Fitsum Senior Esay

Determinants of agricultural export: the case of Ethiopia 2010
Chapter One
Introduction
1.1 Background of the study
you may have been tired of hearing the big role of attached to the agriculture sector in Ethiopia
,the role of agriculture in economic development is, agriculture provides both food and role
material to the rest of the economy ,a growing agriculture sector provides on large market as
it expand aggregate demand ,it also provides labor force for export in the industrial sector and
is often principal source of capital for investment elsewhere in the economy. Countries like
Ethiopia export of agricultural products are important to earn foreign exchange which is critical
for import of capitals, goods and other equipment for rapid industrialization and economic
growth. (Dr Ayele)
Agriculture is the mainstay of the Ethiopian economy accounting for nearly 65%of all exports,
48%GDP and 85%of total employment of the country .the lion’s share in the total foreign
exchange earnings (about 90%of the exports) also goes to the agriculture sector, coffee,
livestock, hides and skins, and oilseeds, rank among Ethiopian chief export (world book of
Ethiopia).
Ethiopia is a price-taker in almost all of its export good, usually, the export of Ethiopia falls
short of its import which results in increasing net export of the country. Germany has always
been the most important trade partner of Ethiopia. Interims of continents, European occupies
the first position in the foreign trade of Ethiopia versus agriculture outputs. Most of the trade
balance and current account of Ethiopia have always been increasing while the net service has
almost always been positive. (Dr.Ayele kuris, 2006)
Ethiopia has to export its products to the European Union (32.8%), Japan (13.3%), Saudi
Arabia (7.7%) and USA (6.8%).in 1993/1994 Ethiopia export to and import from COMESA
Samara University Page 1

(common market for east and southern Africa) countries were 12.4% and 8.35 respectively.
Ethiopia’s current aim is thus to diversity its export and expand its existing market share in
new markets, like COMESA and the middle Easter countries (pro. Knife Abraham 2003).
1.2. Statement of the problem
There is ample evidence that unfavorable domestic term of trade for agricultural exports and
declining output are the principal contributors to the dismal performance of Ethiopia’s
traditional exports, and that these factors reflect the interaction of inappropriate domestic
pricing policies and external shocks. This situation has led the country to a number of
macroeconomic imbalances, including budget deficits and balance of payments and debt
problems. The low foreign exchange earnings constrain the importation of vital raw materials
and this induces the deterioration of the quality of both the social and economic infrastructure.
In such a situation, and given that agriculture is the main support of Ethiopia’s economy, an
increase in agricultural exports is expected to contribute significantly to the improvement of
most of these imbalances. The overall success of any strategy to increase these exports will
depend, among others, on the knowledge of what factors constrain export growth and the
responsiveness of exporters to changes in both price and non-price conditions. Accordingly, a
better understanding of the determinants of past performance, and the direction and magnitude
of the relevant elasticity, is desirable. This is particularly important considering the exhaustion
of fertile land and the fact that the industrial sector of the country is not prosperous. Also, it has
been noticed by many coffee and other agricultural commodities producer forums that the
consumption of these crops is not saturated in the world, contrary to common belief. China and
other Asian countries constitute an important source of demand for these products. In
summary, the key problem is how to greatly and urgently increase the rate of growth of
agricultural crop exports, and to make that growth sustainable.
The understanding of the responsiveness of export supply to changes in price and non-price
factors is indispensable in formulating a sound general export policy package. Where export
supply responds negatively to prices, price changes cannot bring about an increase in export

volume. With conducive policies, agricultural crop production will increase and export
earnings will be boosted.
The overall objective of the study is therefore to assess empirically the major determinants of
cocoa, coffee and banana exports in Ethiopia between 1984/85 and 2007/08. The choice of
these commodities is based on data availability and the importance of the share of each of the
products in total agricultural exports.
1.3 Objective of the study

Generally, in this study an attempt would be made to see factors that determine the
agricultural export sector in Ethiopia.
Specifically, the study has the following objectives:
 To indicate the degree of influence of agricultural exports on the
GDP ratio.
 To investigate the determination of agricultural in Ethiopia.
 To examine utilization of relevant resource that contributes
agriculture sector productivity and also affects export market.
 To forward policy that addressed the issues under the study.
1.4 Hypotheses of the study

Hypothesis 1) major impediments that led to decline in agricultural exports market growth
of the sector are caused by the erratic and inadequate rainfall and other man
made factor in area of farming system (i.e. land use).
Hypothesis 2)technical capacity building in area of international marketing ,use of improved
seeds, technology advancement positivity related to credit available to the
agriculture in countries like Ethiopia most farmer are poor.
Hypothesis 3) volume of export commodity decline when supply of some commodity
increase with outside world.
Hypothesis 4) more agriculture sector will be exported to contribute more in foreign exchange
accumulation effort of the country.

1.5 significance of the study

Indeed, this study provides desirable information to which extent factor hinder the potential
agricultural export sector of Ethiopia .furthermore, it provides a bench mark for other
researchers and to fulfill postal requirement for the bachelor of art degree.
1.6 scope and limitation of the study
1.6.1 Scope of the study

The scope of the study confined to these particular sector of export. Moreover, only major
factor that determine agriculture export will be given more weigh under the analysis of this
study. In order to make the data analysis part clear and easy I try to look the trends of some
selected agricultural products, that are, Coffee, oilseeds, hides and Skins, Pulse, fruits and
vegetables, chat, and live animals were taken to consideration.
1.6.2 Limitation of the study

There were limitations to conduct this study starting from data collection up to final report
writing. The major limitations were misplacement of secondary data or document. This would
be the cause for consuming more time and required more finance to find the data, some source
of data were costly. For example, using internet service to find the data could be costly because
of network problem and lack of internet service provision, the hot weather condition of the
region. This would be the cause for short working time. In addition, the insufficient supply of
electric power, shortage of availability if related literature about matter. The other limitation is
the use of secondary data which cannot be used as the researcher’s need and other related
limitations.

1.7 Methodology
1.7.1 Data source and method of data collection
This study was employ on secondary data by reviewing relevant documents which helps to
conduct the research /study paper efficient and effectively. The potential source of the
secondary data was from various books, historical documents, periodicals and magazines,
research work that are related to agricultural export and its determinants, annual report of NBE
(national book of Ethiopia ), customs authority and other related literature and document.
1.7.2 Data analysis

Under this study descriptive statistics were employed to analyze the data. Simple statistical
measure such as percentage, rate, ratio, and table would be used.

Chapter Two
Literature review
2.1 Theoretical literature
2.1.1 Substantial dependencies on agriculture production and primary product
exports
The basic reason for the concentration of people and production in agriculture and other
primary production activity in LDCS is the simple fact that at a lower level of income the
1stpriopriets of any reason are food, clothing and shelter. Agriculture productivity is lower not
only because of the large number of people in relation to the available load but also LDCS
agriculture is characterized by primitive technology ,poor organization ,and limited human
capital and physical inputs .
Dependency on primary export of many economics of legs developed countries, are still
oriented towards the production of primary products (agriculture, fuel, forestry, and row
materially) as opposed to second (manufacturing) and tertiary (service) activities .these
primary commodities form their main export to other nations (both developed and less
developed).
Most poor countries need to obtain foreign exchange in addition to domestic saving in order to
finance priority development projects. Although private foreign investment and foreign aid are
a significant but declining source of foreign exchange, export of primary products typically
account for a substantial fraction of the annual flow of foreign currency in the developing
world. (todoro.2009)
2.1.2 Development potential of Ethiopia’s agriculture:

