wheat is ranked 4th or 5th, after teff,
enset, and maize and approximately tied with sorghum (Nicholas et al., 2015).

Value chain analysis seeks not only to identify the major players in the commodity supply
chains but also attempts to identify and quantify values added by each intermediary along with
benefit of the actors. This shows that an efficient, integrated and responsive market that is
marked with good performance is of crucial importance for optimal allocation of resources and
stimulating households to increase output (Addisu, 2016).

The Ethiopian bread wheat value chain consists of multiple actors and channels. A range of
actors that include smallholder farmers, wholesalers, retailers, part-time farmer- traders,
brokers, processors, cooperatives, the government and private consumers take part in the
wheat value chain (Muhammed, 2011).

In Silte zone, bread wheat was planted to about 23,362 hectares of the grain crop area in
2016/17 cropping season. The production obtained from bread wheat was about 666,148.71
quintals of the grain production and yield was 28.51qt ha-1 (CSA, 2017). Among the different
districts in Silte zone, Lanforo is one of the main or potential bread wheat growing areas. Due
to this, Agriculture and rural development office of the region has identified the districts that
have adequate potential.
 3

In Lanforo District, agriculture is the backbone of the district economy. It contributes much to
meet major objectives of farmers such as food supplies and cash needs. The land allocated in
the district for the production of bread wheat in the year 2016/2017 was 8,331 hectares of land
and the estimated production was 377,630 quintals (LDARDO, 2017).The sector is
characterized by its rain-fed and small scale agriculture. The study area comprises mixed
farming zones where crops are grown for food and cash and livestock are kept for
complementary purpose, as a means of security during food shortage, and to meet farmers’
cash needs.

1.2. Statement of the Problem

In Ethiopia value chain involves multiple actors. Majority of actors across the value-chains are
small and informal with limited resources and gaps in funding and technical skills. This
imposes many barriers to agricultural growth: inefficient scale of activities; high transaction
costs; and insufficient information flow from end market to producer. This means the input
needs of farmers are unmet both in terms of volume and coverage. Highly fragmented
midstream (grain traders) marketing impairs the links between farmers and traders (BMGF,
2010).

Ethiopia suffers from weak market linkages on both the input and output side. Farmers either
cannot afford improved inputs or lack the knowledge to use them. Weak systems connection
agricultural outputs to processors and numerous barriers exist that prevent quality products
from reaching end users, such as insufficient packaging and storing inability of Ethiopian
products to meet international market standards and restrictive trade regulations (Muhammed,
2011).Wheat marketing in general is still traditional in Ethiopia. Farmers bring different wheat
to the traders or cooperatives at market places where they mix wheat. More important to the
trader and the farmer is the physical parameters such as weight, grain filling and the
admixtures to negotiate for price. Wheat marketing in general, with the exception of few cases,
does not target the final product (biscuit, pasta, bread). The knowledge of trader in terms of
quality is mainly limited to purity and level of grain filling, as these are required by most of
the buyers (FAO, 2009).
 4

Farmers have weak bargaining power and high transaction cost due to their lack of
information about market. They are exposed to exploitation of middle man because the
majority of them have no up-to-date information on prevailing market price. The only source
of information which can be used by the majority farmers is informal communication among
themselves in the market or elsewhere. On the other hand, middlemen and traders have good
marketing information because they visit consumers and producer markets and the road
network is poor and infrastructure also discourages inter-regional trade of the bread wheat
(Muktar, 2017).

In the study area the bread wheat sector faces a number of constraints to increase production
and productivity. These are limited input supply; limited efforts in market linkage activities;
there is no research conducted institution to address existing problems; and poor market
information among actors (LDARDO, 2017). It needs more comprehensive study which
thoroughly examines the wheat value chain.

Few studies on value chain and market chain analysis of bread wheat were done in different
parts of Ethiopia. Among others, Sultan (2016) on value chain analysis of wheat in Sinana
District of Bale zone and Muhammed (2014) on market chain analysis of teff and wheat
production in Halaba Special Woreda. That provides empirical evidence for improving the
farmer’s market outlet choice of wheat and wheat supplied to the market, but there is a need to
employ a value chain approach to fully understand and resolve the problem of wheat at all
levels. No previous studies which try to look into bread wheat value chain analysis,
determinants of their supply and their market outlet choice in Lanforo District.

Thus, this study has the purpose of investigating wheat value chains, to assess wheat market
performance in the value chains, identify factors affecting of wheat supplied to the market and
factors affecting market outlet choice by wheat producers. Most importantly, the study is
expected to reduce the information gap on the subject and by contributing to work better
understanding on improved strategies for reorienting marketing system for the benefit of small
farmer’s development and traders.
 5

1.3. Objectives of the Study

The general objective of this study is to analyze and illustrate bread wheat value chain in the
Lanforo District.

The specific objectives are the following:

1. To identify wheat value chain actors, their roles and relationships;
2. To analyze the wheat market performance in the study area;
3. To identify factors affecting wheat supply to the market in the study area; and
4. To identify the determinants of market outlet choice decisions of wheat producers.

1.4. Research Questions

1. Who are the actors in wheat value chain? What are their roles? What are their activities in
the system?
2. How the markets perform in the study area? Who gets more benefit?
3. What are the determinants of quantity of wheat supply to the market in the study area?
4. What are the key factors affecting farmers wheat market outlet decision?

1.5. Significance of the Study

The study analyzes the entire bread wheat value chain from input supplier to the end
consumer. The study may generate valuable information on value chain analysis of bread
wheat that might assist policy makers at various levels to make relevant decisions to intervene
in the development of bread wheat production, marketing, processing and designing of
appropriate policies and strategies. The finding of the study might also be useful to
government and non-governmental organizations, input suppliers, producers, traders,
consumers, and marketing agents to make their respective decisions. Furthermore, it may also
serve as a reference material for further research on similar topics and other related subjects.

1.6. Scope and Limitation of the Study

Value chain analysis includes from producers to the end users covering wide range of
geographical areas and stretching from local to global markets. However, in this study the
 6

value chain analysis focuses only in Lanforo district of Silte zone and traders. This study is
based on one year data. Bread wheat value chain has many actors and channels but for this
study try to include only major actors and channels.

Besides, the accuracy of the results depends on authenticity and willingness of farmers,
processors, traders and other participants to share actual information during the survey time
but farmers, processors and traders may suspect to give the correct information on their
income due to fear of income tax and public contribution creating a limiting factor for the
success of the study.

Regardless of these restrictions, the study was anticipated to generate valuable information
which would be useful to different stakeholders who are interested in this area.

1.7. Organization of the Thesis

The thesis has been organized under five chapters. Chapter one pinpoints background,
statement of the problem, research questions, objectives, significance of the study, scope and
limitations of the study and organization of the thesis. Chapter two presents review of
theoretical, methodological, empirical and conceptual evidences to the study. Chapter three
discusses research methodology (description of the study area, data types and sources,
methods of data collection, sampling and sampling size determination , methods of data
analysis and definition, variable selection and hypothesis) of the study. Chapter four presents
result and discussions (descriptive, value chain analysis and econometric results) in detail.
Chapter five summarizes the main findings of the study and draws conclusion and appropriate
recommendations.
 7

2. LITRATURE REVIEW

In this chapter, an attempt has been made to explain certain concepts used in this study. In
addition, this part is intended to critically view the literature of the past research work in
relevance to present study objective, so that theoretical reviews; methodological; and
empirical evidences of the reviews enables better understanding of the subject.

2.1. Basic Concepts and Definitions

Value chain: Kaplinsky and Morris (2000) defines the value chain as “the full range of
activities which are required to bring a product or service from conception, through the
intermediary phases of production, delivery to final consumers, and final disposal after use.”A
value chain consists of all value-generating activities, sequential or otherwise, required to
produce, deliver and dispose of a commodity (Schmitz, 2005). The value chain concept entails
the addition of value as the product progresses from input suppliers to producers and
consumers. A value chain, therefore, incorporates productive transformation and value
addition at each stage of the value chain. At each stage in the value chain, the product changes
hands through chain actors, transaction costs are incurred, and generally, some form of value
is added. Value addition results from diverse activities including bulking, cleaning, grading,
and packaging, transporting, storing and processing (Anandajayasekeram and Berhanu, 2009).

Supply chain: It is an integrated process where a number of various business entities (i.e.
suppliers, manufactures, distributors, and retailers) work together in an effort to acquire raw
materials, convert these materials into specified final products, and deliver these final products
to retailers. The chain is traditionally characterized by a forward flow of materials (Beamon,
1998). It is a set of linkages between actors where there are no binding or sought-after formal
or informal relationships, except when the goods, services and financial agreements are
actually transacted (KIT et al., 2006).

A supply chain is the portion of the value chain that focuses primarily on the physical
movement of goods and materials, and supporting flows of information and financial
transactions through the supply, production, and distribution processes. Many organizations
use the terms “value chain” and “supply chain” interchangeably. A value chain is broader in
 8

scope than a supply chain, and encompasses all pre- and post- production services to create
and deliver the entire customer benefit package. A value chain views an organization from the
customer's perspective; the integration of goods and services to create value while a supply
chain is more internally focused on the creation of physical goods. The supply chain focus is
on understanding the impact of tightly coupling supply chain partners to integrate information,
physical material, product flow, and financial activities to increase sales, reduce costs, increase
cash flow, and provide the right product at the right time and at the right price to customers
(Kaplinsky and Morris, 2001).

Value chain actors: They are those involved in supplying inputs, producing, processing,
marketing, and consuming agricultural products (Kaplinisky and Morris, 2001). According to
GTZ (2007), the term “value chain actors” summarizes all individuals, enterprises and public
agencies related to a value chain, in particular the value chain operators, providers of
operational services and the providers of support services. In a wider sense, certain
government agencies at the macro level can also be seen as value chain actors if they perform
crucial functions in the business environment of the value chain in question.

Value addition: is simply the act of adding value to a product, whether you have grown the
initial product or not. It involves taking any product from one level to the next (Fleming,
2005). It refers to increasing the customer value offered by a product or service. It is an
innovation that enhances or improves (in the opinion of the consumer) an existing product or
introduces new products or new product uses. Adding value does not necessarily involve
altering a product; it can be the adoption of new production or handling methods that increase
a farmer’s capacity and reliability in meeting market demand. For farmers, value addition has
a particular importance in that it offers a strategy for transforming an unprofitable enterprise
into a profitable one. The farmer is not only involved in production of a raw commodity but
also takes part in value addition and distribution. This allows the farmer to create new markets
or differentiate a product from others and thus gain advantage over competitors. Value-added
is determined by the difference between the cost of the inputs and outputs at each stage of the
chain (Berhanu and Moti, 2010).

Value-addition can involve different activities: change in the physical state or form of the
Product (such as milling wheat into flour; or making strawberries into jam), production of a
 9

Product in a manner that enhances its value, as demonstrated through a business plan (such as
organically produced products); physical segregation of an agricultural commodity or product
in a manner that results in the enhancement of the value of that commodity or product (such as
an identity preserved marketing system which creates a special link/ between the grower and
consumer by meeting the specific requirements of food processors) (Berhanu and Moti, 2010).

Market: is an area in which one or more sellers of given products/services and their close
substitutes exchange with and compete for the patronage of a group of buyers. Originally the
term market stood for the place where buyers and sellers are gathered to exchange their goods,
such as village square. A market is a point, or a place or sphere within which price making
force operates and in which exchanges of title tend to be accompanied by the actual movement
of the goods affected (Backman and Davidson, 1962). The concept of exchange and
relationships lead to the concept of market. It is the set of the actual and potential buyers of a
product (Kotler and Armstong, 2003).

Marketing: The definition of marketing as a process by which individuals and groups obtain
what they need and want by creating and exchange products and values with others involves
work. Marketing means different things to different people: to the house wife it means
shopping for food; to the farmer it means the sale of his produce; to the fertilizer distributor it
means the selling to the farmer (Abbott and Makeham, 1990). According to Kotler and
Armstrong (2003) marketing is managing markets to bring about profitable exchange
relationships by creating value and satisfying needs and wants.

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 (CIAT, 2004).

Marketable surplus: It is the quantity of produce left out after meeting farmer’s consumption
and utilization requirements for kind payments and other obligations (gifts, donation, charity,
etc) (Thakur et al., 1997).

Marketed surplus: It shows quantity actually sold after accounting for losses and retention by
farmers, if any and adding previous stock left out for sales. Thus, marketed surplus may be
 10

equal to marketable surplus, it may be less if the entire marketable surplus is not sold out and
farmers retain some stock and if losses are incurred at the farm or during transit (Thakur et al.,
1997).

Marketing channel: is the set of interdependence organization that ease the transfer of
ownership as products move from producer to consumer. Usually marketing follows a fairly
well established channel from producers to consumers. This channel may be short or long
depending on kind and quality of the product marketed, available marketing services, and
prevailing social and physical environment (Islam et al., 2000).

2.2. Theoretical Framework of Value Chain

The concept of Value chain is discussed from three distinct traditions approach: The French
‘Filière concept’; Porters concept; and the global value chain analysis concept (Raikes et al.,
2000).

The first approach related to value chain is that of Filière. He was discus about vertical
integration of production and distribution processes started in the 1960s. The Filière concept
describes the flow of physical inputs and services in the production of a final product. The
scholars analyzed the vertical integration and contract manufacturing in French agriculture
with the Filière concept during the 1960s. As the Filière concept is static model with non
changing actors and national boundaries. It is less functional to analyze the global world
economy (Kaplinsky and Morris, 2001).

A Filière tended to be viewed as having a static character, reflecting relations at a certain point
in time. It does not indicate growing or shrinking flows either of commodity or knowledge,
nor the rise and fall of actors. In general, a Filière analysis has been applied to the domestic
value chain, thus stopping at national boundaries (Kaplinsky and Morris, 2001).

The second approach related to value chain is that of Porter (1985).The value chain approach
was developed by Michael Porter in the 1980s, and described in his book Competitive
Advantage: Creating and Sustaining Superior Performance. His idea was to divide a business
into its strategic activities to make them better than the rivals, or to a lower cost. A firm’s
value chain is affected by their suppliers’ and customers’ value chains since they are all parts
 11

of a value system. The concept of value added in the form of a value chain has been used to
build up an industry’s sustainable competitive advantage in the business field. The entire
industry is formed of activities that link together to develop the value of the business, and
together these activities form the industry’s value chain. Such activities included product
manufacturing, and activities of purchasing, distribution and marketing of the company’s
products (Lynch, 2003). Since the value chain framework is used as a powerful analytic tool
for the strategic planning of an organization, it aims to maximize value creation while
minimizing costs.

A third approach which has been used to describe the value chain is that of global commodity
value chains. Based on global commodity chain, Messner developed the world economic
triangle. Messner concept is based on the assumption that actors, governance and regulation
systems determine the scope of action in the global commodity chains. This approach focuses
on upgrading entire regions or clustera as through their integration into chains. Hence, the
horizontal (cluster development) and vertical approaches (value chain) are linked (Kaplinsky
and Morris, 2001).but for this study the second approach related to value chain was applied.

2.3. Value Chain Analysis

Value chain analysis was first suggested by Porter (1985) as a way of presenting the
construction of value as related to end customer. It focuses on how a business creates customer
value by examining contributions of different internal activities to that value. It divides a
business into a set of activities within the business. It starts with inputs a firm receives and
finishes with firm’s products or services and after-sales service to customers. It allows for
better identification of a firm’s strengths and weaknesses since the business is viewed as a
process. Generally, value chain analysis improves overall profitability by increase
competitiveness, reducing costs, and improving market share.

Value chain analysis examines the full range of activities required to bring a product or service
from its conception to its end use, actors that perform those activities in a vertical chain and
final consumers for the product or service. It is increasingly used to help develop a
competitive strategy for a product. It enables the poor to engage more productively in markets,
the thinking goes and poverty be reduced through market engagement. Making markets work
 12

for the poor emphasizes the need to unblock access to profitable market opportunities. It is an
original methodological tool that enables design teams in the product definition phase to
comprehensively identify pertinent actors, their relationships with each other and their role in
the products life cycle (Donaldson et al., 2006).

2.4. Value Chain Governance

Value chain governance is the dynamic distribution of power and control among actors in a
value chain. Power refers to the degree that one firm or group of firms dominates the value
chain, and has a controlling influence on the quantity, quality and price of goods. Power
relationship among firms influence value chain competitiveness, opportunities for upgrading,
and access to finance. Governance can be characterized by four types of relationships. These
are: market relationship; balanced relationship; directed relationship; and hierarchical
relationship. In a directed value chain, buyers exert significant influence over the quantity,
quality and price of goods traded in the market and sellers have limited negotiation power
(Johnston and Meyer, 2007).

Governance implies that interactions between firms along a value chain reflect organization,
rather than randomness. The various activities in the chain, within firms and between firms,
are influenced by chain governance. Value chains are characterized by repetitiveness of
linkage interactions. The governance of value chains emanate from the requirement to set
product, process and logistic standards which then influence upstream or downstream chain
actors and results in activities, actors, roles and functions. Therefore, power asymmetry is
central in value chain governance. In other words, some key actors in the chain shoulder the
responsibility to allocate roles (inter-firm division of labor) and improve functions (Kaplinsky
and Morris, 2001).

Power in value chain governance can be categorized into three: setting basic rules for
participation in the chain, monitoring the performance of chain actors in complying with the
basic rules, and assistance to help chain actors stay to the basic rules (Kaplinsky and Morris,
2001). It must, however, be noted that some value chains may exhibit very little governance at
all, or very thin governance. In most value chains, there may be multiple points of governance,
involved in setting rules, monitoring performance and/ or assisting producers. The powers of
 13

governance may be vested within the chains themselves; in local communities; or in business
associations (Evans and Wurster, 2000).

