ECONOMIC ANALYSIS OF SPATIAL INTEGRATION OF PULSES MARKET: A CASE OF SELECTED PULSE MARKETS IN ETHIOPIA

ABSTRACT
Small import-dependent countries in the world, especially in Africa, are deeply affected by the food insecurity and economic crises. To solve this problem, the Government of Ethiopia has adopted a different strategy in agricultural sector by focusing on how to increase the volume of production. However, marketing aspect has been given less attention. In order to improve the market efficiency, significant numbers of empirical studies have been conducted on market integration but they focused mainly on cereal market while pulse market has not been given adequate attention. This study was conducted to investigate the market integration level of pulse market in Ethiopia. The study selected two major pulse group in the country (Horse beans and Chickpeas) based on their volume of production. Average monthly prices (Birr/100 Kg) from January 2003 to December 2013 were obtained from Ethiopian Grain Trade Enterprise (EGTE). The analysis was done using Co-integration model, Error Correction model and Granger Causality model. STATA 11 analysis software was used to process the data. Co integration test results indicate that, all the selected markets are co-integrated at 1% significant level. However, Addis Ababa- Desse for the case of Horse beans and Addis Ababa-Gonder for Chickpeas markets have strong integration and takes 43% and 40% period to adjust towards the long run equilibrium respectively. Looking at the causal relationship, Addis Ababa-Desse, Addis Ababa- Adama, Desse-Diredawa markets are unidirectional while Desse-Adama is bidirectional for Horse beans. For Chickpeas, all the selected markets do not Granger Cause each other in both directions except between Diredawa-Adama which were unidirectional. The finding of the study implies that, any agricultural marketing policy should realise the nature of the markets and need to consider their relationship. The results suggest that geographical difference, distance and volume of production are important factors affecting spatial market integration. The study recommends government intervention in developing infrastructure, improving access to information and strengthening legal enforcement rules especially at the border of the country can reduce the trade barriers existing between markets. A modern way of trading, such as letting commodities to be traded in Ethiopia Commodity Exchange to assure market players the security they need and increase the benefits of all market actors who participate in pulse market so that the level of market integration can improve.

CHAPTER ONE 
INTRODUCTION 
Background of the Study 
Small import-dependent countries in the world, especially in Africa, are deeply affected by the food insecurity and economic crises. Indeed, many countries are still in crisis in different parts of the world, particularly the Horn of Africa. These crises are challenging most countries efforts to achieve the Millennium Development Goal (MDG) of reducing the proportion of people who suffer from hunger. Even if the MDGs are to be achieved by 2015 some 600 million people in developing countries will still be undernourished. Having 600 million human beings suffering from hunger on a daily basis is never acceptable. The entire international community must act today to forcefully and responsibly banish food insecurity from the planet. Investment in agriculture and improving resilience among farmers remain the key to providing sustained access to food for all and reducing vulnerability to food insecurity and natural disasters such as drought. Improved seeds and farm management techniques, as well as irrigation and fertilizer that sustainably increase productivity and reduce production risk must be delivered to farmers, especially smallholders by both the private and the public sector. On the same way there is a need to focus on market efficiency and performance to sustainable development and growth (FAO, 2011). 

More than 80% of the population in the Ethiopia lives in rural areas and their main source of income is agriculture. Agriculture accounts for 45% of the Gross Domestic Product (GDP), employs 85% of the labour force and generates 90% of the export earnings (MoARD, 2010). However, Ethiopian farming is largely characterised by peasant holders growing food mainly for family consumption thus leaving little for commercial purposes. This inadequate volume of production is mainly due to the tardy progress in farming methods and scattered pieces of land holdings. Most of the farm land is cultivated by small scale farmers with traditional way of agricultural practicing. 

The diverse climate of the country and the multiple utilizations of crops have prompted the vast majority of agricultural holders to grow various temporary and permanent crops. The major food crops that are commonly grown by the majority of peasant holders are cereals, pulses, oilseeds, vegetables, root crops, fruit crops, stimulant crops and sugar cane. Stimulant crops consist of chat, coffee and hops. These major food crops are produced in almost all regions of the country in spite of the variation in volume of production across the regions. The variation may be attributed to the extent of area devoted to each crop type, weather change and a shift in preference for the crops grown (CSA, 2011). 