Ethiopian land surface is suitable for growing of crops .however the land use pattern leaves a
late to be desire, grazing land 51%, cultivated land with perennial and annual crops 11.8%,
forest land 3.8%, bush and shrub land 8.5% and unproductively land 3.8%.what is important is
to improve the productivity of the land by using fertilization, improved seed and better farming
techniques. Given the above data, the need of water for all developmental requirements,
particularly for expanding the size of illegible land is crucial. This is imperative to meet
Ethiopian’s food needs for domestic consumption and exports. (Pro.kelif Abraham, 2005).
As in many less developed agrarian economy, the Ethiopian economy widely depends on the
agriculture sector .the sector contribute the largest share to the GDP export trade earning and
employment to some extent. the sector also produce row material for the industrial sector
despites sub-big social-economic importance due to many natural and manmade factors ,the
performance of the Ethiopian agriculture is very low by any standard .the low performance of
the sector is reflected among many other indicators ,in the low level of land and labor
productivity. A highly level of self-sufficiency gap at the national level and food in security at
the household’s level has been challenges that the country force for decades.
In 2003/04 the country has earned 5.11 billion birr in foreign currency for its export
trade .Agriculture export accounted for 82.2%of this income while 37.3 and 2.7 % of the
income generated for the export of coffee and semi-processed agricultural commodities,
respectively. Most of the exports are row products which few are semi-processed agriculture
products. the major unprocessed agricultural of export commodities include coffee,
oilseed ,pulses ,fruits and vegetables ,chat and live animal ,while leather and leather
products ,meat and sugar constitute the major semi-processed export commodities ,with the
exception of flower which has recently dined the list of export commodities .the structure of
Ethiopia’s export trade had remained unchanged for decades.(Dr. Ayele kuris,2003).
The share processed agriculture products in export earning is less than 3%and slow s how the
performance of the country ‘s export sector in terms of the processing and adding value to its
primary commodities .between 1992/03 and 2003/04, the volume of export of coffee increase
by more than double . similarly ,these has been a significant increasing the volumes of oil
seeds ,pulse, and vegetables, on the other hand the volume of export of live animal and semi-
processed products did not change much composed to the 1993/94levels ,coffee pulse ,chat and
meat export has increased by 22.6%,74.5%,49.5%and 80%respectively in the year 2003/04.the
increase in the volume of non-coffee export products might have a reaction or adjustment to

the unfavorable coffee market that occurred in the recent years .However ,there is no
corresponding increase in the price of these commodities .in general improvements in the
volume of export commodities is the main factor that improved slightly the foreign exchange
corning since the macro-economic reforms of the early 1990’s is the mainly due to on
increasing in the volume of exports rather than gain in prices (EEA.report on the Ethiopian
economy ,2003/04).
From these we can conclude that the Ethiopian export increase in its volume but not in price
elasticity because income elasticity of demand for agriculture products is low and also the
world market is not perfectly competitive, i.e. there may be some restriction in the supply and
price of the commodity .when we transfer to the ditoil or specific farm of the Ethiopian
agriculture and allied activities comprise proper agriculture (crop and livestock), forestry and
fishery.
2.1.3 Structure of Ethiopian export

As Ethiopian economy is on agrarian economy its merchandise (visible) export is dominated
by agriculture products. According to official reports, the most dominate merchandise export
items of the country is coffee. Despite the persistent decline of the share of coffee in the total
merchandise export since 1998/99, it’s still the major source of visible export earning of the
country. Over the 1998/99-2000/02 period the average annual share of coffee in merchandise
export was about 47.5%.what was the factor for declining share of coffee in merchandise
export ,during 1998/99-2000/02.the HBE (2003)data reveals that except for 2000/01 for other
years the volume of export of coffee had arising tendency.foe the year 2000/01 the volume was
increased .but the unit price of the coffee had been continuous declining during that period .this
implies that in 2000/01 the factor for declining share of coffee was the fall in volume and price
of exported coffee. For other year the cause was persistency declining price of coffee .thus, one
can say that the cause for declining share of coffee in the total merchandise export volume was
largely, the decline in its price .in 1998/99 and 1999/2000 the second position in share of total
export volume was occupied by chat with its 12.24%and 15.65%, respectively. in the 2000/01
and 2001/02, the position of chat, and leather products were reversed. While leather and leather
products occupied the second position, chat was pulsed down to third position.

This development fluctuation may be explained in terms of the fluctuation in the price and
quantity of the two export items. According to NBE (2003), in 1998/99, the quantity of chat
exported was 9.7 million K.G and its unit price was birr 45.9.in 1999/00 quantity was increased
to 15.7milion k.g. but the unit price was reduced by birr 39.5.obviousy ,the higher share of chat
in total export in 1999/00 then the 1998/99 one was due to more quantity exported .in 2001/02
while quantity exported of the chat decreased to 11.9 million kg and 4.3milion kgs its unit
price was increased to birr 42.8 and birr 45.3 respectively .this implies that reason for decaling
share of chat in 2000/01 and 2001/02 years was the fall in its quantity. The sole source reveals
that while from 1998/99-2000/01 the quantity of leather and leather products had been rising,
in 2001/02 it showed delusion, but its unit price had been fluctuating with decreasing tendency
in 1999/2000 and 200/2002. It follows that the decline in the share of leather and leather
products in 2001/02 was due to the fall in quantity and unit price .even though in 2001/02 the
contribution of the two export items to the total export was lower than in the preceding year
that of chat .thus ,the shift of the position of chat from second to third was attributable ,largely
to the decline its quantity exported .on the average ,however ,the share of chat ,and leather
products were 11.82 % and 11.05%respectively .therefore over the period 1998/99-2001/02 as
the average annual share of chat was slightly greater than that of leather and leather
products ,chat and leather and leather products were second and third contributors to total
export value .
2.1.4 Responsible factor for poor performance of agriculture

As already stated in the factor that affect agricultural sector also the determine factor for export
sector of agriculture commodities. as any production sector ,effective agriculture production
requires the availability and efficient utilization of factor of production such as
land ,labor ,capital and knowledge considering the per capital arable land availability in the
country (0.2 hector per capital ,world bank development report ,1999-20000and the number of
people employed in agriculture ,lack of land ,and labor resources couldn’t be the main factor
explaining the poor performance of Ethiopian agricultural although there in efficient utilization
certainly is. the latter two factors ,namely capital and knowledge are certain in short supply in
Ethiopia agriculture .however the shortage of capital and knowledge or the lack of from of

these two factors in sufficient quantity to Ethiopia agriculture are function of institutional
arrangements that guide-resource allocation in agriculture.(EEA annual report on vol.I).
Among the major factors behind the poor performance of Ethiopian agriculture are diminishing
farm size and substances farming ,soil degradation ,inadequate and variable rainfall, tenure in
security ,weak ,agriculture research base, and extension system ,lack of financial
service ,imperfect agriculture market and poor infrastructure. However most of the cause of the
poor performance are directly or indirectly related to policies pursued by different government
in Ethiopian over all the past three decades or so. (Annual report on the Ethiopian economy,
vou.I, 2000).
2.1.5 The country’s export policy

2.1.5.1 Pre 1974/75
During this period the foreign trade sector was governed by a relatively free market oriented
policies with the private sector mainly foreign capital occupying the lion’s share in both export
and import activities. Although import substitution was the dominant trade strategy of the
county, the concern over export diversification at least explicitly started with the last five years
development plan (1957-1961) that acknowledge the economic instability consequence of the
dependence on the two or three products.
As indicated in the plan, the volume of the country’s export, the balance of payments position
and the level of budgetary revenue depends on the price movement’s coffee, hides and skins
and oilseeds. Thus, it calls for diversified structure of exports by exploiting the numerous
livestock, the products of agro-industries such as sugar, canned meat, and leather, and minerals
to secure average sugar, canned meat, and leather and minerals to secure average annual export
growth of 9% and 11% of exports in national income (imperial government of Ethiopia, 1995).
The second five years development plan (1962-1966) placed great emphasis on structure
change and export diversification to achieve higher level of foreign exchange earnings. The
plan envisage to reduce agricultural products export share from 95.6% in 1961 to 72.3% in
1996 while that of manufactured products expected to pick up from 5.2%to 24.25 during the
same period.(imperial government of Ethiopia ,1962).

Through the establishment of government foreign trade corporation ;revision of existing

customs tariff to protect domestic products and stimulate exports ,directing credit ,premium
and subsidy policies towards the developments of production and promotion of
exports ,conclusion of series of bi-lateral and multilateral economic agreements as well as
better participation at international trade affairs ,average annual export growth rate of 11
percent was targeted .
Geographical diversification of exports of traditional export such as coffee, livestock products
and oilseeds a well as the development of non-agricultural exports was the concern of the third
five years development plan (1968-1973). The plan envisaged to reduce the share of primary
agricultural exports in the country’s total exports from 86%in 1967 to 75% 1973(imperial
government of Ethiopia, 1962).
2.1.5.2 1974/75-1990/91
The export objective of the ten years perspective plan of the dergue regime were increasing
foreign exchange earnings, reducing the dependence of the country’s export sector on limited
export markets, increasing the amount and composition of manufactured exports and
increasing the socialization of the export sector.
By emphasizing the role of the state owned export companies geographical diversification of
export towards the market of the socialist countries and neighboring African countries as well
as diversification towards manufactured products ,to a greater extent ,were the agendas of the
perspective plan .during the plan period ,average annual export growth rate of 15.4 was
targeted and state export companies were expected to play a critical role by comparing 90%of
the export business .(provision military government of socialist Ethiopia,1985).
As indicated in the plan, the respective share of traditional exports (coffee, hides, and skin,
pulse and oilseeds) as a group of as well as that of coffee was expected to be reduced from
78.1% and 55.1% in 1985 to60.1 % and 39.9% in 1991 respectively. On the other hand ,the
share of slow moving traditional exports (live animal ,meat products ,fruits and vegetables,
spices ,sugar and molasses ,natural gum, chat and others) was targeted to pick-up from 21.85 in