2.5. Importance of Value Chain Analysis

Value chain analysis is a useful analytical tool that helps understand overall trends of
industrial reorganization and identify change agents and leverage points for policy and
technical interventions. It is increasingly used by donors and development assistance agencies
to better target their support and investments in various areas such as trade capacity, enterprise
competitiveness, income distribution and equity among value chain participants. In addition,
the analysis consists of identifying chain actors at each stage and discerning their functions
and relationships; determining the chain governance, or leadership, to facilitate chain
formation and strengthening; and identifying value adding activities in the chain and assigning
costs and added value to each of those activities (UNIDO, 2011).

Value chain analysis reveals the dynamic flow of economic, organizational and coercive
activities involving actors within different sectors. It shows that power relations are crucial to
understand how entry barriers are created, and how gain and risks are distributed. It analyses
competitiveness in a global perspective. By revealing strengths and weaknesses, value chain
analysis helps participating actors to develop a shared vision of how the chain should perform
and to identify collaborative relationships which will allow them to keep improving chain
performance. The latter outcome is especially relevant in the case of new manufacturers
including poor producers and poor countries that are seeking to enter global markets in ways
that can ensure sustainable income growth (UNIDO, 2009).

According to Kaplinsky and Morris (2000), there are three main sets of reasons why value
chain analysis is important in this era of rapid globalization. The first reason they raised is that
with the growing division of labor and the global dispersion of the production of components,
systemic competitiveness has become increasingly important. Second, efficiency in production
is only a necessary condition for successfully penetrating global markets. Third, entry into
global markets which allows for sustained income growth requires an understanding of
dynamic factors within the whole value chain.
 14

Generally, the concept of value chain provides a useful framework to understand the
production, transformation and distribution of a commodity or group of commodities. With its
emphasis on the coordination of the various stages of a value chain, value chain analysis
attempts to unravel the organization and performance of a commodity system. The issues of
coordination are especially important in agricultural value chains, where coordination is
affected by several factors that may influence product characteristics, especially quality
(Anandajayasekeram and Berhanu, 2009).

2.6. Value Chain Performance Analysis

Market performance can be evaluated by analysis of costs and margins of marketing agents in
different channels. A commonly used measure of system performance is the marketing margin
or price spread (Getachew, 2002).

Marketing Costs: all marketing activities generate costs. These costs vary widely across
agricultural commodities, depending for example on the extent of processing or the distance
between production areas and consumption centers. Agricultural marketing costs are costs
incurred between the moment an agricultural product leaves the farm and the moment it is
purchased by end users of consumers. This includes market research and promotion, product
preparation, packaging, handling, transport, product losses, storage, processing, and fees and
unofficial payments (William and Robinson, 1990).

Marketing margin: Marketing margin is a commonly used measure of the performance of a

marketing system (Abbott and Makeham, 1990). It is defined as the difference between the
price the consumer pays and the price that is obtained by producers; or as the price of a
collection of marketing services which is the outcome of the demand and supply of such
services (Holt, 1993). The size of market margins is largely dependent upon a combination of
the quality and quantity of marketing services provided the cost of providing such services,
and the efficiency with which they are undertaken and priced. For instance, a big margin may
result in little or no profit or even a loss for the seller involved depending upon the marketing
costs as well as on the selling and buying prices (Mendoza, 1995).
 15

2.7. Methodological Framework

2.7.1. Value chain analysis

Kaplinsky and Morris (2001) have outlined the following summary of value chain analysis
methodology:

1. Mapping the value chain: To understand the characteristics of the chain actors and the
relationships among them, including the study of all actors in the chain, of the flow of wheat
through the chain, of employment features, and of the destination and volumes of domestic
and foreign sales. This information can be obtained by conducting surveys and interviews as
well as by collecting secondary data from various sources.

2. Identifying the distribution of actors’ benefits in the chain: This involves analyzing the
margins and profits within the chain and therefore determined who benefits from participating
in the chain and who would need support to improve performance and gains. In the prevailed
context of market liberalization, this step is particularly important, since the poor involved in
value chain promotion were the most vulnerable.

3. Defining upgrading needed within the chain. By assessing profitability within the chain
and identifying chain constraints, upgrading solutions could be defined. These may include
interventions to: (i) improve product design and quality and move into more sophisticated
product lines to gain higher value and/or diversify production; (ii) reorganize the production
system or invest in new technology to upgrade the process and enhance chain efficiencies; (iii)
introduce new functions where in the chain to increase the overall skill content of activities;
and (iv) adapt the knowledge gained in particular chain functions in order to redeploy it.

4. Emphasizing the governance role. Within the concept of value chain, governance defines
the structure of relationships and coordination mechanisms that exist among chain actors. By
focusing on governance, the analysis identified actors that may require support to improve
capabilities in the value chain, increase value added in the sector and correct distributional
distortions. Thus, governance constituted a key factor in defining how the upgrading
objectives could be achieved.
 16

2.7.2. Factors affecting wheat marketed surplus

Different studies employed different models in order to identify the factors that affect
marketed supply of bread wheat (Hasen 2016 and Muhammed 2011). The commonly used
ones are the well known multiple linear regression (OLS) models used to analyze factors
affecting market supply of wheat because all farmers producing wheat are participants in the
market. However, when some of the assumptions of the Classical Linear Regression (CLR)
model are violated, the parameter estimates of the above model may not be Best Linear
Unbiased Estimator (BLUE). Thus, the presence of multicollinearity, heteroscedasticity,
specification error, and endogeneity problem will be tested before fitting important variables
into the regression models for analysis and respective solution for each econometric problem
will be given.

The study by Sultan (2016) to analyze factors affecting market supply of wheat he used 2SLS
regression because Endogeneity is an econometric problem when the explanatory variable in
the structural equation is correlated with the error term. Therefore, OLS model is not preferred
in the presence of endogeneity problem whereas 2SLS regression model need to be taken in
order to solve this problem because instrumental variables are used to cut correlations between
the error term and independent variables.

2.7.3. Determinants of market outlet choice decisions of wheat producers

Econometric models such as multivariate probit/logit and multinomial probit/logit are useful
models for analysis of categorical choice dependent variables. Multivariate probit model is
preferred over the multinomial logit model because of the independence of irrelevant
alternatives assumption which states that the ratio of the probabilities of choosing any two
alternatives is independent of the attributes of any other alternative in the choice set (Greene,
2012).

The choice decision over the four groups of market outlet can be modeled in two ways; by
either multinomial or multivariate regression analysis. One of the underlying assumptions of
multinomial models is the independence of irrelevant alternatives that is error terms of the
choice equations are mutually exclusive (Greene, 2012). However, the choices among the
 17

market outlet are not mutually exclusive as farmers are selling wheat products at more than
one market at the same time and therefore the random error components of the market outlet
may be correlated. Therefore, we consider using a multivariate probit model which allows for
the possible contemporaneous correlation in the choice to access the four different market
outlet simultaneously.

Multivariate probit approach simultaneously models the influence of the set of explanatory
variables on choice of markets outlets, while allowing for the potential correlations between
unobserved disturbances, as well as the relationships between the choices of different market
outlets (Belderbos et al., 2004).

2.8. Wheat Production in Ethiopia

According to CSA (2017) Cereals are the major food crops both in terms of the area they are
planted and volume of production obtained. They are produced in larger volume compared
with other crops because they are the principal staple crops. Cereals are grown in all the
regions with varying quantity. Out of the total grain crop area, 81.27% (10,219,443.46)
hectares) was under cereals. Teff, maize, sorghum and wheat took up 24.00% (about
3,017,914.36 hectares), 16.98% (about 2,135,571.85 hectares), 14.97% (1,881,970.73
hectares) and 13.49% (1,696,082.59 hectares) of the grain crop area, respectively.

Cereal crops productivity was increased at decreasing rate from 2005/06 (1998 E.C) to
2009/10 (2002 E.C) and increase at increasing rate from 2010/11 (2003 E.C) to 2014/15 (2007
E.C). Among all cereal crops productivity, maize shows a tremendous change in productivity
for the last five Meher season production periods. However, the Teff crop productivity is the
only growing slow in productivity from all cereal crops (CSA, 2015).

In Ethiopia, wheat is one of the major staple and strategic food security crops that significantly
contribute to the livelihood of smallholder farmers and urban consumers. In 2016/2017 wheat
is cultivated on 1,696,082.59 hectares of land and has the production of 45,378,523.39 quintals
with productivity 26.75qt ha-1 (CSA, 2017). But in 2014/15 cropping season, Wheat
production grew from 2.3 million tons in 2007/8 to 4.2 million tons in 2014/15. Similarly, the
area increased from 1.42 million ha in 2007/08 to 1.7 million ha with corresponding
 18

productivity increase from 16.3 tons ha-1 reaching 2.5 tons ha-1. There is an increase of 20%,
53% and 80% (an annual growth rate of 10%), respectively in terms of area, productivity and
production (CSA, 2015).

From 2005 to 2010, wheat production increased significantly mainly due to better yields.
Nevertheless, wheat yields in Ethiopia lagged behind other major producers in Africa. From
2004 to 2011, the average yield in Ethiopia was 1.68 tons per hectare. This was about 32 and
39 per cent below the Kenyan and South African averages, respectively. Production also fell
short of domestic consumption requirements and the country remained a net importer of wheat
(Demeke and Di Marcantonio, 2013).

Wheat has been recognized as a strategic food security crop in the country’s attempt to bridge
the persistent food gap. Wheat is an important staple food in the diets of many Ethiopians,
providing about 15% of the caloric intake for the countries over 90 million populations (FAO,
2015).

In Ethiopia, wheat grain is used in the preparation of a range of products such as: the
traditional staple pancake (“injera”), bread (“dabo”), local beer (“tella”), and several others
local food items (i.e., "dabokolo"," ganfo", "kinche”). Besides, wheat straw is commonly used
as a feed for animals. Wheat contributes approximately 200kcal/day in urban areas, compared
to about 310 kcal in rural areas. It accounts for about 11% of the national calorie intake. The
share of wheat in total cereal consumption has increased, from about 16 percent in 1971-1980
to about 22 percent in 2001-2007. The shift wheat is likely to have been influenced by a
growing consumption of bread in urban areas and food aid (mainly in the form of wheat) in
vulnerable areas (Demeke and Di Marcantonio, 2013).

2.9. Review of Empirical Studies

2.9.1. Factors affecting marketed surplus of wheat

Study by Sultan (2016) found out the major factors that affect the marketed surplus of wheat at
Sinana District using two-stage least squares (2SLS) regression model. He investigated the
quantity of wheat supplied to market is influenced positively and significantly by quantity of
 19

wheat produced, livestock ownership (TLU) and total area of farmland owned by farmers and
also negatively and significantly affected by family size.

Study by Muhammed (2011) found out the major factors that affect the marketed supply of
wheat in Halaba Special Woreda using multiple linear regression model. He investigated
among the different variables hypothesized to determine the supply of wheat, econometric
result showed that quantity of wheat produced, price of other crops and access to credit were
found to influence marketable supply of wheat positively and significantly.

Study by Hasen (2005) found out the major factors that affect the marketed supply of wheat at
Digelu-Tijo District using Tobit model. He investigated that volume of wheat marketed was
affected by; perception of farmers toward wheat market price, family size, access to credit,
livestock holding (TLU), off-farm income and oxen ownership

Study by Haymanot (2014) found out the major factors that affect the marketed supply of
durum wheat in Gololcha Woreda using multiple linear regression model. She investigated
that volume of wheat marketed was affected by; sex of the household heads, land allocation
for durum wheat, amount of credit, quantity of improved seed varieties used, lag (previous)
durum wheat price and tropical livestock size were found to influence volume of durum wheat
marketed positively and significantly. Contrary to this, family size had shown negative and
significant relationship with volume of wheat marketed.

Study by Tura (2015) identified major factors that affect wheat at Tiyo and Hetosa Districts.
He studied the relationship of farm level marketed supply of the wheat using cross-sectional
data. To capture the influence of the independent variables on the marketed supply of wheat,
he adopted Tobit model analysis with both dummy and continuous variables as independent
variables. He found out that value adding activities, livestock holding, distance to nearest
market, land allocate to wheat, type of wheat used, perception to lag market price, family size
and access to credit had affected marketed supply of wheat grain.

2.9.2. Determinants of wheat market outlet choices

Study by Sultan (2016) found out the major factors that affect the market outlets choice of
wheat in Sinana District used multinomial logistic regression model. He investigated wheat
 20

producers of the study area supply their product to different market outlets. Farmers supply
their products to wholesalers, assemblers, cooperatives and processors market outlets. The
model results indicated that the likelihood to choose wholesalers market outlet was
significantly influenced by frequency of extension contact, distance from market place, own
price of the commodity and membership to cooperative as compared to accessing assemblers
wheat market outlet. The likelihood of accessing cooperative wheat market outlet was
significantly influenced by price given to the commodity at different outlets as compared to
accessing assembler market outlet. Similarly the likelihood of accessing processors market
outlet was significantly influenced by price of commodity given at different market outlets,
ownership of transportation facilities and distance of processors from production place.

Kassa et al. (2017) found out the major determinants of honey producer market outlet choice
in Chena District, Southern Ethiopia. The study used multivariate probit model with four
categories of market outlets (retailers, cooperatives, collectors and consumer). He investigated
that a competitive relationship of retailer with consumer outlet and cooperative outlet with
collector and consumer outlets. The model results also reveal that the quantity of honey sold,
frequency extension contact, beekeeping experience, distance to nearest market, market
information about each outlet, cooperative membership, and trust in buyers determine market
outlet choice decision of honey producers in the study area.

Study by Addisu (2016) found out the major factors that affect the market outlets choice of
onion in Ejere district used multivariate probit model. He investigated for onion producers
outlets choice shows correlation between choice of consumer and retailer outlets are positive
and significant. This shows that in onion producers use rural collector outlets as a substitute
for consumers and retailer outlets in Ejere district while they used retailer outlets and
consumer outlets as complementary. This study has also shown that from variables
hypothesized to influence onion producers choice of market outlets, quantity of onion sold,
extension contact, farmer’s experience, distance to nearest market, access of off/non-farm
income, current farm gate price of onion, trust in traders, ownership of motor pump and land
size allocated for onion were among determinants which affect significantly onion producers
to choose the alternatives market outlets.
 21

2.10. Conceptual Framework of the Study

Wheat value chain views as a network of horizontal and vertically integrated value chain
actors that are jointly aimed toward providing products to a market. The value chain includes
direct actors who are commercially involved in the chain (input suppliers, producers,
collectors, cooperatives, wholesalers, retailers, processors, bakeries, flour wholesalers and
flour retailers) and indirect actors who provide services or support the functioning of value
chain. These include financial or non-financial service providers such as bankers and micro
finances, business service providers, office of agricultural and rural development office, road,
transportation, extension agents and private credit providers. Based on theoretical concepts
and empirical studies in wheat sectors, a framework is prepared in figure 1.

Figure 1 Conceptual framework of the study

Sources: Own construction based on literature review (2017)

 22

3. RESEARCH METHODOLOGY

This chapter summarizes description of the study area; data types and sources; methods of data
collection; and sampling techniques. It also describes method of data analysis (descriptive;
market performance; and econometrics).

3.1. Description of the Study Area

Lanforo is one of the eight districts in Silte zone, SNNPR region. The absolute location of the
district is described as 7.58ºN-7.90ºN and 38.23ºE- 38.52ºE. Regarding the location of the
district, it shares boundary in the East with Adami Tulu Gido Kombolcha District (Oromia
Regional State), in the west with Siltti and Dalocha District, in North Siltti District and in the
South with Alaba District. Lanforo is located at 37km away from Werabe (the zonal capital),
159km away from Hawassa and 183km away from Addis Ababa. The district has 2 urban
kebeles and 25 rural kebeles. Tora is the capital town of the district (LDARDO, 2017).

The district with a total area of 54,054 hectare has an altitude that ranges from 1700-2500
meter above mean sea level. The agro ecological zone of this district is highland and midland.
The topography of the district reveals that 60% is plain, 15% mountainous and 25% rugged
topography. The annual average temperature is 26.5oc where as the minimum and maximum
temperature is 25oc and 28oc respectively. The annual average rainfall is 700mm where as the
minimum and maximum rainfall is 600mm and 800mm respectively. In the district, there is
high rainfall variability (LDARDO, 2017).

The estimated total population of Lanforo District was 151,897 which comprises of 132,916
rural and 18,981 urban populations. The sex composition of the population of the district was
77,058(50.73%) and 74,839 (49.27%) for males and females, respectively. The majority of the
people of the study district are from the Silte ethnic group and the dominant religions are
Muslims (LDARDO, 2017).

The dominant crops grown in the district are wheat, maize, sorghum, barley and teff. Annual
crops are predominant and rain-fed agriculture is mainly practiced using animal power.
 23

Livestock production is another source of income & food source next to crop production
(LDARDO, 2017).

Figure 2 Map of the study area

Source: (Silte zone office of agriculture and rural development, 2017)

3.2. Data Types, Sources and Methods of Data Collection

For this study both qualitative and quantitative data type were used. primary and secondary
data were used. Primary data were collected from producers, wholesalers, rural assemblers,
retailers, processors, primary cooperatives, Union, flour wholesalers, flour retailers and
bakeries by using structured and non-structured questionnaires. Before conducting the final
 24

survey, Rapid Market Appraisal (RMA) was undertaken so as to have some picture on the
marketing system of wheat. In addition, checklists were used to collect data from agricultural
experts of the district in order to see about the general wheat production and marketing trends
of farmers and other marketing agents in the district.