The Government of Ethiopia has implemented a five year (2005/06-2009/10) strategic framework, Plan for Accelerated and Sustained Development to End Poverty (PASDEP), which guides overall development activities in the country. This development plan is continuation of the first Phase of Poverty Reduction Strategy Poverty Reduction Program (PRSP) process which began under the Sustainable Development and Poverty Reduction Program (SDPRP), which covered a period of three years, 2002/03-2004/05. PASDEP is one of the medium term plans for the realization of the government’s vision to transform the nation into a middle income country and achieve Millennium Development Goals (MDGs) (MoFED, 2006). 

The Government has embarked massively on the transformation of the economy by developing a five-year (2010-2015) Growth and Transformation document which is a medium term strategic framework for the five-year period. The plan has been prepared considering growth constraining factors and lessons drawn from the implementation of PASDEP, country’s long-term vision, and external shocks. The major goals of the Growth and Transformation Plan (GTP) are achieving Ethiopia’s long-term vision, sustain rapid and broad based growth paths witnessed during the past several years, and eventually end poverty (MoFED, 2006). 

The Agricultural Development Led Industrialization (ADLI) Strategy is among the pillars of SDPRP. In order to accelerate and expand industrial development and increase overall economic growth, it is essential to develop the agricultural sector which is crucial to ensure the provision of inputs for industries as well as to fulfil food requirements. Furthermore, the sector is the subdivision of the economy where the major human power required for development is engaged in addition to being the foundation for major growth in value added and the source of foreign exchange earned. For stabilization of current agricultural commodity prices fluctuation and improving grain marketing system will address the problems of high seasonal price variability (MoFED, 2006). 

Among the agricultural commodities Pulse is the third- largest export crop behind coffee and oil seed, and rakes in more than USD 232.5 million annually. It contributes to small holder income as a higher value crop than cereals and a cost effective source of protein that accounts for approximately 15% of protein intake to their diet (Shahidur et al., 2010). For the successful implementation of these strategies and plans, a study of agricultural price dynamics is an important input. Knowing about the relationship between spatially separated market mostly producing and consuming market of agricultural produces can assist the government to involve more effective policy intervention. 

Pulse in Ethiopia: Overview of Planted land and Production 
Pulse have been cultivated and consumed in large quantities in Ethiopia for many years. Pulse crops are important components of crop production in Ethiopia's smallholder’s agriculture, providing an economic advantage to small farm holdings as an alternative source of protein, cash income, and food security (ECX, 2012). 

There are twelve pulse species grown in the country consisting of Horse beans (Vicia faba L.), Field pea (Pisum sativum L.), Chickpeas (Cicer arietinum L.), Lentil (Lens cultinaris Medik.), Grass pea (Lathyrus sativus L.), Fenugreek (Trigonella foenum-graecum L.) and Lupine (Lupinus albus L.) which are categorized as highland pulses and grown in the cooler highlands. Conversely, Haricot bean (Phaseolus vulgaris L.), Soya bean (Glycine max L.), Cowpea (Vigna unguiculata L.), Pigeon pea (Cajanus cajan L.) and Mung beans are predominantly grown in the warmer and low land parts of the country (Shahidur et al., 2010). 

The major varieties of pulses grown in Ethiopia are: Horse beans, Chickpeas, Haricot beans, Lentils, Dry peas and Vetches. Although the availability of pulses has never been in surplus in the subsistence farming community, recently it has been observed that the production and supply of some pulses is increasing due to the demand increase both in local and international markets (Shahidur et al., 2010). These crops have been used for many years in crop rotation practices. Of the country’s total area coverage in hectare grain crops consists 91% and 13.8% was under pulses (Figure 1). Of the country’s total area under pulses, 31% and 14% were planted to Horse beans and Chickpeas, respectively (CSA, 2013), as indicated in Table 1.

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Item Type: Kenyan Project Material  |  Attribute: 74 pages  |  Chapters: 1-5
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