1985 to 57.6% in1991.new export products such as copper ,potash, marble ,

sodas ,cement ,ceramics and leather products were planned to be forwarded to the international
market starting from the second half of the perspective plan.(provisional military government
of socialist Ethiopia,1985).
2.1.5.3 Post 1990/91

The economic policy of transitional government of Ethiopia acknowledge the importance of
increasing and diversifying the country’s exports to ease foreign currency shortage along a free
market-based economic path .by minimizing the role of the state in the foreign trade sector and
by ensuring adequate private capital participation in the export business ,the government aimed
at increasing export and foreign exchange earning .to this end ,measure such as provision of
fiscal incentive to export ,the replacement of quantitative restriction with tariffs, encouraging
export-oriented investment ,minimizing administrative and bureaucratically procedures and
promotion of the use of trade information were highlighted .( transitional government of
Ethiopia,1991).
In October 1992 international monetary fund (IMF)and world bank (WB) supported structural
adjustment programme was launched whose basic role in exchange and trade system was to
strengthen foreign incentive for diversified export production there by attracting foreign
exchange flows away from parallel markets.
Pursuant to the market based economic policy and the associated structural adjustment
programme which was launched in October 1992, a bunch of policy measures targeted at
stimulating export growth and diversification have been enacted .the prominent measures in
this respect include :
 Streamlining of export licensing procedures and abandoning of the bureaucratic trade
chains.
 Devaluation of the birr and step-by-step liberalization of the foreign exchange market.
 Abolishing all taxes on export (except coffee) and subsidies to parastatal exporting
enterprise as of December 1992 and since April 2001 exporters were waived from the 6.5
percent coffee export tax.

2.2 Empirical review

2.2.1 Determining factors for the export of agricultural product in some
developing countries
Increasing agricultural productivity alone is not sufficient to reap its benefits in terms of
increased income, food security and poverty alleviation. The production of high value crops
mainly for sale is crucial for improving the life of farmers. Thus, the objective of the farmers
should not only be to increase the production of commodities but also to earn maximum returns
over costs for their production through improved and efficient transportation and marketing
facilities. Economic incentive to induce farmers to increase productivity can operate only to the
extent that the marketing system enlarging the market for their product and bring them a
reasonable price for it. farmer desire to earn larger cash incomes can be stimulated by a
marketing system that bring them cheap consumer foods and their effort to increase
productivity can succeed only to the extent that the marketing system delivers the needed
inputs. (Soen, 1968).
In light of this, marketing of agricultural products is very essential in addition to attempts to

increase productivity of peasant agriculture. One of the reasons for low-marketed surplus in
south Asia is the high consumption level of farmers .they do not have incentive s to produce
surplus due to poor marketing facilities (Soen, 1968). Another constraint determining whether
farmers sell their surplus or not is the distance from home to the market, the means of transport
and the volume of product to be sold (Ibid).
In addition to the above factors ,absences of credit facilities and lack of market information is
found to have a negative impact on agricultural exports .in India one of the defects of
agricultural marketing was found to be lack of market information particularly about
price .lack of storage facility for perishables and also lack of financial facilities mainly credit
(mamoria,1958).An increased availability of credit and marketing assistance in addition to
improved infrastructure has facilitated the development of rural marketing business in
Armenia.(world bank, 2005).

Coming to sub-Saharan Africa (SSA).the agricultural marketing system faces many number of
problems resulting mainly from the extreme poverty situation of the rapidly increasing
population .most of the farmers own a a small plot of land and production is mainly directed to
meet the subsistence needs of their families and having little or no surplus to the market. There
is lack of access to modern inputs due to the poor rural road system s which hinders
accessibility to input markets. The major factors affecting agricultural marketing in SSA are
thus weak integration in to the input and out markets, lack of credit, and infrastructure and
inadequate market information for international and internal markets (Ibid).
2.2.2 Studies on Ethiopia

Few empirical studies have been undertaken to determine factors, which affect agricultural
markets and the degree of export of agricultural products in Ethiopia. Most of the studies
concentrated on factors, which increase agriculture production. for example, the world bank
(2005) determine factors, which affect the total value of agricultural production in Ethiopia in
an economic study .a regression was undertaken using a value of agricultural production as the
dependent variable and set of explanatory variables such as land size adult labor, age
education, sex, number of oxen, percentage of area on witch pesticide was used, improving
seed use, mean rain fall altitude and average slope. The results of the study indicate that labor
and land elasticity’s in Ethiopia are zero and one respectively suggesting the lack of properly
functioning land and labor markets which prevents the optimal allocation of the two
resources(world bank, 2005).
Based on the results the World Bank recommended extensive agricultural (i.e. cultivating new
areas) agricultural intensification (i.e. using modern inputs),diversification in to non cereal
crops such as coffee ,chat ,cotton, livestock(dairy, meat),bee-keeping, medicinal plants etc. in
order to increase labor productivity finally diversifying out of agriculture which would help to
decrease the pressure on land (Ibid).
Recent studies indicate that farmers are still facing problems that obstruct their transformation
from subsistence production to market oriented production. According to chanyalow (2006)

absence of credit facilities, lack of technology, poor market infrastructure and facilities
affected the ability of farmers to purchase input market and marketing activities were identified
as major problems .the share of bank credit going to agriculture has been the lowest compared
to other sectors .the second problems identified is poor infrastructure. Infrastructure is a critical
factors affecting access to agricultural markets (Ibid).
Berhanu et.al(2002) in analyzing the sources and uses of export support services in Ethiopia
consider the supply of export support services such as external market information ,contract
making ,pre-export services including export finances, technical assistance and government
facilities as one of the missing factors responsible for the country’s export setback (Ibid).
In a grain market research demeke et.al(1998) showed that the in put market ,notably the
fertilizer market ,is characterized by uncompetitive structure and concentration by –only few
importers ,and suppliers .existing market does not encourage farmers to use new techniques
and improved inputs to increase production and to increase the availability of agricultural
products for export growth(Ibid).
2.2.3 Study done on Cameroon

The agricultural export supply responsiveness is so important that numerous empirical studies
have focused on this question over the last two decades or so. The virtually unanimous
conclusion of the studies that have investigated the determinants of export supply of
agricultural commodities is that exports in least developed countries (LDCs) are more
responsive to price variables ( Balassa, 1990; Tshibaka,1997; Gerrard et al., 1994). Price
factors are therefore crucial in stimulating agricultural exports. Studies of international trade
flows regularly concentrate on the formulation and estimation of demand relationships for
imports and exports. Supply relationships have typically been handled by assumption, the usual
practice being to assume that the export and import supply price elasticities facing any
individual country are infinite. As noted above, while this assumption may apply in the case of
the world supply of imports to a single country, it is less plausible when applied to the supply
of exports of an individual country.

This means that unless idle capacity exists in the export sector, or more generally, unless
export production is subject to constant or increasing returns to scale, it is unlikely that an
increase in the world demand for a country’s exports can be satisfied without any increase in
the producer’s price (at least in the short run). This situation has motivated us to initiate the
present work in the context of Ethiopia.
Empirical works on the determinants of export growth of agricultural products have taken
different approaches. These are studies that have used various models to explain the causality
or the dynamic adjustment between the behavior of some exogenous and endogenous variables,
and the export growth in an economy or in a group of countries. They can be divided into two
categories. The first comprises studies that have modeled export supply of agricultural
commodities in Cameroon, and the second deals with works done out of the country.
In Cameroon, there are two studies of agricultural export behavior: Amin (1996) and Tshibaka
(1997). Amin estimates the effects of exchange rate policies on prices of export crops and on
Cameroon’s agricultural export competitiveness. After calculating the nominal protection
coefficient (NPC) and the nominal protection rates (NPR) for the crops considered (cocoa,
coffee), and estimating the real exchange rate (RER) and the extent of the over-valuation,
Amin reached the following conclusions: the agricultural sector is heavily taxed through a high
level of intervention and over-valuation. The levels of real over-valuation are quite high, up to
77%, and estimates show that a 10% depreciation of RER stimulates about 1.0% increase of
cocoa relative to the price of tradeables. Amin also specified three agricultural export models
related to cocoa (Xco), coffee (Xcf) and aggregate agricultural export (Xax). The cocoa model
was as follows: X XX P PP P Y co co co n co na tp −( , / , / , )………….. 1 (1)
Where Pco is the price of cocoa export, Pn the price of non-tradable, Pna the price of
nonagricultural products, and Ytp a weighted income of major Cameroon trading partners.
Amin extended the same specification to other products, and the results from the OLS
estimation showed that overall the variables were not statistically significant at the 5% level,
although they had the right signs. The response of cocoa and coffee to foreign income was
fairly elastic for cocoa and fairly inelastic for coffee.