Secondary data were gathered from published and unpublished materials, from Lanforo
District Office of Agriculture and Rural Development, from Silte Zone Office of Agriculture
and Rural Developments, from District Office of Trade and Industry, from primary
cooperatives that were involved in wheat marketing, from agricultural cooperatives union of
the study area and from websites.

3.3. Sampling and Sampling Size Determination

For this study, 137 wheat producers were sampled and interviewed from the district. A two-
stage sampling procedure was applied to select sample respondents. In the first stage, 4 wheat
producer kebeles were randomly selected from 25 wheat producer kebeles in the study area. In
the second stage, using the population list of wheat growing farmers from sample kebeles, the
intended sample size was determined proportionally to population size of wheat grower
farmer. This sample size was randomly selected from each kebeles by using of systematic
random sampling technique (Table 1).

Table 1: Sample distribution of households in four Kebeles

No Kebeles Total number of Proportionality Number of sampled household
. wheat producers
1 Amche 820 0.3 41
2 Grar weregise 543 0.2 27
3 Meded gageba 679 0.24 33
4 Warsha shanka 733 0.26 36
Total 2775 1 137
Source: Lanforo District office of Agriculture, 2017.
In addition to farm households, sample respondents were selected from the other value chain
actors on the basis of their size and availability and interviewed based on their respective
functions in the chain. 8 wholesalers, 3 rural assemblers, 10 retailers, 5 primary cooperatives,
1 union and 6 processers of wheat selected. Processers are only conducted in zonal town
(Werabe). From Addis Ababa 5 flour wholesalers and 10 retailers (small size shops) were
 25

selected purposively and also from Tora (town of Lanforo) 4 bakeries were selected
purposively based on their availability.

3.4. Methods of Data Analysis

Descriptive statistics and econometric analysis were used to analyze the data collected from
the household and from wheat value chain actors to meet the objectives of this study.

3.4.1. Descriptive statistics

Descriptive Statistics is used to clearly compare and contrast different characteristics of the
sample households. Hence, descriptive statistics such as frequencies, percentages, means and
standard deviations used to analyze the collected data.

3.4.1.1. Value chain analysis

Value chain analysis is the process of breaking a chain into its constituent parts in order to
better understand its structure and functioning. The analysis consists of identifying chain
actors at each stage and discerning their functions and relationships; determining the chain
governance, or leadership; to facilitate chain formation and strengthening and identifying
value adding activities in the chain and assigning costs and added value to each of those
activities (UNIDO, 2009).

To understand the characteristics of the chain actors of wheat and the relationships exists
between them including the identification of all actors in the chain; the flow of product
through the chain; and the work features and the destination information was obtained by
conducting interviews and by collecting secondary data from various sources. The study has
employed value chain analysis which is very effective in tracing product flows showing the
physical value adding stages; qualitative and quantitative flow of product along the chain with
identified key actors, their relationships with other actors in the chain; and measured
distribution of their benefits. This was captured through mapping the value chain.

The main aspects of wheat value chain analysis were done by applying some quantitative and
qualitative data. First, an initial map has drawn which depicts the structure and flow of the
 26

chain in logical clusters. This exercise was carried out in qualitative and quantitative terms
through map presenting the various actors of the chain, their linkages and all operations of the
chain from pre-production (supply of inputs) to consumption. Second, wheat market channels
were identified. Third, Margin and financial profit share of actors’ were assessed. Finally,
chains which need upgrading and governance role were identified.

3.4.1.2. Market performance

The two approaches to measure marketing performance are marketing margin and the analysis
of market channel efficiency. A large number of studies have analyzed the marketing margins
for different types of commodities to examine the performance of agricultural products
marketing and argued that even though variations in the margin over time might be
attributable to marginal marketing costs under perfect computation, additional factors such as
seasonality, technological changes, and sales volume may also explain the variations in the
margin (Sultan, 2016).

According to Ghorbani (2008), marketing margin is important indices in the evaluation of

value chain performance. It is the difference in the price paid by consumers and that received
by the producers. Marketing margins are also calculated at different points along the value
chain and then compared with consumer price. Once the basic structure of a marketing
channel is established, it is relatively easy to collect information on the price at which the
product is bought and sold at each stage in the production process (Smith, 1992).

Marketing margin is most commonly used to refer to the difference between producer and
consumer prices of an equivalent quantity and quality of a commodity. However, it may also
describe price differences between other points in the marketing chain, for example between
producer and wholesale, wholesale and retail prices (Scarborough and Kydd, 1992).

Estimates of marketing margin are the best tools to analyses performance of market. The cost
and price information used to construct marketing cost and margin have been gathered from
wheat value chain actors such as, producers, rural assemblers, retailers, wholesalers,
cooperatives, processers, flour wholesalers, flour retailers and bakeries. Computing the total
 27

gross marketing margin (TGMM) is always related to the final price paid by the end buyer
and is expressed as percentage (Mendoza, 1995).

(1)

Where: TGMM = Total gross marketing margin;

Pp = Producer’s price (first seller price) and
Cp = Consumer price (end buyer price)

It is useful to introduce here the idea of “producer participation”, “farmer’s portion” or

“producer’s gross marketing margin” (GMM) which is the portion of the price paid by the end
consumer that belongs to the farmer as a producer. It should be emphasized that growers that
as middlemen also receive an additional marketing margin (Mendoza, 1995). The producer’s
margin or share in the consumer price (GMMp) is calculated as:

(2)

Where; GMMp is the producer’s share price,

Cp = Consumer price.
Sp = Selling price

Furthermore, marketing margin of each actor at a given stage (GMM) was computed as:

(3)

Where, GMM = Gross Marketing Margin for each actors other than producers
Sp = Selling price
Bp = Buying price
Pc=Consumer price

3.4.2. Econometric analysis

Econometric analysis was used to estimate the causal relationship between the dependent
variable and the explanatory variables. It is crucial to understand the effects of different factors
 28

that affect on wheat supply to the market and market outlet choice. Hence, model
specifications for both wheat supply to the market and market outlet choice decision are
presented as follows.

3.4.2.1. Factors affecting market supply of wheat

In estimating factors that affect market supply, OLS model is applicable if and only if all the
households participate in the marketing of the commodity of interest. If participation of all
households in marketing of the commodity is not expected, using OLS model by excluding
non-participants from the analysis introduces selectivity bias to the model. Tobit, Double
Hurdle and Heckman two stage procedures have been suggested to overcome such problems.
If only probability of selling is to be analyzed, probit and logit models can adequately address
the issue but in sampled kebeles of Lanforo District, all farmers produce wheat for selling
purpose.

In this study, multiple linear regression models was used to analyze factors affecting wheat
marketed in the study area because all wheat producers participate in the market. This model is
also selected for its simplicity and practical applicability (Greene, 2012). However, when
some of the assumptions of the Classical Linear Regression (CLR) model are violated, the
parameter estimates of the above model may not be Best Linear Unbiased Estimator (BLUE).
Thus, it is important to check the presence of heteroscedasticity, multicolliniarity and
endogeniety problem before fitting important variables into the regression models for analysis.

The problem of endogeniety occurs when an explanatory variable is correlated with the error
term in the population data generating process, which causes, the ordinary least squares
estimators of the relevant model parameters to be biased and inconsistent. The source of
endogeneity could be omitted variables, measurement error and simultaneity (Wooldridge,
2002).

Both Hausman test and Durbin-Wu-Hausman (DWH) test were applied to check the presence
of endogeneity. In case of this study, there is a potentially endogenous variable, which is
quantity of wheat produced, included in the explanatory variables that could cause
endogeneity bias if OLS is applied. Therefore, in identifying factors affecting wheat supply to
 29

the market, to overcome the problem of endogeneity we have to apply two stages least squares
(2SLS) estimations method because instrumental variables are used to cut correlations
between the error term and independent variables. Two-stage least square is similar to OLS
except that it uses two completely separate stages during the analysis phase in order to avoid
problems of endogeneity (Wooldridge, 2002).

Econometric model specification of supply function in matrix notation is as follows:-

(4)

Where: Y=quantity of wheat supplied to market; k1= is quantity of wheat produced; X = a

vector of explanatory variables; β0, 1 and  are a vector of parameters to be estimated; and U
= disturbance term.

As the name suggests 2SLS involves using OLS regression in two stages, the first stage is
made by regressed the suspected endogenous variables over the pre-determined or pure
exogenous variables to get their predicted values. Then the predicted values of the endogenous
variables in the first stage are used to estimate the supply equation. In the first stage a reduced
form of the structural equations is estimated where the endogenous variable quantity of wheat
produced is regressed on all the exogenous variables in the system separately.

Reduced form: K1i   0  1 Xi  2Z i V (5)

Where, K1i is endogenous variable (quantity of wheat produced; Xi is vector of exogenous

variables; Z i is a vector of excluded instruments; π is the coefficients to be estimated; and V is
the errors terms, symmetrically distributed around zero. In order to obtain consistent
estimators in this case, we need some additional information. These instruments (in this case
Z) must satisfy two conditions: uncorrelated with U, also called orthogonal to the error process
(exogeneity condition i.e. Cov (Z, U) =0); and correlated with K1 the endogenous variable
(relevance condition i.e. Cov (K1, Z) ≠ 0) (Wooldridge, 2002). This means Z is a variable
directly affecting the endogenous variable and may not directly be related to the dependent
variable Y.
 30

By subtracting the residual of the regression of equation (5) from the actual value of quantity
of wheat produced variable (QWP), a fitted value K of the quantity of wheat produced variable
is obtained that is uncorrelated with the error term. In the second stage, by substituting the
quantity of wheat produced variable in structural equations (4) with the fitted value of quantity
of wheat produced, the right-hand side of the equations no longer contains any endogenous
variables. It is vital to make different tests before 2SLS estimations.

Before running econometrics model, all the hypothesized explanatory variables was checked
for the existence of multi-collinearity problem. In this study, a variance inflation factor (VIF)
was used to test multicollinearity problem for continuous and dummy variables. According to
Gujarati (2004) VIF can be defined as:

(6)

Where, R is the squared multiple correlation coefficient between Xi and the other explanatory
variables. Multicollinearity refers to a situation where it becomes difficult to identify the
separate effect of independent variables on the dependent variable because of the existing
strong relationship among them. In other words, multicollinearity is a situation where
explanatory variables are highly correlated. Multicollinearity was tested using variance
inflation factor (VIF) which indicates the existence of sever multicolinearity if its value is
greater than 10.

3.4.2.2. Determinants of market outlet choice decisions of wheat producers

The primary goal of the modeling market outlet choice decision is to explain the effects of the
independent variables (i.e. household, production and marketing characteristics) on the
probability of choosing between different market outlets in the wheat value chain.

Multinomial models are appropriate when individuals can choose only one outcome from
among the set of mutually exclusive, collectively exhaustive alternatives. However, in this
study producer market outlets choice are not mutually exclusive; considering the possibility of
simultaneous choices of outlets and the potential correlations among these market outlets
choice decisions. Multivariate probit model (mvprobit) was applied for household variation in
 31

the choice of market outlets and to estimate several correlated binary outcomes jointly.
Multivariate probit approach simultaneously models the influence of the set of explanatory
variables on choice of market outlets, while allowing for the potential correlations between
unobserved disturbances, as well as the relationships between the choices of different market
outlets (Belderbos et al., 2004).

The observed outcome of market outlet choice can be modeled following random utility
formulation. Consider the ith farm household (i=1, 2 … N), facing a decision problem on
whether or not to choose available market outlets. Let U0 represent the benefits to the farmer
who chooses wholesalers, and let Uk represent the benefit of farmer to choose the Kth market
outlet: where K denotes choice of Wholesalers (Y1), Retailers (Y2), Rural Assembler (Y3) and
Cooperative (Y4). The farmer decides to choose the market outlet if

The net benefit that the farmer derives from choosing a market outlet is a latent variable
determined by observed explanatory variable ( ) and the error term

(7)

Using the indicator function, the unobserved preferences in equation (7) translates into the
observed binary outcome equation for each choice as follows:

(8)

In multivariate model, where the choice of several market outlets is possible, the error terms
jointly follow a multivariate normal distribution (MVN) with zero conditional mean and
variance normalized to unity (for identification of the parameters) where
MVN and the symmetric covariance matrix is given by:

(9)
 32

Of particular interest are off-diagonal elements in the covariance matrix, which represent the
unobserved correlation between the stochastic components of the different type of outlets. This
assumption means that equation (9) generates a MVP model that jointly represents decision to
choose particular market outlet. This specification with non-zero off-diagonal elements allows
for correlation across error terms of several latent equations, which represents unobserved
characteristics that affect the choice of alternative outlets.

Following the form used by Cappellarri and Jenkins (2003), the log-likelihood function
associated with a sample outcome is then given by;

(10)

Where is an optional weight for observation i, and is the multivariate standard normal
distribution with arguments and Ω, where can be denoted as;

, While for and (11)

For j with (12)

3.5. Definition, Variable Selection and Hypothesis

In the way of identifying factors influencing marketed surplus and market outlet choice of
wheat producers in the study area, the main task is exploring which factors significantly
influence and how (the direction of the relationship) these factors are related with the
dependent variables.

Dependent variable

Quantity of wheat supplied to market: It is a continuous variable which represents the

amount of wheat actually supplied to market by household in the year 2016/17 which is
measured in quintals.

Market Outlets: A categorical dependent variable measured by the probability of producers

sells wheat to either of the alternatives market outlets. It was represented in the model as Y1
for those households who choose to sell wheat to wholesalers, Y2 for producers who choose
 33

retailers, Y3 for producers who choose rural assemblers and Y4 for producers who choose
cooperatives to sell wheat.

a) Independent variables for factors affecting quantity of wheat supplied to market

Access to market information: This is a dummy variable with a value 1 if the farmer has
access to market information and 0 otherwise. The market information considered was
information on prices, demand, buyers, and other relevant information that could contribute to
wheat products in the marketing decision. A study by Muhammed (2011) revealed that if
wheat producer gets market information, the amount of wheat supplied to the market
increases. Therefore, it is hypothesized that access to market information positively affects
amount of wheat supplied to market.

Frequency of extension contact: This is a discrete variable, measured in terms of number of

visit of the extension agent to the farmer within a year. Extension variables include having
access to information through farmer training and visiting. Agricultural extension service is
most of the time provided by development agents (DA’s). Those farmers who have frequent
contact with extension workers are more likely to know the advantage of cash crop production.
The more the number of contacts, the higher the information and knowledge acquired. The
study by Rehima (2006) showed that contact with extension agents positively influence the
quantity supplied to market. Therefore, it is hypothesized that frequency of extension service
positively affects amount of wheat supplied to the market.

Number of Livestock: This is a continuous variable measured in Tropical Livestock Unit

(TLU). Livestock are important sources of cash in rural areas to allow purchase of farm inputs
and to finance to facilitate value adding activities (combine harvesting, storage facilities,
transport facilities and the like) that are needed to increase the quantity of wheat marketed.
The Study by Haymanot (2014) indicated that the number of livestock influenced the volume
of wheat marketed positively confirming the hypothesis. Therefore, this study hypothesized
positively affect marketed surplus of wheat.

Amount of improved wheat seed used: It is a continuous variable, which is measured by the
total improved seed used for wheat production in kg. Total quantity seed used for wheat
 34

production in 2016/2017 production year. If the producers inputs that would help to improve
his/her production. Improved seed varieties are associated with high productivity level (Abay,
2007). Tura (2015) found that type of seed used and cultivated land for wheat influence the
amount of wheat marketed surplus significantly. Therefore, use of improved seed varieties is
expected to have positive effect on quantity of wheat marketed.

Quantity of wheat produced: It is a continuous variable and the total amount of wheat
produced in quintals in 2016/2017 production season in the study area. An increase in volume
of production has a significant effect on market supply and motivates farmers to increase the
supply of commodity to the market. The result of study by Sultan (2016) showed that quantity
produced influenced the volume of wheat supplied to the market positively and significantly.
Therefore, it is hypothesized that quantity of wheat produced positively affects the supply of
wheat to market.

Amount of credit used: This is a continuous variable, which measured in total credit received
in birr within a year. Households, who received credit for crop production (to purchase
improved seed and fertilizers), assumed to produce more than those who did not get credit.
The study by Muhammed (2011) showed that farmers who have access to credit had supplied
more wheat to market than those who had no access. Credit helps the farmers to buy different
inputs for production, to fulfill their need for covering labor cost, transportation cost and
different costs related to their operation. Credit is important for financing the agricultural
activities of smallholder farmers (Kindei, 2007). Therefore, the more the amount of credit
received, the higher the production and this in turn increase supply to the market.

Lagged market price: This is a continuous variable that measured in ETB per quintal. It is
annual average price that a farmer received for a quintal of wheat during the 2015/16
production year. Myint (2003) explains that if prices in one year are bad, farmers will often
respond by producing less in the next year. This will lead to lower production and higher
prices, so encouraging more producing in the following year and a consequent fall in prices.
Therefore, it is hypothesized to affect marketed surplus positively.

Education level of the household head: This variable is measured using formal schooling of
the household head. It is a dummy variable taking a value of 1 if the household head attended
 35

any formal education and 0 otherwise. Education enhances information acquisition and
adjustment abilities of the farmer, thereby improving the quality of decision making (Fakoya
et al., 2007). Amare (2013) reported that education level of farmers exhibited a significant and
positive effect on the marketed surplus of pepper. This can be highly attributed to the fact that
education empowers a farmer to make informed decisions and identify market opportunities
where they exist. Therefore, it is assumed to positively affect marketed surplus.

