Ethiopia's Wheat Value Chain
Wheat plays a leading role in both the diet and the economy of Ethiopia. According to research conducted by IFPRI for the Ethiopian Agricultural Transformation Agency (ATA), wheat is the fourth most widely grown crop in the country (after teff, maize, and sorghum) and ranks fourth (tied with teff) in terms of the gross value of production. In addition, wheat and wheat products make up 14 percent of the country’s total caloric intake. Ethiopia also imports a significant amount of wheat for domestic consumption – between 25 and 35 percent.
The combination of growing demand for wheat and the cost of wheat imports means that Ethiopia needs to increase its domestic wheat productivity and improve its wheat marketing efficiency. As part of these efforts, the Ethiopian ATA commissioned a study of the wheat value chain from production to consumption in order to determine bottlenecks and nodes for potential improvement. Using a range of data, including household surveys, statistical databases, and interviews with key stakeholders, the study specifically examines nine questions:
- What proportion of wheat production is marketed by type of farm and by location?
- What are the major routes to market, from surplus producers to consumers?
- What is the volume and value of these channels and how does it vary by season?
- What are the margins for smallholders and other value chain actors?
- What is the status of the wheat market infrastructure in terms of storage, processing, wholesaling, and retailing?
- Who are the major market actors in the marketing of wheat?
- What are the main challenges in increasing marketable surpluses, as well as expanding the market infrastructure to handle larger volumes?
- What are the main challenges to achieving competitive regional markets and becoming competitive on international markets?
The study utilizes a combination of econometric analysis, linear programming, spatial analysis, cost-benefit analysis, and geographic information systems (GIS) and looks at: patterns and trends of wheat production in Ethiopia, the domestic wheat marketing channel (including transport, storage, and milling), the role of international trade (especially wheat imports), patterns of wheat consumption, and the benefits, costs, and distributional impacts of Ethiopia’s current wheat subsidy policy.
The study provides a range of findings and some important recommendations for policymakers to address the constraints and opportunities presented by Ethiopia’s wheat value chain (for full results, see the “Summary and Recommendations” section of the full report). One of the first and most critical findings relates to the data available on Ethiopia’s wheat production and consumption. According to the authors, there exist large discrepancies between production and consumption estimates. For example, the estimated volume of wheat production and imports is 1.6 million tonnes larger than what is accounted for by human consumption, seed, feed, industrial uses, and losses. In addition, official yield estimates are 15-30 percent higher than estimates from other sources. This suggests that more reliable data and analysis are needed to guide future policymaking; the report emphasizes that the government of Ethiopia should invest in further statistical analysis to determine the cause of these data discrepancies.
The report also finds that less than 6 percent of Ethiopia’s land planted to wheat is planted with improved seed; shortage of certified improved seed is one underlying factor behind the low use of improved varieties. Many of Ethiopia’s most widely used wheat varieties are highly susceptible to diseases like yellow rust and stem rust; increasing the availability of and access to improved seed varieties is essential in improving production. The report recommends that more resources be allocated to research and development of rust-resistant wheat varieties and to expanding the country’s Direct Seed Marketing program to further streamline supply channels and help improved seed reach more remote farmers.
Agricultural mechanization also requires increased funding, as less than one percent of wheat area in Ethiopia is irrigated and less than one percent of wheat plots are cultivated using tractors.
The use of fertilizer in Ethiopian wheat production provides a more optimistic number, as 73 percent of wheat area is fertilized. This is up from 54 percent in 2005. However, while Ethiopia’s fertilizer application rate has increased to 140 kg/fertilized hectare over the past ten years, this remains below recommended levels.
In terms of marketing, the study finds that grain storage presents a significant bottleneck in the wheat value chain. Grain storage in Ethiopia is done by a combination of government agencies, international relief agencies, private traders, cooperatives, and farmers. However, storage by all of these actors is often very uncoordinated, with storage capacity, the quality of storage facilities, and storage behavior varying widely. These different practices can lead to increased losses along the wheat value chain; in addition, storage by the government can take up large amounts of public revenue that could be better used elsewhere. The report recommends that it will be more cost-effective for the government to encourage and monitor grain storage by private traders and cooperatives.
Finally, the study finds that Ethiopia’s wheat subsidy program has a negative impact on the country’s wheat farmers by lowering the price of wheat. In addition, the benefits to consumers from these lowered prices do not seem to outweigh the costs: for every 100 birr that the subsidy program costs the government and the country’s farmers, consumers receive only 84 birr in benefits. The authors recommend that more effort needs to be made to reduce the overall cost of the program and to improve its targeting to poor households.
In the short-term, this could be done through phasing out wheat imports and providing subsidized domestic wheat to the country’s wheat millers. The study finds that based on 2014 prices, the cost of purchasing wheat for millers domestically would cost significantly less than importing wheat from international markets.
In the medium term, the study suggests that the country’s urban wheat subsidy (which provides subsidized flour to urban bakeries) needs to be better targeted in order to ensure that it is truly helping poor urban populations. This could include the use of geographic targeting in which only bakeries in low-income neighborhoods would receive subsidized flour or the use of a voucher system which poor urban households could use to purchase bread at subsidized prices. While these programs would clearly accrue some cost, the study finds that these costs would be only 16 percent of the cost of the country’s existing Productive Safety Net Programme (PSNP) and would be more than offset by the savings that would stem from no longer subsidizing bread for middle- and higher-income urban households.
The full report, data, and source codes behind this study on Ethiopia’s wheat value chain can be found on the Value Chains Knowledge Clearinghouse website.
By: Sara Gustafson, IFPRI