For a better performance of the agricultural sector and the economy as a whole, the author
recommended the removal of government interventions and an examination of the question of
depreciation of the RER. This last point should include looking at major agricultural
constraints, particularly the factors that have reduced agricultural exports.
The second study (Tshibaka, 1998) addresses the effects of external shocks and domestic
sectoral and macroeconomic policies on the structure of price incentives of major agricultural
export commodities and their repercussions on output and producer income. It concludes that
during the period 1971–1993, Cameroon’s export commodities faced a very unfavorable world
market environment as their real world terms of trade declined at an average rate of 3.1% per
year. The domestic sectoral and commodity specific policies that prevailed during this period
were also detrimental to the export crop subsector. Finally, the real exchange rate decreased
at an average annual rate of 3.9 % , suggesting an appreciation of the CFA franc. The
analysis has also shown that external factors have been the leading cause of the observed fall in
the overall level of export earnings and real producer income in Cameroon.
In addition, many studies have investigated the determinants of the agricultural sector generally
and that of export crops in particular during the last two and a half decades. In Ghana, Uganda
and Nigeria, quantitative measurements have been undertaken on agricultural export
determinants (Fosu, 1992; Adubi and Okunmadewa,1996; Kwanashie et al., 1997). In most of
these works, the model proposed allows for the estimation of a long-run response function for
exports. This approach is based on a linear regression form: X XX QW P PP PYU t t t t x f x n t
t  ………………....1 (2)
Where Xt denotes the export volume of the crop under consideration, Qt the productive
capacity of the crop industry and Wt the weather. Px /Pf denotes the crop producer price
relative to the food price, and Px / Pn the crop price relative to the non-agricultural price. Yt is
the trade weighted income of the county’s trading partners and Ut a stochastic error term
satisfying the normal classical regression assumptions. Before estimating the aggregate and
individual agricultural export supply, Fosu (1992) noted that the real exchange rate (RER) of a

domestic currency does not influence the economy’s agricultural exports directly; instead, it
influences agricultural exports through its effects on the incentive structure.
In total, four agricultural export functions were estimated using the ordinary least squares
method. First is an aggregate real agricultural export function, followed by cocoa, coffee and
sheanut export equations. At the 5% level, the lagged export variable turned out to be the only
significant variable in the aggregate model. The cocoa base capacity (Qt), cocoa to food price
ratio (Px/Pf) and the trend term are statistically significant. The coffee to food price ratio and
the foreign income are significant, but the negative sign of the response of the latter implies
that contrary to expectation, an increase in foreign income tends to precipitate falls in the
volume of coffee and cocoa exports. A 10% increase in Yt tends to generate a 13.73% fall in
the volume of coffee exports in Ghana. With respect to real exchange rate, the inelasticity of
agricultural export response to changes in this variable implies that large changes may be
needed to stimulate increases in agricultural exports.
In contrast to findings by Amin (1996), this author concluded that relying only on changes in
the RER to stimulate increased agricultural exports is not feasible. For example, 10%
depreciation (appreciation) of the RER stimulates a 1.8% and 4.42% increase (decrease) in
cocoa and coffee export volumes, respectively. Therefore, there is a need to complement RER
policy with non-price policies to improve the farm level infrastructure for efficient handling of
agriculture export commodities, and to enhance export procedures.
With respect to Nigeria, Uganda and other countries, Adubi and Okunmadewa (1996), Kyle
and Swinnen (1994), Donges and Riedel (1977), Elbadawi (1998), and Kwanashie et al. (1997)
showed large significant influence of RER on agricultural exports. But the first authors
demonstrated that the exchange rate’s volatility has a stronger negative effect on exports in
Nigeria. Lukonga (1994) examined the factors underlying the past performance of Nigeria’s
non-oil exports. OLS estimation procedures were used to obtain estimates for three
commodities, cocoa, palm kernel and rubber. Cocoa yielded statistically significant price
elasticities with the expected sign, indicating that the commodity responds positively to
changes in relative prices. Overall, the results provided evidence of and support for the

usefulness of pricing policy in eliciting export supply, denoted a weak relationship between
agricultural output and export trends, supported the view that domestic market conditions
strongly influenced export behavior, and denoted poor performance with regard to lagged
exports. This last finding, supported by Mundlak and Larson (1992), contrasts markedly with
the results of many other recent works on agricultural exports. Islam and Subramanian (1989)
emphasize the relatively insignificant role of price compared with non-price factors in
explaining export supply. In Côte d’Ivoire, Trivedi and Akiyama’s (1992) findings in
evaluating pricing policies for perennial crops vary across commodities. While coffee is highly
sensitive to price factors, cocoa is fewer prices sensitive.
Many studies found the income elasticity of demand to be low for agricultural exports. Islam
and Subramanian (1989) stress that for tropical traditional commodities, the income and
price elasticity of demand are low and almost certainly less than unity. Ghura and Grennes
(1994), however, found that primary exports are responsive to world real income. According to
these authors, the impact of a 1% increase in OECD real income growth is to increase primary
export demand by 1.6%, implying that a world recession has the potential to disrupt export
growth, thus lowering economic growth in SSA. This view is supported by other works (Love,
1982; Donges and Riedel, 1977; Balassa, 1990)
A number of studies also analysed the International Coffee Organization (ICO) impact on
world coffee quantities and prices. In this line, Bates (1997) found that under the ICO quota
system, price levels and export earnings were higher than without quotas. While the quota
system had a stabilizing effect on world prices, it reduced real export earnings for most small
exporting countries, and large producers gained.
Most small economies gained only in terms of reduced variability of export income. Unlike
Bates (1997), Bohman and Jarvis (1998) reached the conclusion that the ICO quota for Brazil
lowered the domestic price of coffee and harmed farmers in Brazil. The quota required this
country to reduce its exports, thus moving farmers down their supply curve.

Finally, there is a series of relevant studies dealing with exports, although not necessarily
agricultural exports, that it is important to review. These works start with the motivation of
assessing two crucial empirical issues involved in the debate on the role of international trade:
Is export performance responsive to government’s promotional efforts? Is a lack of demand the
ultimate obstacle to the expansion of manufactured and agricultural exports in LDCs?
Although both questions have been extensively discussed in the literature, few attempts have
been made to assess them empirically. The evidence surveyed in a sample of 12 developing
countries1 with respect to manufactured exports provides answers to the first question raised
above. Economic policy does appear to be effective in stimulating export expansion and
diversification in LDCs (Donges and Riedel, 1977). When market parameters are distorted, as
they often are in developing countries, the government must take the initiative to provide
proper incentives if the gains from trade are to be realized (Ghura and Grennes, 1994;
Love,1982; Kyle and Swinnen, 1994; Goldstein and Khan, 1978; Browne, 1982). These results
are confirmed in Nigeria in the case of agricultural exports between 1970 and 1990.
During this period, the restrictive policies of the government adversely affected the export
performance of agricultural products (Lukonga, 1994). The pervasive interventions of
governments in LDCs either directly or indirectly through import protection have been
recognized to be the most important constraint to the expansion of exports in general and
agricultural exports in particular (Bohman and Jarvis, 1998; Njinkeu, 1996; Sahn and Van
Frausum, 1994; Clements and Sjaastad, 1984).
It is owing to the indirect effects that the performance of many highly protected economies has
been uninspiring. They have responded very poorly to the shocks of recent years (wide
fluctuations in commodity markets, the two oil-price shocks, high real rate of interest, etc.)
(Clements and Sjaastad, 1984). The estimates by these authors of the proportion of protection
paid by exporters indicate that between 50 and 60% of nominal protection in Chile, Uruguay
and Argentina is shifted onto exporters.
For El Salvador, Australia and Brazil, the figure rises to 70% and to over 90% in the case of
Colombia. In the context of Cameroon, Njinkeu (1996) demonstrated that from the shift

parameter, 27% and 64% of the burden of trade policy is borne by the country’s exportable
sector in the short and long run, respectively. According to him, the poor performance of the
agricultural sector during the last two decades is partly explained by the implicit tax resulting
from protection of import-substituting sectors. The same results are found in Bond (1985),
Love (1982), Svedberg (1991), and Islam and Subramanian (1989), but the study of Bond
(1985) dealing with groups of non-oil developing countries emphasizes the imports.