Wheat farming experience of the household heads: It is a continuous variable measured in

terms of the number of years of wheat production and management experience of the wheat
farm household. A household with better experience in wheat farming is expected to produce
more amounts of wheat products and, as a result, he/she is expected to supply more amounts
of wheat products to market. Farmers with longer farming experience are expected to be more
knowledgeable and skillful. Abraham (2013) also proved that farmers who have more
experience provide more of their potato product to market. Therefore, it is also hypothesized
to positively affect marketed surplus.

Family size: This variable is a continuous variable and refers to the total number of family
members expressed (adult equivalent) in the household. The study by Haymanot (2014) family
size had a negative impact on volume of durum wheat marketed. On the other hand Million
and Belay (2004). The size of economically active family members within a given farming
household affects the crop production activities positively Thus, in this respect family size is
expected to have negative impact on sale volume. But larger family size requires larger
amounts for consumption. So this study hypothesized to negatively and positively affect
marketed surplus of wheat.

Sex of the household head: It is a dummy variable that takes a value of 1 if the household
head is male and, 0 otherwise. Male households have been observed to have a better tendency
than female household in crop production and supply due to female-headed households have
less access to improved technologies, land, and extension services as compared to male headed
households. Muhammed (2011) found that sex of the household head had a positive and
significant effect on the volumes of teff sold in to the market. Hence, it is hypothesized to
affect positively supply of wheat to market.
 36

Distance to the nearest wheat market: It is a continuous variable in walking minutes from
the household residence to the nearest market. The closer the market the lesser would be the
transportation charges, reduced walking time, and reduced other marketing costs, better to
access market information and facilities (Abraham, 2013). The nearer the farmer is to town the
easier it is to access buyers who offer better payment terms than in the case of farmers far
away from towns. Therefore, it is hypothesized to affect marketed surplus negatively.

b) Independent variables for determinants of market outlet choice decisions of wheat

producers

Education level of the household head: This variable is measured using formal schooling of
the household head. It is a dummy variable taking a value of 1 if the household head attended
any formal education and 0 otherwise. It is believed that if a farmer attained formal education
of any level there is a possibility that the farmer would choose appropriate outlets. The study
by Nuri (2016) showed that education level of bulla producers has a significant and positive
effect on the chances of choosing wholesalers and Retailers market outlets and a negative
relationship with collectors’ market outlet choice. Therefore, it is hypothesized to have
positive relation with producer’s decision to choose wholesalers and retailers market outlets
and also a negative relationship with collector’s market outlet choice.

Access to transport facility: It is a dummy variable which takes a value 1 if the household
owned transportation facility and 0 if do not own any form of transportation facility.
Specifically, vehicles, carts and transport animals would be used to measure the availability of
produce transportation facilities by households. The availability of well-functioning transport
network is very important because it creates place utilities of the product. The availability of
transportation facilities helps reduce long market distance constraint, offering greater depth in
marketing choices (Jagwe, 2011). A study by Sultan (2016) indicated distance from the closest
market place positively and significantly affected accessing millers/processors market outlet as
compared with accessing assembler market outlet. It also affected wholesaler market outlet
negatively and significantly. Therefore, it is hypothesized to have positive relation with
producer’s decision to choose processor and a negative relationship with wholesaler market
outlet choice.
 37

Distance to the nearest market: It is a continuous variable measured in minutes that wheat
producers are required to travel in order to sell their product in the market. In addition, those
households who are close to market are assumed to have more probability of choosing better
market outlet. The study by Nuri (2016) showed that increase in distance to the market center
would decrease the probability of choosing wholesalers channel, but increase the likelihood of
choosing collectors channel. Therefore, distance to the nearest market is hypothesized to have
positively related with producer’s decision to choose rural assembler and a negative
relationship with wholesaler market outlet choice.

Family size: Family size refers to the number of members of the household measured in adult
equivalent. Accordingly, families with more household members tend to have more labor
which in turn increases the choice of better market outlet. The study by Addisu (2016)
indicated that family size is positively and significantly associated with selling potato to
wholesalers. Therefore, family size is hypothesized to have positively related with producer’s
decision to choose wholesaler market outlet choice.

Membership to a cooperative: It is dummy variable and taking the value of 1 if the

household head is the member of cooperatives engaged in wheat business and 0 otherwise.
Since cooperative members are assumed to get needed input and other technical support from
cooperative; farmers who are members of cooperative are supposed to sell to cooperative
rather than other market outlets. Abraham (2013) found that membership to cooperative
affects negatively the retail outlet choice. Therefore, membership to cooperative is
hypothesized to affect accessing cooperative market outlets positively as compared to
accessing other market outlets.

Quantity of wheat supplied to market: It is continuous variable and measure by quintal. The
more quantity of wheat products sold; the higher would be the chances of using different
market alternatives. Farmers supplying small quantities are likely to sell their products to
collectors in their local market rather than selling to wholesale market in urban. The studies by
Chalwe (2011) and Bezabih et al. (2015) indicated the direct or positive relation between
market channel choices decisions of different products with quantity sold. Therefore, the
quantity of wheat supply to market is hypothesized to have positively affected producer’s
 38

decision to choose wholesaler market outlet choice and negative to choose rural assembler
market outlet choices.

Non/off-farm income (log): This variable was assumed to measure the amount of non/off-
farm income (such as working as daily laborers, consumer goods retailing, handcraft, etc)
which helps households in generating additional income. Non-farm income is a continuous
variable that measured farmer’s total annual income in ETB which was transformed into
natural logarithm and expressed as percentage. This additional income is assumed to increase
households’ financial capacity and invest more on agricultural production. Through improving
liquidity, this income helps to cover the financial requirement of the sample household in the
production of wheat products and tends to choose the better market outlet. Furthermore, wheat
farmer who gain more income from off/non-farm employment want to supply their wheat
products to the nearest marketing outlet with fewer prices than searching for other outlets.
Corsi et al. (2009) found that income affected market outlet choice. Thus; income from the
non/off-farm sources is hypothesized to affect wheat crop products alternative market outlet
choice decision.

Access to market information: This is a dummy variable with a value of 1 if the farmer has
access to market information and 0 otherwise. Value chain actors marketing decisions are
based on market price information and poorly integrated markets may convey inaccurate price
information, leading to inefficient product movement. Therefore, access to market information
is hypothesized to affect wheat crop products alternative market outlet choices decision of
wheat farmer. The findings of Bezabih et al. (2015) confirmed that market information has a
positive and significant effect on retailer channel choice decision of potato producers.
Moreover, the variable is negatively significantly associated with the choice of collector outlet
at 1% significance level. The negative relation may be due to preference of other outlets that
give relatively higher price. This declines beekeepers’ preference to local collectors; rather,
they transport it to the nearest market. This is in line with the finding of Astabah (2015). Thus;
Access to market information is hypothesized to affect wheat crop products alternative market
outlet choice decision.

Frequency of extension contact: This is a discrete variable which is the number of days that
farmer had contact with extension agent for agricultural work supervision in a year. The study
 39

by Sultan (2016) indicated that frequency of extension contact positively and significantly
affected accessing wholesales market outlet choices as compared with assembler market outlet
choices at 10% probability level.
 40

Table 2: Description of dependent and independent variables used in 2SLS model

Variable Measurement and Coding of Variable Expected
relationship
Quantity of wheat supplied to market Continuous variable (Quintal)
Access to market information Dummy (1= if yes; 0=otherwise) +
Frequency of extension contact Discrete (Number of contact) +
Amount of improved wheat seed used Continuous (kg) +
Number of livestock Continuous (TLU) +
Quantity of wheat produced Continuous (Quintal) +
Amount of credit used Continuous (ETB) +
Lagged market price Continuous (ETB per qt) +
Education level of the households Dummy (1= if attended formal +
education; 0=otherwise)
Farming experience of the households Continuous (years) +
Family size Continuous (Adult equivalent) +/-
Sex of the households head Dummy (1=male; 0= otherwise) +
Distance to nearest wheat market Continuous (Minutes) _

Table 3: Description of dependent and independent variables used in MVP model

Variable Measurement and Expected effect on outcome
Coding of Variable Wholesaler Retailer Rural Cooperative
assembler
Market outlets Binary
Access to market Dummy (1= if yes; + _ _ +
Information 0=otherwise)
Extension contact Discrete (Number of + _ _ +
contact)
Non/off-farm Continuous (ETB) + _ _ +
income (log)
Family size Continuous + _ _ +
(Adult equivalent)
Education level Dummy (1=attended + _ _ +
of household formal education; 0=
otherwise)
Distance to Continuous (Minutes) _ _ + _
nearest
wheat market
Membership to a Dummy (1=if yes; _ _ _ +
cooperative 0=otherwise)
Owned transport Dummy (1=if yes; + + _ +
Facility 0=otherwise)
Quantity sold Continuous (Quintal) + _ _ +
 41

4. RESULTS AND DISCUSSION

This section presents the results of descriptive and econometric analysis. The descriptive
analysis is employed to describe the demographic and socio-economic characteristics of
sampled farm households and traders. Value chain analysis presents value chain analysis of
wheat which includes value chain map, actors and their roles, marketing channels, marketing
costs, market margins and profit margin of actors in the value chain. Econometric analysis part
presents the results and discussions on factors affecting wheat marketed surplus and the
determinant of market outlet choice of wheat producers.

4.1. Descriptive Results

4.1.1. Demographic characteristics of sample households

The sample population of farmer respondents considered during the survey was 137. As
shown in Table 4, out of total households heads interviewed, 93.43% were male headed while
6.57% were female headed households. The survey showed that the majority or 94.89% of
respondents were married, 1.46% were divorced and 3.65% were widowed.

Table 4: Sex and marital status of wheat growers (farmers)

Variable Frequency Percent
Sex
Female 9 6.57
Male 128 93.43
Total 137 100.00
Marital status
Married 130 94.89
Divorced 2 1.46
Windowed 5 3.65
Total 137 100.00
Source: Own survey results, 2017

The age of the household is considered a crucial factor since it determines whether the
household benefits from the experience of an older person, or has to base its decisions on the
risk-taking attitude of a younger farmer. The mean age of the sample household heads was
40.8years with the standard deviation of 11.1 (Table 5). The livelihood of rural farm
households mainly relies on agriculture which requires more labor for various activities like
 42

land preparation, planting, weeding, cultivation, harvesting, threshing, animal keeping,

fetching water and fire wood collection and so on. The family size with age composition is
important to carry out different agricultural activities. The average family size in the study
area was 4.936 with standard deviation of 2.216. The respondents have an average of 18.69
years of farming experience in wheat production with a standard deviation of 6.97 years.

Table 5: Age, family size and wheat farming experience of sample households
Variable Mean(N=137) Standard deviation
Age (yrs) 40.8 11.1
Family size 4.936 2.216
Wheat Farming experience(yrs) 18.69 6.97
Source: Own survey results, 2017

4.1.2. Socio-economic characteristics of sample households

The survey result shows that religion from the total sample households, the majority (94.16%)
were Muslims whereas Protestant and Orthodox were 4.38% and 1.46%, respectively (Table
6). Based on the survey results, 57.66% of respondents were illiterate while those who
attended any formal education 42.34%. Farming was the main occupation and source of
livelihood for all sample producers where the major ones are crop production. Moreover, in
addition to the farming activities, some respondents have also engaged in non-farm activities
like consumer goods retailing and transport services using donkey and carts to earn additional
income. The respondents have an average of 4,932birr/year from non-farm activities with the
standard deviation was 4,850.

Total number of livestock holding of the households measured in Tropical Livestock Unit
(TLU). Livestock are used for sources of income for crop cultivation and transportation of
produces. As indicated in Table 6, average livestock holding was 3.21 with the standard
deviation of 2.86.
 43

Table 6: Socio economic characteristics of sample households

Variable Frequency Percent
Religion
Muslim 129 94.16
Protestant 6 4.38
Orthodox 2 1.46
Education
Illiterate 79 57.66
Attend formal education 58 42.34
Mean SD
Non/off farm income (Birr) 4,932 4,850
Livestock holding (TLU) 3.21 2.86
Source: Own survey results, 2017

4.1.3. Institutional factors

From the total interviewed sample respondents, 60% were members of farmer primary
cooperatives while 40% were not members (Table 7).

Table 7 depicted that about 52.6% of households have their own transport facility and about
47.5% have no own transport facility. Moreover, the results revealed that the main means of
transport were animals and cart.

Table 7: Cooperative member, access to transport facility, market information

Variable Frequency Variable
Cooperative member
No 56 40
Yes 81 60
Transport
No 65 47.45
Yes 72 52.55
Market information
No 60 43.8
Yes 77 56.2
Source: Own survey results, 2017

Access to agricultural markets and marketing information are essential factors in promoting
competitive markets and improving agricultural sector development. Access to market
information in Table 7 showed that 56.2% of producers have market information where to sell
 44

their wheat to different market outlets. Table 8 depicted that major sources of market
information for producers include 30.7% traders, 10.2% friends and neighbors, 11.7%
cooperative and 3.6% brokers. This indicated that the use of modern communication like radio
and- television was lacking.

Table 8: Sources of market information for respondents

Sources of information Percent
Friends and neighbors 10.2
Cooperative 11.7
Brokers 3.6
Trader 30.7
Source: Own survey results, 2017

Credit is a crucial element starting from land preparation up to the marketing of the product
provided that it is source of finance. Credit was received only by 53.28% of sampled wheat
producers. As depicted in Table 9, the average of credit used by the sample household heads
was 1,492.5birr and the standard deviation was 1,406.8. Factors that hinder farmers from
taking credit in study area were religion and self sufficiency. The credit source for these
farmers was microfinance, cooperatives, friend and relatives and local money lenders. Most of
farmers got credit from friends and relatives.

Distance from producer’s house to nearest market was also the factor which determines
producer’s wheat supply to market. As shown in Table 9, the average distance needed for
producer’s to travel to nearest market place took on average 96.2 minutes walking and the
standard deviation was 21.7.

Table 9: credit utilization and distance from nearest market

Variable Mean SD
Amount of credit used 1492.5 1406.8
Distance from nearest market 96.2 21.7
Source: Own survey results, 2017

The survey result shows in Table 10, out of the total respondents of wheat producing sample
household. 19.71%, 30.66%, 18.98% and 24.09% of the sample household reported that they
contacted weekly, once in two weeks, monthly and twice in a year, respectively. Only 6.57%
 45

of the farmers reported that they had no access to extension service. The extension services
providers were office of agriculture experts and DAs. Table 10 depicted the frequency of
extension contacts for the selected sample households.

Table 10: Farmer’s extension agent contact frequency

Description Frequency Percent

No contact 9 6.57
Weekly 27 19.71
Once in two weeks 42 30.66
Monthly 26 18.98
Twice in a year 33 24.09
Source: Own survey results, 2017

4.1.4. Input utilization

Input application is one of the most important agricultural practices that are used by wheat
producers in the study area. Moreover, proper application of the recommended input rate is
important to obtain the required quality and quantity produced thereby increasing quantity of
market supply. Improved seed is one of the most important inputs that determine productivity
and production of wheat. The use of improved wheat seed varieties is part of the solution
towards increased and sustainable wheat production to meet the ever increasing wheat demand
of the country‘s food processing industries (Mohammed, 2011).

About 100% of wheat sampled producers used improved wheat seed varieties. This implies
that the district wheat sampled producers prefer improved seed varieties and also most of the
respondents have awareness about the importance of improved seed varieties. During the
period under the study, Table 11 depicted that the average seeding rate of wheat sampled
producers applied per hectare of land were 71.13kg with standard deviation of 31.76 kg. Table
12 depicted that the average land allocated for the production of wheat by sample wheat
producing respondents was 0.64 hectares with corresponding standard deviation of 0.31
hectares. But average improved seed rate applied per hectare of land were higher than the
recommended rate (blanket) of seed per hectare which is 100kg per hectare for the area.
 46

Table 11: Amount of seed and fertilizers used per hectare by the respondents in kilogram

Variable Mean SD
Improved seed 71.13 31.76
Source: Own survey results, 2017

4.1.5. Wheat production

Crop production in the study area is not only for home consumption but also for cash
requirements. Especially wheat is produced for market purpose and it is used as cash crop in
the study area. Production of wheat in the study area is a rain-fed within a year harvest. Table
12 depicted that the average land allocated for the production of wheat by sampled wheat
producing respondents was 0.64 hectares with corresponding standard deviation of 0.31
hectares. The minimum and maximum land allocated by sample respondents to the production
of wheat was 0.125 and 1.875 hectares, respectively. The average quantity of wheat produced
per sampled households was 12.9 quintal with the standard deviation of 7.33. On average
10.87 quintals of wheat was transacted through different marketing outlets. But, the average
yield of wheat per hectare was 19.59 quintal.

Table 12: Area cultivated, production and yield of wheat

Variables Mean Standard deviation

Area allocated for wheat in 2016/17 in hectare 0.64 0.31
Quantity produced (qt) 12.9 7.33
Yield of wheat (qt/ha) 19.59 5.84
Quantity of wheat supplied to market (qt) 10.87 6.09
Source: Own survey results, 2017.

4.1.6. Demographic characteristics of traders

Table 13 summarizes the demographic characteristics of traders in terms of age, experience,

sex, marital status, education and religion. The average age of the sampled traders was 35
years with the standard deviation of 5.038. Traders have an average experience of 8 years in
trading with the standard deviation of 4.56. The survey further indicates that 84.8% of the
sampled traders were males while 15.2% of them were females. With regard to the level of
education of sampled traders, the survey results show that about 34.78% of the respondents are
illiterate. However, 28.26%, 26.09% and 10.87% attended primary school, secondary school
 47

and certificate and above, respectively. From sampled traders, 82.61% were married, 6.52%
were single, 4.35 were divorced and 6.52% of them are windowed.

Table 13: Sex marital status and education level of sampled traders

Variable Frequency Percent

Sex Female 7 15.2
Male 39 84.8
Marital status Married 38 82.61
Single 3 6.52
Divorced 2 4.35
Windowed 3 6.52
Education level Illiterate 16 34.78
Primary school(1-4) 13 28.26
Secondary school(9-10) 12 26.09
Certificate and above 5 10.87
Mean Standard deviation
Age 35 5.038
Experience 8 4.56
Source: Own survey results, 2017

4.1.7. Socio-economic characteristics of sampled traders (Birr)

Socio-economic characteristics include initial working capital, Source of initial working

capital and source of loan of sampled trader. As indicated in Table 14 the average initial
working capital of the sampled traders was 600,710 birr. The average initial working capital of
fluor factories was the highest of all and the average initial working capital of rural assemblers
was the lowest of all.

Table 14: Initial working capital of sampled trader (Birr)

Actors Mean Standard deviation

Rural assemblers 11,333 3214,6
Wholesalers 37,187.5 5,250.4
Retailers 12,450 1,535.7
Fluor factories 4,000,000 632,455.5
Flour wholesalers 40,000 7,905.7
Flour retailers 16,500 4,600.7
Bakeries 87,500 9,574.3
Total 600,710
Source: Own survey results, 2017
 48

As indicated in Table 15, most of trader’s initial working capital made from internal source
than external sources. About 54.35% of sampled traders were using their own capital while
about 23.91% through loan, 17.39% though both loan and own and 4.35% were though share.
Further, the survey results revealed that about 21.74% of trader’s borrowed initial working
capital from relatives/family while about 13.04% borrowed from friends, 4.35% were from
microfinance institution, and 2.17% of traders borrowed from private money lender.

Table 15: Source of initial working capitals and loan of sampled traders

Source of capital Frequency percentage

Own 25 54.35
Loan 11 23.91
Share 2 4.35
Loan and own 8 17.39
Source of loan Frequency Percentage
Relatives/family 10 21.74
Private money lender 1 2.17
Friends 6 13.04
Micro finance institution 2 4.35
Source: Own survey results, 2017

4.2. Value Chains Analysis

Value chain analysis assesses the value of each activity which increases the products and
services to a firm. The ability to perform particular activities and to manage the linkages
between these activities is a source of competitive advantage. The competitiveness of value
chain is greatly influenced by the partnership and collaboration for innovation that can be
realized by chain actors. Moreover, the development and operation of enabling and supporting
business development services (e.g. market information, transport and credit) play critical role
on how well the value chain responds to consumer demands (Anandajayasekeram and
Berhanu, 2009).

4.2.1. Wheat value chain map

Mapping a value chain facilitates a clear understanding of the sequence of activities and the
key actors and relationships involved in the value chain. Mapping of value chain functions is
considered to show the relationships and integrations of the processes and activities performed
 49

along the value chain. Major functions include input supply, production, trading, processing
and consumption.

Consumption Consumers Union,

Micro
Retailing Finance
Flour Retailers
Institutions,
Baking Bakeries LDARDO,
Flour Wholesalers Office of
Wholesaling
Cooperatives,

Processing Flour factories Banks, Office

of Trade and
Retailers
Retailing Industries,
informal
Wholesalers Union
Wholesaling lender,
Infrastructure
Rural Farmer’s Primary (road and
Collecting & Cooperatives
Assemblers
trading telecommunic
ation) and
Production Producers District
administratio
n.
Input Office of
supply Cooperatives Agricultural Private
& Rural Dev’t trader

Supportive
Functions Actors
Actors

Legend of arrows
Represents flow of product and input Represents two way flow of information
Represents flow of input Represents flow of money
Source: Own sketch from survey result, 2017.
Figure 3 Wheat value chain map in the study area
 50

4.2.2. Characteristics and roles of wheat value chain actors

Input suppliers

Agriculture value chain analysis begins at the input supply level. Inputs such as seed,
fertilizers and herbicide are supplied by agricultural and rural development office, primary
cooperatives and private input suppliers are the main source of input supplier in the study area.
Adequacy and quality of wheat seed are crucial for increased production and productivity. All
of sampled households used improved seed, NPS, UREA and herbicide.

The survey results further revealed that agricultural input particularly seed was about 58.4%
supplied by cooperatives, about 33.6% by agricultural and rural development office and also 8
% by private input trader for sampled farmers (Table 16). The results indicated that most of
the sampled producers who used fertilizer procured it from cooperatives were 52.6%, from
agricultural and rural development office were 41.6% and from private input traders were
5.8%. The major suppliers of chemicals are private traders. They got from market; cooperative
shops; and through the agriculture and rural development office. Unions supplied and
distributed the inputs to their respective primary cooperative actors. The unions were procured
wheat seeds from Ethiopian Seed Enterprise. In addition, plant protection chemicals such as
herbicides were procured from chemical dealers in Addis Ababa.

Table 16: Source of improved seed, fertilizer and herbicide of sampled traders

Variables Frequency Percent

Source of improved seed
Office of agricultural and rural development 46 33.6
Private input traders 11 8
Cooperatives 80 58.4
Source of fertilizer
Office of agricultural and rural development 57 41.6
Private input traders 8 5.8
Cooperative 72 52.6
Source of herbicide
Office of Agricultural and rural development 32 23.4
Private input traders 81 59.1
Cooperative 24 17.5
Source: Own survey result, 2017
 51

Producers: These are smallholders who are engaged in wheat production. They are major
actors involved in production and marketing of surpluses they produce, which starts from
input preparation to final harvesting. The major activities in production are land preparation,
sowing, fertilizer application, cultivation, weeding, chemicals spraying, harvesting and post-
harvest managements. Sampled households accessed improved seed, fertilizers and chemicals
from nearby cooperatives, agricultural and rural development offices and private seed vendors.
They did not have access to irrigation and they depend on rain fed.

Producers transport wheat to sell in to the nearest markets or district markets by themselves,
either using pack animals, or animal driven carts over an average of 96.2 minutes walking
distance by wheat producers. They had several options to sell their product; selling directly or
selling through assemblers. Alternatively, they sell to village assemblers known as “farmer
traders”/”rural assembler” who assemble wheat from large number of farmers.

Problem that wheat producers faced are lack of research organizations in the crop
improvement, rust diseases that frequently put high yielding improved varieties of bread wheat
out of production, low soil fertility that farmers cannot grow wheat without application of
chemical fertilizers, less farmers awareness of improved crop management practices and
shortage of capital to buy farm inputs.

Farmer trader/rural assemblers: These are farmers or part-time traders in the assembly
markets who used to buy small quantity of wheat from farmers in village markets during slack
period for the purpose of reselling it to wholesalers and retailer in district market. They use
their financial resources and their local knowledge to buy wheat from the surrounding area.

Wholesalers: These are one of the market participants. These purchase bulky products with
better financial and information capacity. They purchase wheat directly from producers and
rural assemblers at the farm gate and/or at district market with a larger volume than any other
marketing actors do. Wholesalers reside in district market town (Tora) and after commodities
bought from different sources put together in one place (store) to be reselling. Wholesalers
resell the products to retail merchants and processors than ultimate customers. They have
better storage and communication access than other traders. Problem that wheat wholesaler
traders faced are price setting problem, lack transport facility, product quality problem, tax
 52

regulation problem, presence of unlicensed traders, lack of linkage with research institutes and
shortage of capital.

Retailers: These are one of market actors in the final link of the marketing channels selling to
consumers and reside on the district market town. They bought the wheat from farmers
directly in the market and on their purchasing and selling verandas on the days other than the
market days. These actors also purchase from rural assemblers and wholesalers from local and
district markets. Problem faced by wheat retailer traders are shortage of capital and lack of
storage.

Flour factories: The surveyed flour processors bought wheat grain from wholesalers and
cooperatives within the district and the surrounding districts. The main sources of wheat for
flour factories from Silte zone are Lanforo, Dalocha, Sankura, Silte and Hulbareg districts of
suppliers. Flour factories process wheat into flour as well as wheat bran before selling to end
consumers. Flour factories engage in processing, grading, labeling and packaging before
selling the products. The value added is reflected by the differences in prices charged per
kilogram of processed products. Demand for value added products (flour) are presently very
high. All surveyed processers said that there are different problems to supply more; lack of
quality, tax regulation problem, frequent electric power and water interruptions, lack of skilled
manpower to operate the processing machineries, high production costs relative to selling
price, input and output price fluctuation and etc are the major challenges that the processors
encountered with.

Primary Cooperative: The existence of primary cooperatives in wheat value chain has two
functions. Initially, cooperatives perform as supporting actors who brings inputs and then
resale it to both member and non-member wheat producers. Secondly, cooperatives are acting
as major actors of wheat value chain that has a stabilizing role in the district market through
purchasing the product. There are seven agricultural primary cooperatives for wheat product
established in the Lanforo district with the aim of increasing farmers’ bargaining power in the
exchange processes. Among these, five primary cooperatives from four sample kebeles (Tora
4, Gebaba repi, Shfude, Meto and Tora 6) were included in the survey time.
 53

Union: Cooperatives that are located in all districts of Silte zone jointly established one union
named as “Melik” for the purpose of further increasing producers bargaining power and
supplying the bulk volume of wheat to the processors. “Melik” union is located in the zone
city town (Werabe) and it is the only union available in the zone. The union has different
workers (manager, finance workers, store mans and guards). Union has three functions:
purchasing input (specially improved seed, fertilizers and chemicals) based on input demand
from primary cooperatives and distributes the purchased input to the respective primary
cooperatives of districts and supplying the bulk quantity of wheat to the processors. But
primary cooperatives and the union are separate actors and found in different area as already
seen in Figure 3 and 4. However, these actors work as one actor which means they share cost
and profit equally.

Brokers: The role of brokers in marketing is mainly bringing together potential buyers and
sellers and broadcast price and other information to the wholesalers. However, their role in the
case of wheat value chain is not as such significant but they play some role at the district level.
They do not usually physically handle products. Brokers obtain their reward based on the
amount they facilitate transaction usually 5 to 8 birr per quintal in the market day.

Bakeries: They transform bread flour into bread before selling to end consumers. The
surveyed bakeries bought bread flour from processers by quota and without quota. Bakeries
spent so many costs to transform bread flour in to bread such as processing cost and marketing
cost. Then sell to end consumers.

Flour wholesalers: Flour wholesalers reside in terminal markets (Addis Ababa) especially
they are found at “Merkato” market and buy the wheat value added products (flour) in bulk
directly from the processors. At present, flour wholesalers were major bread flour suppliers to
the flour retailers.

Flour retailers: They bought bread flour from the “Merkato” flour wholesaler’s then resale to
end users. Usually, flour retailers sell in small scale shop in Addis Ababa. Flour Retailers are
important actors in wheat value chain. They distribute the processed product (flour) to end
users.
 54

Consumers: Consumers are final purchasers of wheat and bread flour mostly from retailers
for consumption purpose. Wheat and bread flour consumers are individual households.

4.2.3. Enablers and facilitators

In a value chain, enablers include all chain-specific actors providing regular support services
or representing the common interest of the value chain actors. Service providers are essential
for value chain development. The enabling environment consists of the critical factors and
trends that are shaping the value chain environment and operating conditions, but that may be
agreeable to change. Enabling environment include sector specific input and equipment
providers, financial services, extension service, and market information access and
dissemination, technology suppliers and advisory service. The purpose of charting this
enabling environment is not simply to map, but to understand the trends that are affecting the
entire value chain and to examine the powers and interests that are driving change. Even
though there are many institutional supporters available in the study area, many of them micro
finance institutions, primary cooperatives, union, office of trade and industries, banks, Lanforo
office of agriculture and rural development, district administrations, district cooperative
promotion office and informal credit providers.

4.2.4. Value chain governance

The study result indicates that the whole wheat is governed by flour factories. Flour factories
usually have strict quality standards and expect their wheat suppliers to meet these standards.
Thus, flour factories fix the price based on their quality requirements while they purchase
wheat. Moreover, flour factories fix price of their value added products (bread flour) as they
distribute. Flour factories are always complaining that the traders are not providing quality
wheat while traders are blaming the processors for offering low prices. Producers are price
takers. There is no formal vertical linkage between producers and other actors along the value
chain. However, there is horizontal linkage between producers with producers, cooperatives
with union, and traders with traders. Overall, the governance of the wheat value chain is buyer
driven with minimum trust between various actors.
 55

4.3. Marketing Channels and Performance Analysis

4.3.1. Wheat market channels

Marketing channels are defined as alternative routes of product flows from producers to
consumers. The marketing channels of wheat identified below shows how commodity wheat
passes through eleven complicated routs of intermediaries. During 2016/2017 production
season, the total wheat production in Lanforo district was estimated to be 377,630 quintals. As
per the study finding, the total surplus of wheat which would follow to market through all
channels were estimated to be 1,489 quintals. From Figure 4, one can understand that the main
receivers of wheat from the producers were wholesalers, retailers, rural assemblers and
cooperatives who possess estimated percentage of 42.8%, 14.4%, 12.4% and 30%,
respectively. But consumers received only 0.4%. Based on the quantity of wheat flown, the
marketing channels were compared with each other.

The major eleven identified channels are explained below:

Channel I: Producers-Consumers
Channel II: Producers- Retailers-Consumers
Channel III: Producers-Rural assemblers-Wholesalers-Retailers-Consumers
Channel IV: Producers-Rural assemblers-Wholesalers- Flour factories -Bakeries-Consumers
Channel V: Producers-Rural assemblers-Wholesalers- Flour factories -Flour wholesalers-Flour
retailers-Consumers
Channel VI: Producers-Rural assemblers-Retailers-Consumers
Channel VII: Producers-Wholesalers- Retailers-Consumers
Channel VIII: Producers-Wholesalers- Flour factories -Bakeries-Consumers
Channel IX: Producers-Wholesalers- Flour factories -Flour wholesalers-Flour retailers-
Consumers
Channel X: Producers- primary cooperatives (Union)- Flour factories -Bakeries-Consumers
Channel XI: Producers- primary cooperatives (Union)- Flour factories -Flour wholesalers-
Flour retailers-Consumers
 56

Figure 4 Wheat marketing channel

Source: Own sketch from survey result, 2017

4.3.2 Analysis of market performance

The performance of wheat market was evaluated by considering associated costs, profits
margins and marketing margins. The major actors in wheat value chain were producers, rural
assemblers, cooperatives, wholesalers, retailers, processors, flour wholesalers, bakeries, flour
retailers and consumer. This section aims at identifying and quantifying different costs, which
are incurred by the sample farmers in production process. Table 17 shows, in the study area
sampled households incurred cost for improved variety of seed, NPS and Urea that were
1190,780 and 1088 birr per hector, respectively. Labor for (Plowing, sowing, weeding and
chemical application) and Labor for harvesting and threshing were cover the costs of1500 and
650 birr per hector, respectively. Additionally sampled producer incurred costs for rent value
of combiner harvesting and drug, rental value of land and rent value of oxen were 47.6, 382.5
and 788.3 birr per hector, respectively. Sampled households did not use chemical pesticide for
bread wheat production but they were use pesticide chemical and they incurred 120 birr per
 57

hector. The sampled households in the study area incurred 6546.4birr per quintal during the
survey period. The yield of wheat was 19.6 quintal per hectare as reported by sample wheat
producers. Finally the average production cost of bread wheat producer was 334 birr per
hector in the study area.

Table 17: Average cost of production of wheat in 2016/17 year (Birr/ha)

Production cost items Birr per ha

Improved variety of seed 1190
NPS 780
Urea 1088
Herbicide 120
Labor for (Plowing, sowing, weeding and chemical application) 1500
Labor for harvesting and threshing 650
Rent value of combiner harvesting and drug 47.6
Rental value of land 382.5
Rent value of oxen 788.3
Total production cost (Birr/ha) 6546.4
Average yield of wheat (qt/ha) 19.6
Total Production cost (Birr/qt) 334
Source Own survey result, 2017

4.3.2.1. Wheat marketing cost and margin analysis

Marketing costs are estimated to compute the share of profit captured by key actors in the
marketing chain. The analysis standardized unit of measurement into birr per quintal. Actors
incurred marketing costs for packing material, loading/unloading, labor for packing,
transportation, storage, telephone, wastage/loss, watching, brokerage, taxes and others cost.
Each of the wheat value chain actors adds value to the product as the product passes from one
actor to another. In a way, the actors change the form of the product processing, creating space
and time utility. Marketing margin used to measure the share of the final selling price that is
captured by a particular actor in the value chain. Total cost, marketing margins and marketing
cost were computed for different actors.