Chapter three
Discussion and analysis
Analysis on the performance of agricultural trade over twenty years indicates that there was a
tendency for growth in agricultural export. It implies that as in much of developing economics
agriculture does contribute much the export while it constitution only a small amount of the
countries import. This in turn has resulted in positive net agricultural trade having a tendency
for growth especially after 1990’s as export has show much growth as compared to import with
regard to agriculture.
3. Trends of agricultural exports

3.1 Values of major export commodities in thousand of birr
The value of Ethiopian agricultural export has been fluctuating considerably during the last
decade (post 1993/94), although there has been an occasional relative increases.
Analysis of value of major commodities for the period based on the data obtained from
customs authority shows that the trends in value of the overall export is closely related to that
of the of major export commodities of Ethiopia in particular with that of coffee.

Table3 .1 Value of major exports commodity in thousand of birr (1984/85-2007/08)

Commodity
Years Coffee oilseeds Hides pulse Fruits and Chat Live
and vegetables animal
skins
1984/85 466269 15640 95408 16875 6015 15903 19173
1985/86 664790 7686 119459 12635 6027 8477 18908
1986/87 524348 9793 108291 8481 12847 28677 15646
1987/88 439181 22015 133004 16093 11787 21323 32357
1988/89 626448 11029 123528 16317 8999 7906 23539
1989/90 405103 8387 134049 35961 1149 21024 10821
1990/91 268451 3633 92206 15716 12001 20422 5169
1991/92 168324 383 58645 386 6399 5073 467
1992/93 536982 1186 134515 4050 2729 65727 1322
1993/94 718019 44187 203610 27704 6864 107972 10757
1994/95 179903 50130 373549 103287 18192 172339 7655
4
1995/96 172400 41938 309701 77224 21029 174444 770
8
1996/97 230739 74239 372253 8784 45793 199533 11201
4
1997/98 288951 314660 347699 102953 31479 272355 10562
1
1998/99 211271 271462 243052 101658 40564 444988 5724
3
1999/00 213364 255329 286459 80021 44250 618772 14137
6
2000/01 152010 269598 633752 72800 45689 510506 1506
1
2001/02 139380 278738 474426 281409 80114 418674 7132
9

2002/03 141832 395565 448003 171244 82118 497866 4129

4
2003/04 192667 712738 375844 194679 109663 758878 16454
9
2004/05 290008 1081475 584862 306274 139294 866910 110743
3
2005/06 307567 1835160 651074 321196 114598 773476 239595
2
2006/07 374174 1654707 789162 619560 142208 816802 323066
5
2007/08 489734 2037090 917534 1333631 118398 100078 376474
4 5
Source: Customs Authority 2007/08.
The above table indicates values of major agricultural commodities in each year. From the
table we can insist that there was remarkable fluctuation in the values of major agricultural
export commodities.
As can be seen from the table above the value of coffee has increased from period to and
eventually very high rising occurred. This is because of increase in the unit value of coffee in
the international market. From the table 3.1 derived the percentage share of value of the
selected products in the thousand birr out of the seven product listed in the table. We can also
observe that coffee export contribute a percentage value more than a half of the value of major
agricultural export items. It indicates that it is product that which brought the higher foreign
exchange earning in relative to the other commodities. The value of oilseeds hides and skin,
pulse fruits ,vegetables and chat show an increasing tendency from top to bottom of the year,
while live animals are somewhat fluctuate condition from 1984/85-1989/90. There is high
decline in thousand birr in 1990/91-1995/96. The condition was slightly improved in period
between 1996/97-2001/02 and 2002/03-2007/08.but their share of percentage is different. In
our country Ethiopia the following factors are responsible for the increment and decrement of
value of live animal in production and market reduce. These factors are animal health care,

climate, excessive farming, genetic factors, and lack of scientific research, subsistence
production, animal disease, inadequate infrastructure for production, transportation and market,
Year Commodity
Coffee oilseeds Hides pulse Fruits & chat Live
& skin vegetable animal
1984/85-
1989/90
12.51 152.30 40.07 153.53 -5.77 268.95 6.89
19990/91-
1995/96
108.07 686.34 179.49 627.02 72.59 542.71 63.79
1996/97-
2001/02
38.89 390.17 97.46 438.41 152.04 117.83 134.36
2001/02-
2007/08
96.71 256.79 82.73 244.87 52.68 102.92 327.16
international and domestic policy constraints are among the major bottlenecks of poor animal
production and a reducing share in the export market.
Table 3.2 Growth rate value of agricultural export.

s

Source: own computation based on data from customs authority 2007/08.
As can be seen from the table above the growth rate of value of coffee has increased from
12.51during 1984/85-1989/90 period to a very high rising in 108.07 in 1990/91-1995/96 and
there is stable growth rate in the next period 38.39in 1996/97-2001/02 and 96.71 in the period
2002/3-2007/08. This is because of increase in the unit value of coffee in the international
market. We can also observe that coffee export does not fluctuate from other products in
course growth rate. It indicates that it is product that which brought the higher foreign
exchange earning in relative to the other commodities. The value of oilseeds hides and skin,
pulse fruits, vegetables and chat show a fluctuate trends at increasing tendency in the four six
years average period of growth rate.
3.2 Volume of agricultural export
Table 3.3 volume of major export commodity (1984/85-2007/08) in metric tons

Years Commodity
coffee oilseeds Hides pulse Fruits and chat Live
and vegetables animal
skins
1984/85 17064 118 1336 1497 1068 764 341
1985/86 19147 121 1697 1528 1983 876 406
1986/87 25006 132 1874 1697 1532 954 328
1987/88 26266 157 2319 1324 1426 867 451

1988/89 30201 144 2907 1116 3191 896 360

1989/90 232550 104 2358 976 4974 267 149
1990/91 28261 169 2054 1042 5214 180 114
1991/92 32249 176 3676 1398 7194 251 120
1992/93 67375 392 5574 1527 6051 1936 312
1993/94 69160 1018 7807 9840 15893 2802 2407
1994/95 82199 1213 8387 27783 19485 4073 771
1995/96 67579 1832 7547 28969 19003 3698 483
1996/97 123166 1406 8648 30468 21834 5031 1309
1997/98 120050 6655 7852 30909 17010 5981 1224
1998/99 101232 5136 5824 29832 19895 9702 319
1999/00 116558 4313 8604 23527 20734 15684 1748
2000/01 99132 5505 12409 26861 17030 11828 214
2001/02 110347 7660 10334 109227 29696 9377 166
2002/03 126128 8280 10545 66157 25307 6260 907
2003/04 156409 10594 9401 73280 368044 13740 3141
2004/05 161061 14073 15403 121653 37907 19426 1018
2005/06 172123 16462 17250 129472 49904 24574 5864
2006/07 199078 18034 19468 34059 54635 38627 2708
2007/08 210364 19556 21696 58617 67482 54787 3045
Source: National Bank of Ethiopia 2007/2008.
Table above shows the volume of major agricultural export items in each year begging from
1984/85-2007/08. From the table we can understand that the volume of coffee in metric tons
was higher than the other agricultural export items even if there was a fluctuation in its volume
of export. There was a greater difference in volume of export half of 1980s and 1990s and
2000.the volume of exports half of 1980sand 1990s not as much as that of 2000s.The
maximum amount of coffee export was registered in the year 2007/08. And the minimum
amount of export was registered in the year 1884/85.in the year 1999/2000 the volume of
export was 116, 588. But there was a sharp declining in 2000/01 to the amount of 99,134 in
metric tons. The same analysis is given to the other agricultural export items. In the same

period the volume of export in metric tons tends to rise and decline in other period .it is to say
that there is fluctuation in the volume of export between periods.
This may be due to an increase domestic demand for consumption as a result of increasing the
number of population growth has also have on the land distribution of a country that means
land per labor ration decline. As a result more labors become employed in a small plot of land
and the marginal productivity of labor decline. This reflects that share for international market
become decline and earnings from foreign exchange become diminish. The other reason for
fluctuation of the volume of export is that shortage of rainfall, unable to used improved seeds
and fertilizer, unexpected flood, high taxes on export commodity...Etc. it means that when
there is a difference of the above variable in each year the volume of export become
fluctuated .
During 1991/92 the lower quantity of these products (i.e. coffee, oilseeds, hides and skins,
pulse, fruit and vegetable, chat and live animal) were recorded. This is as result of 1991/92 was
year of insatiability (i.e. civil war was in most intensive stage and drawing closer and closer to
the capital of country (Addis Ababa). The effect of which is reflect in the low volume of these
products and resulted in the decline of foreign exchange earning .as a result the income of a
nation of also declined.
3.2.1Trends in volume of major export items

The liberalization process undertaken by the current and present governments have brought
some benefits on the export performance of agricultural sector .according to the data obtained
from national back of Ethiopia (NBE) ,coffee exports has gradually increased after the reform
measure taken by the present and current government.
Table 3.4 Total export volume in metric tons in period of six year average, rate of growth and
percentage share.