When the commodity flows from producers to consumers, actors in the value chain add costs.
Table 18 indicated that the producers spent more costs 35.6% than other actors. In the chain,
flour factories had the highest share of market margin (22.4%) and followed by producers
(21.2%).Regarding share of profit margin of actors in wheat value chain, producers, flour
 58

factories and flour retailers got the highest share of profit margins with respective value of
35.6%, 14.9% and 14.3% and the lowest share of profit margin got by rural assemblers (3.8%).
 59

Table 18: Average marketing costs and benefits of actors for different market agents (Birr/qt)

Cost of Producer Rural Wholesaler Retailer primary Flour Flour Flour Bakeries Sum
marketing Assembler Cooperative factories Wholesaler retailer
Purchasing - 610.5 667.5 726.3 670 791.67 1150 1250 1100 6,966
price
Production cost 334 - - - - 115 - - 103 552
Packing 10 10 8 10 8 13.5 - 13 6 78.5
Load/unloading 5.5 5 5 12 10 10 11 12 5 75.5
Labor for - 3 2 - 6 - 3 - - 14
packing
Transport 2.5 5 15 - 20 32.5 10 10 10 105
Storage - - 2 2 - - 7 3 6.9 20.9
Telephone - - 7 5 12.3 1.96 5 - 2.38 33.64
Wastage/ loss 37.5 10 3 5.5 7.5 2.5 - - - 66
Watching - - 5.5 - 9.4 5.6 8 5 0.05 33.55
Brokerage - - 6.5 - - - - - - 6.5
Tax - 12 20.5 13.5 - 51.67 14.23 10 11.8 133.7
Others cost 18.5 - 4.5 - - - 4 - - 27
Total 74 45 79 48 73.2 117.73 62.23 53 42.13 594.3
marketing cost
Total cost 408 45 79 48 73.2 232.73 62.23 53 145.13 1,146.3
Total cost (%) 35.6 3.9 6.9 4.2 6.4 20.3 5.4 4.6 12.7 100
Sale price 649 681.3 788.3 820 775 1125 1250 1400 1300 8,784
Market margin 315 70.8 120.8 93.7 105 333.33 100 150 200 1,488.6
% Share of 21.2 4.8 8 6.3 7.1 22.4 6.7 10.1 13.4 100
margin
Profit margin 241 25.8 41.8 45.7 31.8 100.6 37.8 97 54.87 676.4
% Share of 35.6 3.8 6.2 6.8 4.7 14.9 5.6 14.3 8.1 100
profit
Source: Own computation from survey results, 2017
 60

Table 19: Marketing margin for different channels (Birr/qt)

Actors Market Margin I II III IV V VI VII VIII IX X XI

(%)
Producers Selling price 700 675 610.5 610.5 610.5 610.5 660 660 660 670 670
GMMP (%) 100 82.32 74.45 46.96 43.61 74.45 80.49 50.77 47.14 51.54 47.86
Rural Purchasing price - - 610.5 610.5 610.5 610.5 - - - - -
assemblers
Selling price - - 675 675 675 700 - - - - -
GMMRA (%) - - 7.87 4.96 4.61 10.9 - - - - -
Wholesalers Purchasing price - - 675 675 675 - 660 660 660 - -
Selling price - - 765 800 800 - 765 800 800 - -
GMMW (%) - - 10.98 9.62 8.93 - 12.8 10.77 10 - -
Retailers Purchasing price - 675 765 - - 700 765 - - - -
Selling price - 820 820 - - 820 820 - - - -
GMMR (%) - 17.68 6.71 - - 14.63 6.71 - - - -
Primary Purchasing price - - - - - - - - - 670 670
Cooperatives
Selling price - - - - - - - - - 775 775
GMMPC (%) - - - - - - - - - 8.08 7.5
Flour Purchasing price - - - 800 800 - - 800 800 775 775
factories
Selling price - - - 1100 1150 - - 1100 1150 1100 1150
GMMF (%) - - - 23.08 25 - - 23.08 25 25 26.79
 61

Table 19 (Continued)
Flour Purchasing price - - - - 1150 - - - 1150 - 1150
wholesalers
Selling price - - - - 1250 - - - 1250 - 1250
GMMFW (%) - - - - 7.14 - - - 7.14 - 7.14
Bakeries Purchasing price - - - 1100 - - - 1100 - 1100 -
Selling cost - - - 1300 - - - 1300 - 1300 -
GMMB (%) - - - 15.39 - - - 15.39 - 15.39 -
Flour Purchasing cost - - - - 1250 - - - 1250 - 1250
retailers
Selling cost - - - - 1400 - - - 1400 - 1400
GMMFR (%) - - - - 10.7 - - - 10.7 - 10.7
TGMM (%) 0 17.68 25.55 53.04 56.39 25.55 19.51 49.23 52.86 48.46 52.14
Note: GMMp, GMMRA, GMMW, GMMR, GMMPC, GMMF, GMMFW, GMMB and GMMFR are gross marketing margins of
producers, rural assemblers, wholesalers, retailers, Primary cooperatives, flour factories, flour wholesalers, bakeries and flour
retailers respectively. TGMM is total gross marketing margin.
Source: Own computation from survey results, 2017
 62

Total gross marketing margin (TGMM) is highest in channel V (Producers- rural assemblers-
wholesalers- flour factories - flour wholesalers- flour retailers- consumers) which was 56.39%
and lowest in channel II (Producers- retailers- consumers) which was 17.68%. Producer’s
share (GMMp) was highest in channel II which account 82.32% from the total consumer’s
price and lowest in channel V which is 43.61%. This difference might support the theory that
as the number of marketing agents increases the producers share decreases. The reason being,
the higher number of middlemen in the commodity market, the more profit they retain for their
services whether they add value to the item or not. The results also shows that the maximum
gross marketing margin from traders was taken by processers, which accounts 26.79% of the
consumer’s price in channel XI (producers- primary cooperatives - flour factories - flour
wholesalers- flour retailers- consumers). This implies share of institutional structure in the
consumer’s price was substantial and there was a need to reduce market intermediaries to
minimize the marketing margins and thereby enhance the producer’s income. The minimum
gross market margin is also taken by rural assembler which was 4.61% and 4.96% in channel
V (Producers- rural assemblers- wholesalers- flour factories -flour wholesales- flour retailers-
consumers) and IV (Producers- rural assemblers- wholesalers- flour factories - bakeries-
consumers), respectively (Table 19).

4.4. Econometric Results

4.4.1. Factors affecting of wheat marketed surplus

Analysis of factors affecting quantity of wheat supplied to the market was found to be
important to identify factors constraining wheat supplied to market. For fitting multiple linear
regressions the hypothesized explanatory variables were checked for existence of
multicolliniarity, heteroscedasticity and endogeniety problem.

All VIF values are less than 10. This indicates absence of serious multicollinearity problem
among independent variables (Appendix Table 3). Since there is heteroscedasticity problem in
the data set, the parameter estimates of the coefficients of the independent variables cannot be
BLUE. Therefore, to overcome the problem, Robust OLS analysis with heteroscedasticity
consistent covariance matrix was estimated.
 63

When a variable is endogenous, it will be correlated with the disturbance term, hence violating
the OLS assumptions and making our OLS estimates biased. Testing for endogeneity of
quantity of wheat produced was carried out in the model using both tests Durbin-Wu-Hausman
(DWH) test and Hausman test. Endogeneity problem were found in quantity of wheat
produced. To overcome the endogeneity issue two stages least square (2SLS) method requires
valid instrumental variables. In the first stage of 2SLS method, regressions was run and
analyzed using eleven explanatory variables including instrumentals variables and the result
showed that, amount of improved wheat seed used, amount of credit used, farming experience
and education level of household head affects significantly the quantity produced of wheat
(Appendix Table 6).

The instrumental variables were amount of improved wheat seed used and amount of credit
used. Therefore, relevance tests of excluded variables were made using F statistic from the
first stage regression using estat first stage STATA command. The F test result and minimum
eigenvalue statistic for quantity production of wheat was “21.7” which is exceed the critical
values we should reject the null hypothesis presence of weak instruments hence our statistics
exceeded the critical values (Appendix Table 4).

Durbin Wu-Hausman test result also show that the null hypothesis of exogeneity of the
quantity of wheat produced was rejected at 10% probability level (χ2 =3.76 and P-value =
0.052). Hausman test result indicated that the predicted quantity of wheat produced was
rejected at 10% probability level (p= 0.063) when included as additional explanatory variable
in structural model which implies hypothesized quantity of wheat produced variable is
endogenous due to correlated with error term respectively using estat endogenous STATA
command after regress. Therefore, 2SLS method was used to address the endogeneity problem
(Appendix Table 4).

Overidentifying restrictions test was also tested using Sargan test and Basmann test using estat
overid command. The results of Sargan test and Basmann test show a P-value of 0.7140 and
0.7261, respectively and which indicated the model is correctly specified and the instruments
are valid (Appendix Table 5).
 64

As depicted in Table 20, in second stage of 2SLS method, from hypothesized ten explanatory
variables five variables livestock holding, quantity of wheat produced, lagged market price,
farming experience and frequency of extension contacts significantly influenced quantity of
wheat supplied to the market. The model was statistically significant at 1% probability level
indicating the goodness of fit of the model to explain the relationships of the hypothesized
variables. Coefficient of multiple determinations (R-squared) was used to check goodness of
fit for the regression model. Hence, R2 indicates that 85% of the variation in the quantity of
wheat supplied to market was explained by the variables included in the model. The
explanation on the effect of the significant explanatory variables is discussed below.

Wheat farming experience: The result showed that wheat farming experience of households
has significance effect10% significant level for wheat quantity supplied to market with
expected positive sign. Thus, the result implied that, as farmers experience increase by one
year, the wheat supplied to market increased by 0.067quintals, keeping others factors constant.
This means that the farmers with more experience in wheat production and marketing have
higher ability to sell more wheat produces in the market than less experience because they
have more marketing network and information. This is in line with finding of Abay (2007),
Ayelech (2011), and El et al. (2013) who illustrated as farmers experience increased the
volume of tomato, avocado and crops supplied to the market has increased, respectively.

Number of livestock: This result showed that number of livestock has significant effect 5%
significance level for wheat supplied to market with expected positive sign. Thus, the result
implied that, as farmer’s livestock ownership increased by one TLU, the amount of wheat
supplied to market is increased by 0.165quintal, keeping others factors constant. This is
because livestock are important sources of cash in rural areas to allow purchase of farm inputs
and to finance value adding activities. That are needed be increase the quantity of wheat
marketed. This is in line with the study by Sultan (2016) where livestock affects quantity of
wheat supplied to market positively and significantly.

Quantity of wheat produced: This result showed that quantity produced of wheat has
significant effect at 1% significance level for wheat supplied to market with expected positive
sign. Positive sign of coefficients indicate that farmers who produce more quantity of wheat
increase quantity of marketed supply. Thus, the result implied that, as quantity produced of
 65

wheat increase by one quintal, the amount of wheat supplied to market is increased by
0.767quintal, keeping others factors constant. Sultan (2016) also found that the amount of
wheat produced by farming households affects market supply positively and significantly.
Abraham (2013) also found that the amount produced of tomato, potato and cabbage
significantly affects quantity supplied to market positively.

Table 20: Factors influencing marketed supply of wheat (2SLS)

Variables Coefficients Robust standard Z

errors
Distance from nearest market -0.013 0.010 -1.40
Sex of households heads 0.314 0.661 0.47
Education status of households -0.139 0.419 -0.33
Farming experience 0.067* 0.039 1.70
Access to market information 0.585 0.406 1.44
Number of livestock 0.165** 0.082 2.01
Quantity of wheat produced 0.767*** 0.052 14.64
Family size 0.049 0.100 0.49
Lagged market price 0.005* 0.003 1.68
Frequency of extension contacts 0.025** 0.012 2.05
Constant -4.389 2.965 -1.48
Number of observation 137
Prob > chi2 0.0000
R-squared 0.8507
Note: Dependent variable is quantity of wheat supplied to market in quintal in 2016/2017.
“*”, “**” and “***” indicate statistical significance at 10, 5 and 1%, respectively.
Source: Own computation from survey result, 2017.

Lagged market prices: This result showed that a lagged market price has significant effect at
10% significance level for wheat supplied to market with expected positive sign. Thus, the
result implied that, as farmer’s lagged market price increased by one ETB, the amount of
wheat supplied to market is increased by 0.005quintal, keeping others factors constant. From
the time when wheat price is high in market in the previous year, farmers would be interested
to produce and supply more. The study of Hymanot (2014) argued that the lagged durum
wheat market price has direct relations with marketed supply.

Frequency of extension contacts: The result showed that wheat frequency of extension
contacts has significance effect at 5% significant level for wheat quantity supplied to market
 66

with expected positive sign. Thus, the result implied that, as frequency of extension contacts
increase by one number of contacts, the wheat supplied to market increased by 0.025quintals,
keeping others factors constant. Positive sign of the coefficient indicates that farmers who are
visited frequently increase quantity of marketed supply. Visits by extension agent improve
participation and increase the quantity of wheat supply to market. For instance, Rehima
(2006), and Rahmeto (2007) found that access to extension service on red pepper and
improved haricot bean, respectively affected marketed supply of each of the commodities
significantly and positively.

4.4.2. Determinants of market outlet choice decisions of wheat producers

The Wald test ( 2 (36) =192.95, P= 0.000) is significant at 1% level. This result implies that
the sub set of coefficients of the model is jointly significant and the explanatory power of the
factors included in the model is satisfactory. Additionally, results of likelihood ratio test in the
model (LR 2 (6) =39.872, P> 2 = 0.000) is statistically significant at 1% level, indicating
that the independence of the disturbance terms (independence of market outlets choice) is
rejected and there are significant joint correlations for two estimated coefficients across the
equations in the models. The likelihood ratio test of the null hypothesis of independence
between the market outlets decision ( 21 = 31 = 41 = 32 = 42 = 43 = 0) is significant at
1%. Therefore, the null hypothesis that all the ρ (Rho) values are jointly equal to 0 is rejected,
indicating the goodness-of-fit of the model. Hence, there are differences in market outlet
selection behavior among farmers, which are reflected in the likelihood ratio statistics.

The SML (Simulated Maximum Likelihood) estimation results ( ij) indicate the degree of
correlation between each pair of dependent variables. The 31 (correlation between the choice
for rural assembler and wholesaler outlet) and 32 (correlations between the choice for rural
assembler and retailer outlet) are negatively interdependent and significant at the 1%
probability level indicating a competitive relationship of wholesaler outlet with rural
assembler outlet and retailer outlet with rural assembler outlet (Table 22). This shows that in
wheat marketing producers used rural assembler outlets as a substitute for wholesaler outlet
and for retailer outlet in Lanforo district. The simulation results also indicate that the
probability of wheat producers choose wholesalers, retailers, rural assemblers, and
 67

cooperatives market outlets were 58%, 54%, 47% and 55%, respectively. The joint
probabilities of success or failure of the four outlet choice also suggest that households are
more likely to success to jointly choose the four outlets. The likelihood of households to
jointly choose the four outlets simultaneously is 2%.

As depicted in Table 21 below, some of the variables used in the model were significant at
more than one market outlets while some others were significant in one market outlet but not
in the other outlet. Out of nine explanatory variables included in multivariate probit model six
variables significantly affected wholesaler market outlet; one variable significantly affected
retailer outlet; four variables significantly affected rural assembler outlet; and two variables
significantly affected cooperative market outlet choices at 10, 5 and 1 percent probability
levels.

Education Level of the Households: Education level of the households has positively and
significantly affected on choosing of wholesaler and cooperative outlet at 10% and 5% levels
of significance, respectively and also negatively associated with likelihood of farmers selling
to rural assemblers at 10% level of significance. The more educated a farmer is the more likely
to sell wheat through wholesaler and cooperative but less likely to sell wheat though rural
assembler. The positive relationship between education level and selling to wholesaler and
cooperative outlet can be explained by the fact that being educated enhances the capability of
farmers in making informed decisions with regard to the choice of marketing outlets to sell
their farm produce based on the marketing margin and marketing cost. The study by Nuri
(2016) also showed that education level of bulla producers has a significant and positive effect
on the chances of choosing wholesalers and retailers’ market outlets and a negative
relationship with collector’s market outlet choice.

Access to transport facilities: This variable positively and negatively affected the likelihood
of choosing wholesaler outlet and rural assembler outlet at 1% and 1% significance level,
respectively. This result show that the more the access of market transport facility the more
likely to sell wheat through wholesaler but less likely to sell wheat to rural assembler. This
might be due to the reason that farmers who have transport facility could supply their product
to district market and sale to wholesalers directly by getting better price which might not go to
 68

the collectors. The study by Nuri (2016) also indicated that owning transport facilities
influenced the choice of wholesaler’s outlet positively and significantly.

Distance to the nearest market: Distance to the nearest market influences positively and
negatively the likelihood of choosing rural assembler outlet and wholesaler outlet at 1% and
1% significance level, respectively. Households whose residence is far from nearest market are
more likely to sell their produce to rural assembler outlet at local market and less likely to sell
to wholesaler outlet. A study by Sultan (2016) indicated that distance from the closest market
place affected wholesaler market outlet negatively and significantly. A study by Addisu (2016)
also distance to the nearest market influences positively and negatively the likelihood of
choosing retailer outlet and rural collector outlet, respectively.

Quantity of wheat supplied to market: The likelihood of choosing wholesaler positively and
significantly affected by quantity of wheat supplied to market at 1% level of significance. The
result shows households who supply large output of wheat accessed wholesaler market outlet
compared to households who supply less because of wholesaler capacity to purchase large
amount of wheat product. This is due to the fact that if the quantity of wheat to be sold is
large, households search a market outlet which buys large volume with high price. But, if the
quantity to be sold is low, farmers are not forced to search price and market information. The
study by Addisu (2016) also indicated the likelihood of choosing wholesaler positively and
significantly affected by volume supply to market.
 69

Table 21: Multivariate probit estimations for determinants of wheat producers’ outlets choice
Variables Wholesalers Retailers Rural assemblers Cooperatives
Coefficients RSE Coefficients RSE Coefficients RSE Coefficients RSE
Education Level of 0.477* 0.257 0.302 0.241 -0.497* 0.269 0.665** 0.307
Households Head
Access transport facilities 0.668*** 0.258 0.257 0.238 -0.824*** 0.246 0.182 0.303
Distance to the nearest market -0.025*** 0.007 -0.007 0.006 0.032*** 0.006 -0.005 0.007
Family size 0.012 0.071 0.029 0.061 -0.058 0.060 -0.018 0.069
Quantity supplied to market 0.113*** 0.033 0.025 0.025 -.001 0.023 0.025 0.029
Non-/Off-farm income (log) 0.002 0.028 -0.029 0.026 0.015 0.030 -0.032 0.031
Access to market information 0.070 0.249 0.094 0.242 -0.081 0.251 -0.195 0.278
Membership to cooperative -1.156*** 0.292 -0.663** 0.261 0.233 0.270 1.981*** 0.304
Frequency of extension 0.020** 0.008 0.009 0.007 -0.015* 0.008 -0.006 0.009
contact
Constant 1.114 0.801 0.400 0.726 -2.104 0.756 -0.502 0.788
Predicted probability 58% 54% 47% 55%
Joint probability (success) 0.019
Joint probability (failure) 0.004
Number of draws (#) 5
Observations 137
Log Likelihood -243.694
Wald 2 (36) 192.95
Prob > 2 0.000
Note: “*”, “**” and “***” indicate statistical significance at 10, 5 and 1%, respectively. RSE is Robust standard error,
Y1=Wholesalers, Y2=Retailers, Y3= rural Assemblers and Y4=Cooperatives
Source: Own computation from survey result, 2017.
 70

Table 22: Estimated correlation matrix

1 2 3 4
1 1.00
2 -0.125(0.132) 1.00
3 -0.400***(0.131) -0.651***(0.120) 1.00
4 -0.303( 0.233) -0.241(0.189) 0.239( 0.153) 1.00
Likelihood ratio test of 21 = 31= 41 = 32 = 42 = 43 =0
2 (6) = 39.872
Prob > 2 = 0.000
Note: “*”, “**” and “***” indicate statistical significance at 10, 5 and 1%, respectively.
Source: Own computation from survey result, 2017.

Membership to cooperative: This variable was positively and significantly associated with
choosing cooperative outlet at 1% significance level and also negatively the likelihood of
choosing wholesaler outlet and retailer outlet at 1% and at 5% significant level, respectively.
This is due to the fact that households who were members of cooperative are more likely to
deliver wheat for cooperative than other outlets.

Frequency of extension contact: Frequency of extension contact positively and negatively

influenced the likelihood of choosing wholesaler and rural assembler market outlet at 5% and
10% significance levels, respectively. Households who were visited more by extension agent
were more likely to deliver to wholesaler outlets than households who got visited less
frequently. Extension contact enables the farmer to improve production methods hence leading
to more output which in turn more likely to sell wheat to wholesaler market outlet and less
likely to sell rural assembler. This result is in line with that of Sultan (2016) who found that
frequency of extension contact positively and significantly influenced wholesales market
outlet choices as compared to assembler market outlet choices.
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5. SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1. Summary

This study was undertaken with the aim of analyzing value chain of wheat in Lanforo District
of silte zone. The specific objectives of the study include identifying wheat value chain actors
and understand the role of chain actors; examining the performance of actors in the chain;
analyzing the determinants of wheat supplied to the market in the study area and factors
affecting market outlet choice decisions of wheat producers.

The data were generated from both primary and secondary sources. The primary data were
collected through personal interviews from a total of 189 respondents (137 producers, 27
wheat traders, 6 flour factories and 19 processed product traders) by using structured and non-
structured questionnaires. Qualitative data were also collected through key informant’s
interviews. Secondary data which assisted this study were collected from district agriculture
office, office of trade and industry, each kebele offices and from published and unpublished
materials.

Descriptive statistics, gross margin and econometric model such as 2SLS models was adopted
to understand the determinants of wheat supply to market and multivariate probit model
(MVP) to analyze factors affecting market outlet choice of farmers. Out of 137 total household
heads interviewed 93.43% were male headed while 6.57% were female headed households.
The results revealed that 43.07% of sampled households were attended formal education while
56.93% of the sampled household heads are illiterate. The survey revealed that the mean land
allocate for wheat production of sampled households was 0.64 hectares.

Farmers of the study area used fertilizer, seed, herbicides and but not used pesticides. These
inputs were supplied to farmers either by office of agriculture and rural development,
cooperative/unions and private traders. The survey result indicated that all sample respondents
applied improved seed, on their wheat field. The rate of application was 71.13 kg on average
for improved seed.
 72

The major actors known in bread wheat value chain were input supplier, farmers/producers,
farmer trader/rural assemblers, retailers, wholesalers, primary cooperatives, flour factories,
flour wholesalers, bakeries, flour retailers, consumers and supportive actors. However, it is
also found that wholesalers, retailers, cooperative, consumer and rural assembler directly
purchase the wheat from the farmers. Eleven marketing channels were identified in wheat
value chain. Farmers were found to be the base/foundation of the channel. The study results
indicate that the Flour factories are the main wheat value chain governors.

TGMM is highest in channel V (Producers-rural assemblers-wholesalers- flour factories -flour

wholesalers- flour retailers- consumers) which was 56.39% and lowest in channel II
(Producers-retailers- consumers) which was 17.68%. GMMp was highest in channel II which
account 82.32% from the total consumer’s price and lowest in channel V which is 43.61%.
From traders maximum GMM was taken by processers, which accounts 26.79% of the
consumer’s price in channel XI (Producers- primary cooperatives- flour factories - flour
wholesalers- flour retailers-consumers). The minimum GMM is taken by rural assembler
which was 4.61% and 4.96 in channel V (producers- rural assemblers- wholesalers- flour
factories - flour wholesalers- flour retailers-consumers) and channel IV (Producers- rural
assemblers- wholesalers- flour factories - bakeries-consumers), respectively.

The 2SLS regression model indicated that from hypothesized ten explanatory variables, five
variables livestock holding, quantity of wheat produced, lagged market price, farming
experience and frequency of extension contacts are positively and significantly influenced
wheat supplied to the market.

The multivariate probit model applied in this study was specifically intended to investigate
factors influencing the wheat farmers in choosing marketing outlets. The correlation between
the choice for wholesaler and rural assembler outlet and correlation between the choice for
retailer and rural assembler outlet are negatively interdependent and significant at 1%
probability level indicating a competitive relationship of wholesaler outlet with rural
assembler outlet and retailer outlet with rural assembler outlet.

Wheat marketing producers used rural assembler outlet as substitute for wholesaler outlet and
rural assembler outlet as substitute for retailer outlet in Lanforo district. This study has also
 73

shown that the wheat farmers in the study area have made their choice of market outlets for
their produce based on education level of households, access to transport facilities, distance to
nearest market, quantity of wheat supply to market, membership to cooperative and frequency
of extension contact.

5.2. Conclusion
In the study area, there are many actors involved in bread wheat value chain playing different
roles. They were: input supplier, farmers/producers, farmer trader/rural assemblers, retailers,
wholesalers, primary cooperatives, flour factories, flour wholesalers, bakeries, flour retailers,
consumers and supportive actors.

Quantity of bread wheat marketed affected by five variables these are livestock holding,
quantity of wheat produced, lagged market price, farming experience and frequency of
extension contacts positively in the study area.

The likelihood of choosing Wholesaler outlet affected by six variables these are education
level of the households, access to transport facilities, quantity of wheat supply to market and
frequency of extension contact positively but distance to nearest market and membership to
cooperative negatively. The likelihood of choosing retailer outlet affected by one variable that
is membership to cooperative negatively. The likelihood of choosing rural assembler outlet
affected by four variables these are education level of the households, access to transport
facilities and frequency of extension contact negatively but distance to nearest market
positively. Finally the likelihood of choosing cooperative outlet affected by two variables
these are education level of the households and membership to cooperative positively.

5.3. Recommendations

Based on the findings of this study, the following points are recommended to improve value
chains analysis of wheat to enhance its production, productivity and marketing in the study
area.

The linkages among value chain actors were to some extent weak and informal. There was no
responsible body who is working for effective and efficient linkage between value chain
 74

actors. Therefore, redefining and integrating the existing concerns of the government, the
private sector and public institutions in promoting the development of wheat value chain is
required and also it needs to change the mindset of actors regarding benefit share through
developing a wide set of attitudes and trainings. In particular, positive attitudes toward
partnership, interaction, networking and learning need to be good among the value chain
actors.

The improvement of wheat producers bargaining power through cooperatives is the best
measure that should target increasing farmer’s share of benefit from their marketed surplus.
Strengthening horizontal and vertical linkages of the wheat value chain actors in the study area
is also an important input that improves the marketing system of the crop in the study area.

Livestock are used for purchasing agriculture inputs therefore the concerned body should be
increasing number of tropical livestock holding. It provide to increase their contributions on
quantity of wheat marketed.

Quantity of wheat produced is one of the determinant factors that affect quantity of wheat
supplied to the market. Therefore, policy should focus on increasing production and
productivity of the sector. This could be partly achieved through identifying new technologies
and management systems that would improve the production and productivity of the crops.
Creating stable demand for surplus production would also enhance farmer’s decision on wheat
production consistently.

Extension services to agriculture are crucial for improvement of production, and productivity,
it also enables flow of information and transfer of knowledge and scientific findings that will
help farmers in production of value added products. Therefore, strengthening and regular
agricultural extension services and increasing frequency of visits and give training should be
considered as important inputs for increase quantity of wheat supplied to market.

The multivariate probit result indicated that farmers have been influenced by different factors
to choose appropriate marketing outlets to sell their wheat product. The results of this study
recommend several ways in which smallholder farmers can actively market their produce. The
result shows that an adjustment in each one of the significant variables can significantly
 75

influence the probability choice of market outlets. Education level of household is

significantly affect choice of appropriate market outlet. Therefore increase the awareness of
households about the importance of education is recommended. The government should
improve road infrastructures, developing nearest wheat market and increase access of market
transport facility is important to improve the delivery of wheat to appropriate market outlet.

Quantity of wheat supply to market is significantly influence the likelihood choice of

appropriate market outlets. Therefore increasing the quantity of wheat sold for choice of
appropriate market outlets by improving productivity of wheat is recommended. To enhance
producers and traders associations farmers should apply better farming practice, proper post-
harvest handling, and produce good quality product.
 76

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package in Alaba Special Woreda, Southern Ethiopia. MSc Thesis, Haramaya
University, Haramaya, Ethiopia.
Raikes, P., Jensen, M.F. and Ponte, S. 2000. Global commodity chain analysis and the French
Filiere approach: Comparison and critique. Economy and Society, 29(3):390-417.
Rehima Mussema. 2006. Analysis of red pepper marketing: The case of Alaba and Siltie in
SNNPRS of Ethiopia. MSc Thesis, Haramaya University, Haramaya, Ethiopia.
Scarborough, V. and Kydd, J. 1992. Economic Analysis of Agricultural Markets. A manual of
marketing series 5, Chatham, UK: Natural Resource Institute, 172p.
Schmitz, H. 2005. Value Chain Analysis for Policy-Makers and Practitioners. International
Labour Organization.
Smith, L.D. 1992. Costs, Margins and Returns in Agricultural Marketing. Marketing and
Agribusiness Development Paper no. 1. FAO, University of Glasgow, Glasgow,
Scotland.
 81

Sultan Usman . 2006. Analysis of wheat value chain: The case of sinana district, Bale Zone,
Oromia Region, Ethiopia. MSc Thesis, Haramaya University, Haramaya, Ethiopia.
Thakur, D.S., Harbans, L., Thakur, D. R., Sharma, K.D. and Saini, A.S. 1997. Market supply
response and marketing problems of farmers in the Hills, Indian Journal of Agricultural
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Tura Kaso. 2015. Market Supply and Value Chain Analysis of Wheat: The Case of Tiyo and
Hetosa Districts. MSc Thesis, Jimma University, Jimma, Ethiopia.
UNIDO (United Nations Industrial Development Organization). 2009. Agro-value chain
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UNIDO (United Nations Industrial Development Organization). 2011. Ethiopian Agro-Industry
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7. APPENDICES

7.1Appendix 1: Tables

Appendix Table 1: Conversion factors used to compute adult equivalent

Labor class Age (years) Conversion factor

Children <7 0
Children 7-14 0.4
Adult male 15-64 1
Adult female 15-65 0.8
Old male Greater than 65 0.5
Old female Greater than/equal 65 0.5
Source: Storck et al., 1991 cited in Nuri, 2016.

Appendix Table 2: Conversion factors used to compute tropical livestock units (TLU)

Livestock category Conversion factor

Calf 0.25
Oxen/cow 1.00
Bull 0.75
Heifer 0.75
Horse/mules 1.10
Donkey adult 0.70
Donkey young 0.35
Goats/sheep adult 0.13
Goat/sheep young 0.06
Poultry birds 0.013
Weaned calf 0.34
Source: Storck et al., 1991 cite in Nuri, 2016.
 83

Appendix Table 3: Test for multicollinearity of explanatory variables

Variable VIF 1/VIF
Quantity of wheat produced 1.28 0.778
Lagged market price 1.13 0.884
Number of livestock 1.34 0.748
Access to market information 1.10 0.908
Frequency of extension contact 1.09 0.915
Education level of the household 1.18 0.848
Sex of the households head 1.06 0.941
Distance to nearest wheat market 1.06 0.940
Farming experience of the household 1.39 0.717
Family size 1.23 0.816
Mean VIF 1.19
Source: Own computation from survey result, 2017.

Appendix Table 4: First-stage regression summary statistics for quantity of wheat produced
Variable R-Sq. Adjusted R- Partial R-sq. F(2,125) Prob > F
sq.
Quantity produced 0.4220 0.3711 0.2574 21.6636 0.0000
Minimum eigenvalue statistic = 21.6636
Critical Values # of endogenous regressors:1
Ho: Instruments are weak # of excluded instruments:2
5% 10% 20% 30%
2SLS relative bias (not available)
10% 15% 20% 25%
2SLS Size of nominal 5% Wald test 19.93 11.59 8.75 7.25
LIML Size of nominal 5% Wald 8.68 5.33 4.42 3.92
test
Source: Own computation from survey result, 2017.

Appendix Table 5: Endogeneity and over identification test for quantity of wheat produced
Tests of endogeneity for quantity of wheat produced
Ho: variables are exogenous
Durbin (score) chi2(1)=3.76329 (p=0.0524)
Wu-Hausman F(1,125)=3.53064 (p=0.0626)
Tests of overidentifying restriction
Sargan (score) chi2(1)=0.134331 (p =0.714)
Basmann chi2(1)=0.122685 (p =0.7261)
Source: Own computation from survey result, 2017.
 84

Appendix Table 6: Factors affecting quantity of wheat produced

Quantity of wheat produced Coefficient Robust Std. Err. t

Distance to nearest market -0.006 0.023 -0.27
Sex of household head 0.353 1.283 0.28
Education level of household 2.083* 1.200 1.74
Family size 0.165 0.265 0.62
Number of livestock 0.046 0.276 0.17
Farming experience 0.244*** 0.073 3.33
Amount of credit used 0.001*** 0.0003 3.35
Lagged market price -0.004 0.007 -0.62
Amount of improved wheat seed used 0.094*** 0.026 3.64
Access to market information 0.880 0.979 0.90
Frequency of extension contact 0.040 0.033 1.21
Constant 0.225 6.800 0.03
Note: quantity of wheat produced is dependent variable.
Amount of improved wheat seed used and amount of credit used are instruments for quantity
of wheat produced.
Source: Own computation from survey result, 2017.

7.2. Appendix 2: Survey Questionnaires

A: Questionnaire for Producers

Instructions for enumerator

 Make brief introduction before starting any question, introduce yourself to the
farmers, greet them in local ways, and make clear the objective of the study.
 Please fill the interview schedule according to the farmers reply (do not put your own
feeling).
 Please ask each question clearly and patiently until the farmer gets your points.
 Please do not use technical terms and do not forget local units.
 Put the answer on the space provided.
Questionnaire number: _______________________
Name of enumerator: ___________________________
Date: ______/_________/__________
1) Area information
a) Name of Kebele: _________________
b) Distance of your residence from the nearest market center? _______walking time (minute)
 85

2) General Information of household head

a) Age of the household head: _____ years
b) Sex of the household head: (√) 1. Male 2.Female
c) Education level of the household head: (√) 1. Illiterate 2.atended formal education
d) Marital status: (√) 1. Married 2.Unmarried 3.Divorce 4.Widowed
e) Religion of the household head: 1.Muslim 2.Protestant 3.Orthodox
4. Catholic 5.other (specify) _______________
f) Family size: ____ Male ______ Female _______ Total
g) Number of working persons (15-65 ages): ___ Male ____ Female ______ Total
h) Number of children’s (< 7 ages): ____ Male ______ Female _____ Total
i) Number of children’s (7-14 ages): ____ Male ______ Female _____ Total
j) Number of elders (>65 ages): ____ Male ______ Female _____ Total
k) Experience in wheat production in years_______________
3. Information about land use (Note: 1 ha = 4 timad or 1 timad = 0.25 ha)
a) How much land do you own and/or rent in 2015?
Description Size(area) timad or hectare Value (Birr/ ha)
Owned land
Rented in land
Rented out land
Shared in land
Shared out land
Grazing land
Land cultivated for wheat
Land cultivated for other product
b) What are your major sources of income? (√) 1. Sale of crops
2. Sale of livestock or products 3. Off-farm income 4.Others (specify) _______
4. Information about livestock holding
a) Do you have livestock? (√) 1. Yes 2. No
 86

b) If yes, please specify livestock holdings of your household during the last 12 months
Type Number Number sold last year Price per animal sold Total Revenue
gained
Oxen
Cow
Bull
Heifer
Calf
Sheep
Goat
Horse
Mule
Donkey
Poultry
Bee colony
Other(specify)
5. Crop produced and input related information in 2016/17
a) Why do you produce wheat products? (√) 1: Sale 2: Consumption 3: Both
b) Production of crop and other cash crops in 2016/2017?
Type of Area in Quantity of Quantity of Quantity For Quanti Price
crop hector produced (qt) productivity consumed seed ty sold /qt
(qt/ha) (qt) (qt) (qt)
1 Bread
wheat
2 Teff
3 Maize
4 Sorghum
5 Barley
6 Pepper
11 Other
(specify)
c) Have you used agricultural inputs (fertilizer, chemicals, improved seeds etc.) for the
production of wheat? (√) 1: Yes 2: No
d) If your answer for Q. c is “No”, what was the main reason behind? ______________
e) If you have ever encountered problems with the use of improved seeds, what type? (√)
(Multiple responses are possible)
1: Seed not available 2: Seed too expensive 3: Not adaptable
4: Susceptible to diseases 5: Poor quality of seed
6: There is germination problem 7: Low quality (taste) 8: Other (specify) __
 87

f) If your answer for Q. c is “yes”, please fill below Table?