Commodities
Year Coffee Oilseeds Hides Fruits& chat Live
& vegetables Animal
skins
1984/85- 140934 776 12491 8138 14174 4624 2032
1989/90
1990/91- 346823 30889 35045 70559 72840 12946 4207
1995/96
1996/97- 670485 306774 53671 250824 126199 57603 4980
2001/02
2002/03- 1025153 870023 93763 483235 272079 157314 12683
2007/08
Total 2183395 1208462 194970 812756 485292 232487 23902
Percentage 42.47% 23.5% 3.8% 15.8% 9.44% 4.5% 0.49%
Source: own computation based on data from National Bank of Ethiopia 2007/2008.
As to the structure of export, coffee continued to be the dominant export items accounting for
42.47% on the total exports. Followed by oilseeds 23.5 % and pulses 15.58 and distantly
followed by fruits and vegetables by 9.44%, chat 4.5%, chat 3.8 % and in the least live animal
0.49%for the periods 1984/85-2007/08, because of this other reasons i.e. considering major
contributors for export earning and volume contribution the paper discussions only the major
contributes like coffee , oilseed pulse.
Despite substantial y increase in volume, earning from this product logged behind due to the
low price of the product fetched in the world market which is in turn in attributed to product
quality and compassion from other supplies like Brazil and the increase in volume in the
preceding period attributed to the implementation of various economic measure and recovery
of the world demand .the production of the largest producer, brazil has an important role for
the coffee price harvest in brazil goes bad the coffee price increase due to an oversupply in the
world market .
Table 3.5 Growth rate volume of agricultural export.

s
Commodity
Year Coffee oilseeds Hides pulse Fruits & Chat Live
& vegetabl animal

skin e
1984/85- -
1989/90 732.83 -5.48 67.66 37.10 235.66 -52.41 -41.43
19990/91-
1995/96 38.90 419.24 155.18 781.17 209.68 759.05 707.92
1996/97-
2001/02 75.55 378.00 54.79 302.81 70.49 133.49 428.35
2001/02- -
2007/08 69.48 103.84 103.32 29.92 1314.48 1059.75 69.48
Source: own computation based on data from National Bank of Ethiopia 2007/08.
The above table shows that the volume Ethiopian major exports of agricultural of growth rate
basis since 1884/85-2007/08 by dividing in to four periods. As can be seen from the table the
rate of growth of volume of coffee increasing from the first period 732.82, in midi 90s(the
2ndperiod ) 38.90 to 75.55 in the 3 rd period and keeping the rising trends it reach 69.48 in the
last period . In the same logic the volume of oilseed, hides and skins, pulse, fruits and
vegetables, chat and live animal would be analyzed.
3.3 Highly exportable agricultural commodities of Ethiopia

1. Coffee
Coffee is the most important agricultural export of Ethiopia which brings the highest foreign
exchange earnings in the international market. But, it is share in the values as well as in the
volume was fluctuated between periods. This is as a result of plant disease, which reduces the
volume of export and then decreases the foreign exchange earnings. Political conditions and
bad weather conditions contributes for fluctuations for the export volume of coffee especially
during 1990s, because it was a time of political instability in Ethiopia.
In addition to the above mentioned very lengthy marketing channel is the additional factor that
affects export earning of coffee farmer collector supplies and exports are main participants in
marketing channel from production to export when coffee passes this long channel there may
be quality deterioration particularly at low level (from the farmer to the collector ).at the same
time except the farmers all the participant take a certain margin from price so that the final cost

would increase this result in a reduction in world competitiveness and also reduce farmers
share.
2. Hides and skin

Ethiopia has a traditionally major export of hides and skin because of its large livestock
population .through exporting this commodity it has earned 10.6% foreign export earning b/n
1991/92-2001/05.but there was also a fluctuation b/n period in its value as well as in its volume
because of different factors .one of the major reason for this fluctuation may be the outbreak of
the parasitic disease that has reduced the share of hides and skins by causing blemishes in the
finished leather.
3. Oilseeds and pulses

According to my calculation based on the data on NBE as shown in the table, oilseeds and
pulse contribute for export earnings by the amount of 10.6% and 5% respectively between the
periods 1991/92-2004/05, with pulses that were exported include lentils, haricot beans and
horn beans and oilseeds that are exported include caster seeds cotton seeds, sesame and others.
In terms of value or export earning the 1stfive year period between 1991/92-1995/96 shows
significant fluctuation in the value of pulse and oilseeds and. This situation is subject to a
number of domestic phenomena .since small holders and traders that are located far from urban
demand centers and with limited information has less market power and are subject to
exploitation due to lack of appropriate and timely information.
Except the 3rdperiod 2001/02-2004/2005 the fluctuation continues during the second period, it
is because of other factors like of institutional arrangements to enforces government plan, high
domestic demand, cost of transport, storage and handling costs and lack of marketing and
business management capacity among traders and exports have reduced the profitability of
pulse and oilseeds there by leading to sharp decline in the volume of exports in turn leads to a
decline in export earnings. Abolishing coffee price differential system as of February 2002,
allowing coffee exports to of what over price they face in the inferential markets. Eliminating

foreign exchange surrender requirements and replacing it with a conversion requirement.

(Transitional government of Ethiopia 1991).
4. Chat
Another growth sector in Ethiopia is the production and export of chat, a mild stimulate chat
can be harvested cheaply and easily throughout the year. Although much of its consumed
locally ,it has become the country ‘s third largest export earned accounts for 11.6% between
1991/92-2004/05.by the same analysis the value and volume of chat fluctuation between
periods. This is because of lack of improved infrastructural in rural parts of the country .since
the chat is perishable.
3.4 Determinants of agricultural export in Ethiopia

Based on the above discussion the value and the volume of export earning agricultural products
fluctuate based on different factors. Among the major factors that determine the agriculture
sector as well as export of agricultural commodities are: diminishing land life and subsistence
farming, soil degradation, inadequate and variable rainfall, tenure insecurity, population
growth, weak agricultural research and extension system, lack of financial services, imperfect
agricultural market and poor infrastructure. Some of the determining factors are pretty much
out of the control of policy makers. However, most are directly or indirectly related to policies
pursued by governments in this section. I will briefly examine some the constraints mentioned
above.
1. Inadequate and variable rainfall
Most of the Ethiopian agricultural production depends on rain fall. If shortage of rain fall is
happened the volume of agricultural output become decline and so does for export earnings.
The table 3.6 shows that rate rainfalls in millimeters are varies from year to year. This
variability also affects the production of agricultural sector. The weather has been better in
recent years, lack of adequate rainfall combined with variability in the onset and duration of
rain has been remained the major threat to agricultural production in Ethiopia. The fact that
Ethiopia can expect dry condition for agriculture in perhaps three years out of every ten
underscores the formidable challenge facing the agricultural sector.
Table 3.6 Rate of population growth and Rate of rainfall

Year Rate of Population Rate 0f Rainfall
1984 17.49793 7.100357
1985 17.53029 6.996224
1986 17.56236 6.951102
1987 17.59446 7.008776
1988 17.62673 7.039748
1989 17.65947 7.081288
1990 17.69279 6.905553
1991 17.72664 6.873371
1992 17.76069 7.086989
1993 17.79436 7.046734
1994 17.82702 7.000608
1995 17.85826 7.102993
1996 17.88803 7.176178
1997 17.91653 7.108326
1998 17.94408 6.861712
1999 17.97107 7.159059
2000 17.99778 7.166961
2001 18.02426 6.923629
2002 18.05047 6.962811
2003 18.07651 7.198333
2004 18.10249 7.190601
2005 18.12847 7.164514
2006 18.15447 6.997789
2007 18.19046 7.057697
Source: central statistics Authority 2008
2. Soil Degradation
Farm and grazing lands in Ethiopia have suffered from massive land degradation. The serious
shortage of good land in the highland areas coupled with population pressure have forced
cultivation of a large part of the steep hillsides, especially in areas of have land pressure. Areas
with steep and moderate slopes are highly degraded because of soil erosion. The seriousness of
the problem becomes apparent when one considered the fact that nearly 70% of the Ethiopian
highlands have slopes in excess of 30 degree. Compounding the problem of degradation on such

terrain is the current farming practice, which rarely includes terracing and other soil conservation
techniques.
3. Decline Size of farm land subsistence farming and Population
The rate growing population pressure in rural Ethiopia though time (see table 3.6) and the
limited possibility of expanding the total land area has generally led to a reduction in the per
capita land size available for farming. The very limited possibility of migration owing to the
land policy that the possession of land plots condition up on residence in the kebeles since the
land reform proclamation of the Derg, has led to periodic redistribution and the leveling down
of holidays over the past twenty five years. Accordingly, the average farm size has decline to
just 1 hector for the country as whole. It has fallen to less than 1 hector in the 7 of the 11
regions or 62% of the house holders cultivate less than 1 hector over one third (36%) of the
holdings are less than 0.5hector.
House with small plots seldom produces enough grain to meet their family’s consumption requirements.
Subsistence and survival and their overriding concern. Nearly all farm produce as well as any non farm
income obtained is devoted to food. There is no surplus for investment and for input purchase. It has
also confirmed that the quantity of fertilizer used per hectare is directly related to farm size. (Mulat et
al, 1998). A similar relation was also observed for improved seeds (Wolday, 1998).
The finding that none users of fertilizer and improved seeds cultivate smaller land than users seem
inconsistent with a general expectation that intensification is higher on smaller farms to compensate for
land shortages. It could be that farm sizes in Ethiopia have already fallen below the critical threshold,
implying that the inverse relationship between farm size and productivity (commonly reported for
Asian and other country) cannot be observed. There are indications of growing marginalization similar
to what some authors referred to as ‘agricultural involution ’ in the literature. Farmers with very small
holdings lack not only the cash to buy commercial inputs but also oxen for land preparation often they
participate in off/farm employment in order to meet their subsistence requirements.
Declining farm size would not translate into poverty provided the non-farm sector is able to provide
employment for the growing rural population. Non-farm activities provide employment in their own
right and supplement agricultural incomes. According to Ministry of labor and social affairs survey,

around 44% the rural households reported nonfarm income in 1996. Among the five region covered by
the survey, the highest rate of participation was observed in Amhara (54.2%) followed by Oromia
(41.2%), southern region (38.9%), Tigray (31.7%), and Afar (6.8%) in that order. On the average, non-
agricultural income accounted for 10% of household income. The share for Tigray and Amhara was
above the national average, 17% & 11% respectively. However, low productivity, limited market
opportunities, lack of credit, and the absence of policy and institutional support, among others have
constrained the prospect of absorbing new entrants into the labor force in the non-farm sector.
Opportunities for wage employment are limited owning to the small number of commercial farms is in
the country. Participation in the off-farm sector induced by the need to supplement low agricultural
incomes. Wage employment or non-farm activities rarely provide full-time employment in the rural
area. Rural income and employment problems as well as the declining farm size that is one of the major
causes of poverty in rural areas can only be addressed if and only if sufficient attention is given to non-
farm and wage employment. In other words, the problems of the agricultural sector can only be
addressed in tandem with the issue of industrialization.
4. Agricultural credit
Because most of small holder farmers are poor they cannot afford to purchase all the
necessarily agricultural inputs by themselves. Thus a rural credit is very important. So, if the
farmers have access to get this credit they can simply buy inputs like fertilizers and improved
seeds, and can increase volume of agricultural production and export earning capacity.
5. Availability of infrastructure
In rural parts to Ethiopia, there is infrastructure problems specially transportation and

communication. So without improving, it is very difficult to the farmers to provide their output
to the market. As a result it is a course for lower export earnings for a country. The values of
our agricultural export can be decline as result of increasing the supply of the same commodity
with the outside world.

Table 3.7 Export by mode of transport (in thousands)

Mode of 1999 2000 2001 2002
transport Value in Quantity Value in Quantity Value in Quantity Value in Quantity
000BIrr in tons ooo Birr in tons 000Birr in tons 000Birr in tons
Marine 54,3028,3 2,888.5 21,929.4 2,681.6 -- -- -- --
transport
Rail 37,497.6 24,866.9 43,558.5 29,029.0 66,644.6 30,628.3 65,962.3 28,514.5
transport
Road 210,319.9 12,897.1 281,747.8, 62,990.2 766,029.2 141,490.6 964,319.0 348,885.5
transport
Air 407,446.3 12,966.2 756,843.6 21,758.4 861,849.7 9,887.6 704,111.2 1,000,595.3
transport
Mail -- ---- 92.6 3.0 7,458.6 52.8 11,987.0 398.4
transport
Multi 21,013.0 1,164.1 2,672.1 6,628.3 230,015.7 10,749.9 133,882.2 7,072.7
mode sea
and rail
Mulit - 218,325.0 2,851,686.6 307,962.4 1,726,665.6 280,920.2 1,969,352.6 239,961.2
mode sea 2.822,405.3-
and road
Unknown -- -- 429.0 132.7 -- -- -- --
Total 3,552,990.3 273,107.7 3,958,959.5 431,185.6 3,658,663.4 473,729.4 3,849,614.3 1,625,427.6
Source: Road Transport Authority 2003/ 04 Published in CAS
According to the data, road transport has played a greater role in the foreign trade
sector by feeding merchant with exportable item and by having in land goods that are
in the list of importable. This keeps in line within the quality claimed of road
transport as being essential for feeder purposes for rail, water and air.
Chapter Four
4. Conclusion and Recommendation
4.1 Conclusion

As a general objective, this research paper assessed the major determinants of agricultural
export: in case of Ethiopia for the period post 1984/85 onwards and to investigate it
performance by using descriptive type of analysis. Since the Ethiopia export growth is
determined by development of the agricultural sector, the factor that affect this sector have a
direct repercussion on the export earning of the country.
Among those factors which reduce the export earnings are an increase in the domestic food
consumption, low infrastructural development, plant disease, long market channels, input
constraints, unavailability of credit to the poor farmers, political instability, bad weather
condition and lack of marketing and business management between trades.
In this study attempt is made to assess the determinants of export supply of seven agricultural
crops in Ethiopia: coffee, oil seed, hides and skins, pulses, fruit and vegetable, chat and live
animal. The rationale is that Ethiopia as a price-taker in the market of these crops has only one
way of increasing its export revenue and this is by increasing export supply. The trends show
that producer prices and not export prices are quite important in driving the export supply of
commodities.
An improvement of the road infrastructure will have a positive effect on export supply. An
equally, important to this is the availability of more credit to crop exporters will facilitate the
purchase of the crops from the farmers and thus increase exports. In addition to these the
market oriented Ethiopian economy has a positive effect on: market deregulation, restructuring
of productive activities and market- determined prices.
Export supply is also determined by natural factors like rainfall. The implications of this study
are that any attempts to improve the export supply of agricultural products in Ethiopia should
focus on the following: letting the farmers get a satisfactory reward for their efforts; making
more credit available to exporters (this will increasingly be at the personal initiative of the
exporters since the government is disengaging from the sector, and should not be too difficult
since these are short-term loans); improving the road network so as to facilitate the
transportation of commodities to the port of exit; and continuing the liberalization of the
agricultural export subsector.

As the export subsector gets completely liberalized, and the constraints of the international
market are removed, prices are expected to play a more important role. Ethiopia therefore may
still have to rely on coffee and oil seeds in the short and medium term for the essential part of
its agricultural export revenue.
4.2 Recommendation
 Since most of exportable items of the county are primary agricultural commodities and
since they are expected to boost the growth of industrial sector via providing foreign exchange
to input capital goods required and through providing row material, investment towards
improvement of the sector should be emphasized with this respect, research and development
activities, which participate farmers, should be extensively done investment on irrigation

scheme and infrastructures road, storage facilities, and information access should also be
improved.
 The fact that the real exchange rate is a significant determinant of the country’s
agricultural export in the long run implying that enhanced competitiveness is possible with
exchange rate liberalization efforts and then exporter should be qualitatively and quantitatively
responsive or to exploit the opportunity created by the exchange rate reforms.
 Government should strengthen the implementation process of export supportive strategies

and should amend them along the changing economic environment.
 It is also very easy to exploit potential resource such as live animals and livestock
products in nomadic area through expanding market access strengthen and smoothing market
channel.
Bibliography
1. ABBOT.C. (1993): Agricultural and food marketing in developing countries: Cambridge
University.
2. Ayele kuris (Dr. 2003); Ethiopian Economy. A.A
3. Ethiopian Economic Association (2007/08); Annual report on the Ethiopian Economy;
Vol. 1 A.A