Inputs Items Amount of inputs used Cost of inputs
(birr/ha)
Land Land (Ha)
Seed Local variety(Kg/Ha)
Improved variety (Kg/Ha)
Fertilizers DAP (Kg/Ha)
Urea (Kg/Ha)
Labor Temporary Labor used (units /Ha)
Permanent labor used (units /Ha
pesticides Pesticides(Liter/Ha)
Herbicides (Liter/Ha)
Other (Specify)
Types of inputs Code number of input Sources (code)
used
a. Improved seed 1.Ag and input supply 5. NGOs
b. Fertilizers 2. private input traders (specify)
c. Pesticides/herbicides 3. Union 6. Research
d. Farm implements 4. Cooperatives center
f. Others (specify) 7. Own
saved
8. Others
(specify)
6. Off/non farm income
a) Do you have off/non- farm income? (√) 1: Yes 2: No
b) If “yes” proceed to the following Table
Type of off-farm and non-farm activities Family involvement Total
indicate the participants annual
Men Women Children
2.Handcraft (Pottery, Weaving, wood work/carpenter,
Blacksmithing)
3. Consumer goods retailing(drinking, coffee, bread,
sugar, kerosene etc)
4. Day labor works and others
Total Annual income generated from off and non-farm
7. Information about Credit services
a) Do you have access to credit? (√) 1: Yes 2: No
b) If yes, have you received credit in cash last year? (√) 1: Yes 2: No
c) If Q. b is “yes”, how much it was? ______________ Birr
d) If Q. b is “yes”, for what purpose you used? (√)(Multiple responses are possible)
1: To purchase fertilizer for wheat production
 88

2: To rent in land to extend wheat production

3: To purchase seed/seedlings of wheat 4: To purchase transporting animals
5: To pay tax 6: To purchase food grain 7: Others ___________
e) From where did you get the credit service? (√)
1: Relative 2: Bank 3: Micro finance institution
4: Friends 5: Traders 6: Peasant association/cooperatives
7: local money lenders 8: Others (specify) _______
f) If your answer for Q. b is “no”, why? (√) 1: High interest rate 2: No need
3: Lack of collateral 4. Fear of inability to repay 5. No service
6. Other (specify) ________________
g) What was the precondition to get credit? (√)
1. Membership 2.Personal guarantee 3.Land holding 4.Collateral
5. Partial payment 6.others (specify) _______________________
8) Information about Extension Services
a) Did you get extension service in relation to wheat production in 2016/2017? (√)
1: Yes 2: No
b) If “yes”, who provides the extension services? (√) 1: DAs
2: Office of agriculture 3: NGOs 4: Model farmers
5: Research centers 6: Cooperative 7: Others (specify) _______
c) What type of extension services did you get? (√) 1: Input use 2: Product storage
3: Credit use 4: Marketing of wheat product 5: Others (specify) _______
d) If you had an extension contact in 2016/2017 production year, how frequent did you meet
with them? (√) 1: Every-day 2: Every week 3: Every month 4: Sometimes
5: Twice in a year 6: once in two weeks 7: Others (specify) _____
e) If your answer for Q. a “no”, what are /were the reasons not get it? (√)
1: No service provider nearby 2: Possessed the required information
3: Availability of contact farmers 4: Do not have time to get the service
5: Others (specify) ___________________
9) Farming associated costs
a) What do you use to plough your land? (√)
1: Own Oxen 2: Rented Tractor 3: Rented oxen
 89

b) If rented tractor how much it costs you per hectare? ____________birr

c) How about if rented oxen? _______birr/hectare
Activities Sources of labor and quantity required in a year (days)
Family Hiring
Men Women Child Quantity Wage/day
Plowing(Land preparation)
Sawing
Weeding
Chemical application
Harvesting (combiner rent )
Threshing
Other
d) What is your average return of wheat? Please fill the following Table
Grain Sellin Total costs birr/qt
g price Packing Loading/ Transp Broker Weight Store Tax Other
material unloading ortation Loss rent
Whea
t
e) What are the major wheat production constraints?
10. Information about Marketing
a) Did you sell wheat last year? (√) 1: Yes 2: No
b) If your answer for Q. a” no” why didn’t you sold? _______________________________
c) If your answer for Q. a “yes”, which type of wheat is sold? (√)
1: Bread wheat 2: Durum 3: Both
Crop type Amount *To 1.wholesalers *Where 1.on the farm
sold(qt) Whom 2.retailers (place of 2.village
3.consumers sale) market
4.rural assembler 3.Woreda
Wheat 5.cooperatives market,
6. Processers 4. zonal
7. Brokers (major)
8.commetion agent market,
9.speculative
10.urban assembler
11. Others (specify)
d) To whom do you usually want to sell? _______________________ (choose from above)
e) Reason for selling to the selected actor? (√)
1: Price difference from others 2: Closeness in distance
3: Transport availability 4: Others (specify) ________
 90

f) For how many months you store wheat for sale? ________months
g) What was the price of wheat immediate after harvest in 2016/17? _________birr/100kg
h) Is there a difference in price due to differences in place of sale and the type of buyer? (√)
1: Yes 2: No
i) If yes, indicate the price when the product is sold to different actors and in different places.
Place of sale Price of wheat when sold to different actors
Consumers Retailers Wholesalers Cooperatives Assembler
On the farm/farm
gate
Village market
Woreda market
Zonal market
Collection points
j) Which type of transportation used to take wheat to the market? (√) 1: Cart
2: Pack animal 3: Vehicle 4: Others (specify) ____
k) Do you owned the type of transportation you used to supply to market place? (√)
1: Yes 2: No
l) If “no”, how much it costs you to reach market place per 100kg? _________________birr
m) Do you have long standing customer (buyer)? (√) 1: Yes 2: No
n) Do farmers sell their wheat product on credit basis? (√) 1: Yes 2: No
o) If “yes” how long do you wait for the payment? __________________
p) When do you sold last year’s wheat produce? (√)
1: Immediate after harvest 2: One month later 3: More than two months
q) If you sold immediate after harvest, why you did that? (√)
1: Better price 2: Storage problem
3: Fear of price fall 4: Bulk of production 5: Others (specify) ______
r) What do you consider to supply your wheat to the market? (√)
1: Assess price information and supply if better
2: When we need money 3: Others (specify) _______
11) Price information
a) What is the trend of Average Price per 100kg in Birr for the last years (2015/16)? ________
b) Who decides on price during selling? (√)
 91

1: Traders 2: Producers 3: Brokers 4: Negotiation of farmers with

traders 5: Set by demand and supply 6: Others (specify) ____
c) If broker/middlemen negotiates on price, who will pay for him? (√)
1: Farmer 2: Trader
d) If farmer, how much do you pay for him per quintal (Total payment per volume of sale)?
_________________ birr/qt
12. Information about value addition
a) Do you have any value addition on your wheat products? (√) 1: Yes 2: No
b) If your answer for Q. 1is yes, what are those value adding activities? (*Multiple responses
are possible)
Crop type Value adding activities* 1. Cleaning How much it costs?(Birr/qt)
Wheat 2. add drug
3. Storage
4.Transportation
5.kacha
6. Others (specify)

c) Is there price difference due to value addition? (√) 1: Yes 2: No

d) If Q. c is yes, do you estimate price difference due to value addition? ________birr/kg
13. Information about access to market information
a) Do you get market information before supplying your product to market in last year? (√)
1: Yes 2: No
b) If your answer for Q. 1 is” Yes”, from whom did you get the market information? (√)
1: DAs 2: Cooperatives 3: Friends and neighbors
4: Radio 5: Brokers 6: From trader 7: Other s (specify) ____
c) What type of information did you get? (√)
1: Price information 2: Market place information
3: Buyers information 4: Other (specify) ____________________
d) At what time interval do you get the information? (√)
1: Daily 2: Weekly 3: Monthly 4: Other (specify) _____
f) Did you know the market prices of wheat products before you sold? (√)
1: Yes 2: No
 92

14. Information about membership in Cooperatives

a) Are you a member of farmers cooperative? (√) 1: Yes 2: No
b) If yes, what is the name of cooperative? _______________
c) Which factors were/was limiting wheat productivity?
1: Disease 2: Insect pests 3: weed infestation 4: Frost and hail
5: Flooding 6: Lack of quality seed 7: Other__________

THANK YOU FOR YOUR RESPOND!!!

 93

B. Traders Questionnaire

1. General Characteristics
a) Name of trader _______________________________________
b) Region ___________District___________ Kebele _____________
c) Age __________ Sex _______ 1.Male 2.Female
d) Marital status (√) 1.Married 2.Single 3.Divorced 4.Widowed
e) Family size _______: Male _______________ Female _______________
f) Education (√) 1.Illiterate 2.Primary school (1-8)
3. Secondary school (9-12) 4. Certificate and above
g) Religion: (√) 1=Orthodox 2=Protestant 3=Catholic 4=Muslim 5=others (specify)
h) Type of business: (√) 1.wheat wholesaler 2.wheat retailers
3. Cooperatives 4. Union
5. Flour wholesaler 6. Flour retailer 7.Others (specify) _____
i) Position of respondent on the business: (√) 1.Owner 2.Spouse of owner
3. Employed manager 4.Relative of business owner
5. Others (Specify) ____________
j) How long have you been operating the business? ______________________ Years
k) Did you trade alone or in partnership? (√); 1.Alone 2. Partnership
3. Other (specify) _____________
l) If partnership, how many are you in the joint venture? ________________________
m) Total number of peoples employed in your business
Male Female Total Salary
Non family member
n) Year involved in trade (√) 1. Year round 2.When purchase price becomes low
3. During high supply 4.Other (specify) ______________
o) Initial working capital____________
p) Source Capital (√) 1. Own 2. Loan 3.Gift 4.Share 5.Others (specify) ______
q) If Q14 answer is loan from where did you get Credit; (√) 1.Relatives/family
2. Private money lenders 3.NGO (specify) 4.Friend 5.Other traders
6. Micro finance institution 7.Bank 8. Others (specify) ______________
 94

r) Reason of credit; (√) 1.To extends wheat trading 2.To purchase wheat transporting
vehicles/animals. 3. Others (specify) ______________
s) Entry barrier for trading; (√) 1.Yes 2.No
t) Type of entry barriers (√) 1.Lack of continues supply 2.lack of capital
3. Trade license 4. Others (specify).______
2. Purchasing activities
a) In which months does the demand/supply for products increases/decreases?
Oct. Nov. Dec. Jan. Feb. Mar. Apr. May. Jun. Jul. Age. S.
High
demand
Low
demand
High
supply
Low
Supply

b) From which market and supplier did you buy wheat/ flour of bread in 2017?
Purchased Purchased from Average Average Average price How
from sellers (use code) quantity quantity per Kg/weekly many
market (use 1.Farmers purchased purchased Price Price days
code) 2.wheat Retailers per market per market of at of at did you
1. Village 3.wheat wholesalers in a weekly in a weekly high low operate
2.Woreda 4.union at high at low Supply Supply in this
3.Zonal 5. Cooperatives supply supply season season market
4.Regional 6.processor season season in a
5.A.A 7.flour wholesaler weekly
6.Other 8.Flour retailer (2017)
(specify) 9.Other (specify)

c) Who set the purchase price in 2017? (√) 1. Negotiation 2. By the market
3. Your Self 4. The seller 5.office of trade and industry
6. Other (specify_______________
d) Do traders provide premium prices for their permanent suppliers? 1. Yes 2. No
e) If “yes”, how much (what percent of the price)? ________________
f) Did you use brokers to purchase wheat? (√) 1. Yes 2.No
 95

g) If brokers were used, what problems did they create? (√)

1. Cheating quality 2.Wrong price information
3. Cheating weighing 4. Charged high brokerage
5. Other (specify) ____
h) Have you ever stopped purchasing due to lack of supply? (√) 1. Yes 2. No
i) If your answer to Q. i is “Yes”, for how long? _______________________________
3. Storing
a) Do you own your own storage? 1. Yes 2. No
b) If Q. a “yes” capacity of your storage? ____________quintal at a time
c) If Q. a “no” where done you store? 1. Renting 2. Friend’s store
3. Others (specify)
d) If Q. c “renting”, rental cost per month? _____________birr/month
e) For how many months do you store products you bought? ____________months
4. Transporting
a) How do traders transport wheat? 1. Head loading
2. Pack animal’s 3.Animal cart 4.Trucks 5. Others____
b) If traders are transporting using Isuzu trucks, how many quintals can they transport in one
load? ___________Quintals
c) Indicate your average cost incurred per quintal in the trading process of wheat
Cost Components Cost incurred in birr/qt
Packing cost
Labor for packing & Sorting
Loading/unloading
Storage cost
Transport cost
Processing cost
Telephone cost
Watching and warding
License and taxes
Another cost (specify)
Total cost

5. Selling practice
 96

a) To which market and whom did you sell wheat/ flour of bread?
Where did To whom do you Average Average How many days did
you sale sell buyers quantities of price/kg you operate in the
market 1.union sold (qt) week
2.Retailers
3.Wholesalers
4.processor(flour)
5. Cooperatives
6.processor(bread)
7.flour wholesaler
8.Flour retailer
9.Other (specify)

b) Do you know the market prices in different markets (on farm, village market and other
areas) before you sold your wheat? (√) 1. Yes 2.No
c) What is your source of information? _______________________________
d) Did you have wheat trade license? (√) 1. Yes 2.No
e) Are there restrictions imposed on unlicensed wheat/ flour of bread? (√)
1. Yes 2.No
f) Are there problems on wheat marketing? (√) 1. Yes 2.No
g) If your answer to Q. f “yes”, what are the problem? _______________

THANK YOU FOR YOUR RESPOND!!!

 97

C. Questioner of flour factories

a) Total amount of wheat processed last year____________________.

b) Total demand of flour______________ last season.
c) The current plant capacity ________________ and existing gap______.
d) Fill the number of Quintals of wheat received from Lanforo district last season.
Actors in lanfuro No of qt. Price of wheat per quintal
High supply Low
supply
Farmers
Traders
Union
e) What are the key factors that affect the grades/price of your processed wheat?
f) Indicate your average cost incurred per quintal in the trading process of wheat
Cost components Cost incurred in birr/qt
Labor for packing
Loading/unloading
Transportation fee
Sorting
Telephone cost
Storage cost
Loss in transport and storage
Processing cost
Watching and warding
Other personal expenses
Taxes
Another cost (specify)
Total cost

g) What type of support did you giving for farmers?

h) What is the proportion of domestic versus imported wheat?
Where did To whom do you sell Average Average How many Average
you sale buyers quantities of price/kg days did you terms of
market 1.bakeries sold (qt) operate in the price/qt
2.flour wholesaler week sell
3.flour retailer 1= cash
4.other (specify) 2=credit
1
2
THANK YOU FOR YOUR RESPOND!!!
 98

D. Questioner of bakeries

a) From which market did you bought bread flour in 2017? _________________
b) Who are the major suppliers of flour of bread to you? (√)
1: processer 2: Flour wholesaler 3: Flour retailer
c) How many average quintal of bread flour purchased in high supply season? ___________
How many in low supply season within a month? _____________?
d) Average purchasing prices of bread flour product per 100kg in high supply season?
___________ How many in low supply season within a month? _____________?
e) What type of baked implements do you use to change flour in to bread? Give years of
purchase and the price?
Equipment’s Number Years of purchase Cost of purchase (birr/unit) Local current
selling
price(birr/unit)

f) How many birr did you spent for salt last year? ___________ birr/year
g) How many birr did you spent for light last year? ____________ birr/year
h) How many birr did you spent for oil last year? ______________ birr/year
i) How many birr did you spent for yeast last year? _____________birr/year
g) Total number of peoples employed in your business___________________ and total
salary/month
k) Indicate your average cost incurred per quintal in the trading time
Cost Components Cost incurred in birr/qt

Loading/unloading
Transportation fee
Storage cost
Telephone cost
Watching and warding
Taxes
Another cost (specify)
Total cost
l) To who are you sold your bread? _____________________________
m) How much average prices of 100g bread last year? _________________birr

THANK YOU FOR YOUR RESPOND!!!