4. Hayami. Y and Ruttan, V.W (19710), Agricultural development an international

perspective. The John Hopkins Press.
5. Hyman W. David (1997). Macro Economics, Hoftman Press Inc.
6. Jhingan MI (2001); The Economics of Development and Planning (5th edition). Vrinda
Publication, (P) LTD.
7. Knife Abraham (2003); the Dynamics of Ethiopian Economy Vol .1 No 12
8. Memorial, C.B (1958); Agricultural Problems of Indian; Low Printing Press. Allahabad.
9. Mosher, A (1966); Getting Agricultural Moving essential development and
Modernization. Sowers printers. USA.
10. National Bank of Ethiopia; Annual Report (2007/08), A.A.
11. Ray D. (1998); Development Economics; Oxford University Press.
12. Soen K (1968); Prospective for Agricultural Development in Indonesia. Centers of
Agricultural Publishing and Documentation, Washington.
13. Todaro M, (2009); Economic Development (10th edition); Pearson Education
Limited; New York.
14. Ministry of labor and social affairs, rural non-farm activity and agricultural wage
employment, Addis Ababa, 1996.
APPENDEX-1- The table shows that the growth rate of the value of agricultural export
commodities of Ethiopia to the rest of the world.
Table -1-
Commodity
Years Coffee oilseeds Hides pulse Fruits and Chat Live

and skins vegetables animal

1984/85 --- --- --- --- --- --- ---
1985/86 42.5765 -50.8568 25.20858 -25.1259 0.199501 -46.6956 -1.38215
1986/87 -21.1258 27.41348 -9.34881 -32.8769 113.1575 238.2918 -17.252
1987/88 -16.2425 124.8034 22.82092 89.75357 -8.25095 -25.6442 106.8069
1988/89 42.64005 -49.9023 -7.1246 1.39191 -23.6532 -62.9227 -27.2522
1989/90 -35.3333 -23.955 8.517097 120.3898 -87.2319 165.9246 -54.0295
1990/91 -33.7327 -56.683 -31.2147 -56.2971 944.4735 -2.86339 -52.2318
1991/92 -37.2981 -89.4577 -36.3978 -97.5439 -46.6794 -75.1591 -90.9654
1992/93 219.0169 209.6606 129.3716 949.2228 -57.3527 1195.624 183.0835
1993/94 33.71379 3625.717 51.36602 584.0494 151.5207 64.27343 713.6914
1994/95 150.5552 13.44966 83.46299 272.8234 165.035 59.61453 -28.837
1995/96 -4.17035 -16.3415 -17.0923 -25.2336 15.59477 1.22143 -89.9412
1996/97 33.83894 77.02084 20.19755 -88.6253 117.7612 14.38227 1354.675
1997/98 25.22833 323.8473 -6.59605 1072.051 -31.2581 36.49622 -5.70485
1998/99 -26.8834 -13.7285 -30.097 -1.25786 28.86051 63.38529 -45.8057
1999/00 0.990811 -5.943 17.85914 -21.2841 9.086875 39.05364 146.9776
2000/01 -28.7557 5.588476 121.2365 -9.02388 3.251977 -17.4969 -89.3471
2001/02 -8.30813 3.390233 -25.1401 286.5508 75.34636 -17.9884 373.5724
2002/03 1.758849 41.91284 -5.56947 -39.1476 2.501435 18.91496 -42.106
2003/04 35.84195 80.18227 -16.1068 13.68515 33.54319 52.42615 298.4984
2004/05 50.52238 51.73528 55.61297 57.32257 27.02005 14.23575 573.0461
2005/06 6.05462 69.69047 11.32096 4.872108 -17.7294 -10.7778 116.3523
2006/07 21.65618 -9.83309 21.20926 92.89157 24.09292 5.601467 34.83837
2007/08 30.88396 23.1088 16.26688 115.2545 -16.7431 22.5248 16.53161
Source: own computation based on data from customs authority 2007/08.
APPENDEX-2- The table below portrays that the growth rate of the volume of agricultural
export commodities of Ethiopia to the rest of the world.
Table -2-

Years Commodity
coffee oilseeds Hides Pulse Fruits chat Live
and and animal
skins vegetabl
es
1984/8 --- --- --- --- --- --- ---
5
1985/8 12.2069 2.54237 27.0209 2.07080 14.6596 19.0615
6 9 3 6 8 85.67416 9 8
1986/8 30.6000 9.09090 10.4301 11.0602 -
7 9 9 7 1 -22.7433 8.90411 19.2118
1987/8 5.03879 18.9393
8 1 9 23.746 -21.98 -6.91906 -9.1195 37.5
1988/8 14.9813 - 25.3557 3.34486 -
9 4 8.28025 6 -15.71 123.7728 7 20.1774
1989/9 670.007 - - - - -
0 6 27.7778 18.8854 12.5448 55.8759 70.2009 58.6111
1990/9 - - 6.76229 - -
1 87.8473 62.5 12.8923 5 4.82509 32.5843 23.4899
1991/9 14.1113 4.14201 78.9678 34.1650 39.4444 5.26315
2 2 2 7 7 37.97468 4 8
1992/9 108.921 122.727 51.6322 9.22746 671.314
3 2 3 1 8 -15.8882 7 160
1993/9 2.64935 159.693 544.400 671.474
4 1 9 40.061 8 162.6508 44.7314 4
1994/9 18.8533 19.1552 182.347 45.3604 -
5 8 1 7.42923 6 22.60115 6 67.9684
1995/9 - - 4.26879 - -
6 17.7861 51.0305 10.0155 7 -2.4737 9.20697 37.3541
1996/9 82.2548 - 14.5885 5.17449 36.0465 171.014
7 4 23.2533 8 7 14.89765 1 5
1997/9 - 373.328 - 18.8829 -
8 2.52992 6 9.20444 1.44742 -22.094 3 6.49351
1998/9 - - - - 62.2136 -
9 15.6751 22.8249 25.8278 3.48442 16.96061 8 73.9379
1999/0 15.1394 - 47.7335 61.6573 447.962
0 8 16.0241 2 -21.135 4.21714 9 4
2000/0 - 27.6373 44.2236 14.1709 - -
1 14.9505 8 2 5 -17.8644 24.5856 87.7574
2001/0 11.3132 39.1462 - 306.637 74.37463 -20.722 -

2 3 16.7217 9 22.4299
2002/0 14.3012 8.09399 2.04180 - - 446.385
3 5 5 4 39.4316 -14.7798 33.2409 5
2003/0 24.0081 27.9468 - 10.7668 119.488 246.306
4 5 6 10.8487 1 1354.317 8 5
2004/0 2.97425 32.8393 63.8442 66.0111 41.3828 -
5 3 4 7 9 -89.7004 2 67.5899
2005/0 6.86820 16.9757 11.9911 6.42729 26.5005 476.031
6 5 7 7 7 31.64851 7 4
2006/0 15.6603 9.54926 12.8579 - 57.1864 -
7 1 5 7 73.6939 9.480202 6 53.8199
2007/0 5.66913 8.43961 11.4444 72.1042 41.8360 12.4446
8 5 4 2 9 23.51423 2 1
Source: Own computation based on data from National Bank of Ethiopia 2007/08.

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Determinants of agricultural export: the case of Ethiopia 2010

1.1 Background of the study

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1.2. Statement of the problem

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1.3 Objective of the study

1.4 Hypotheses of the study

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1.5 significance of the study

1.6 scope and limitation of the study

1.6.1 Scope of the study

1.6.2 Limitation of the study

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1.7.2 Data analysis

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2.1.2 Development potential of Ethiopia’s agriculture:

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2.1.3 Structure of Ethiopian export

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2.1.4 Responsible factor for poor performance of agriculture

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2.1.5 The country’s export policy

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Through the establishment of government foreign trade corporation ;revision of existing

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1985 to 57.6% in1991.new export products such as copper ,potash, marble ,

2.1.5.3 Post 1990/91

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2.2 Empirical review

In light of this, marketing of agricultural products is very essential in addition to attempts to

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2.2.2 Studies on Ethiopia

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2.2.3 Study done on Cameroon

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3. Trends of agricultural exports

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Table3 .1 Value of major exports commodity in thousand of birr (1984/85-2007/08)

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2002/03 141832 395565 448003 171244 82118 497866 4129

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Table 3.2 Growth rate value of agricultural export.

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Source: own computation based on data from customs authority 2007/08.

3.2 Volume of agricultural export

Table 3.3 volume of major export commodity (1984/85-2007/08) in metric tons

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1988/89 30201 144 2907 1116 3191 896 360

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3.2.1Trends in volume of major export items

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Table 3.5 Growth rate volume of agricultural export.

& vegetabl animal

3.3 Highly exportable agricultural commodities of Ethiopia

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2. Hides and skin

3. Oilseeds and pulses

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