Optimize buyer-seller relationships in Ethiopia

17-12-2014 Nick Persoon, student business management at Wageningen University, conducted on behalf of Agriterra a MSc thesis research in Ethiopia on the buyer-seller relationship between malt barley smallholder farmers and multipurpose primary cooperatives. The main findings of his research in the highly dynamic malt barley sector in Ethiopia are presented below.

Agriculture can be considered as the backbone of the economy in Ethiopia. Agriculture contributes on average 45% to the national Gross Domestic Product (GDP). In Ethiopia close to 4.5 million smallholder farmers are involved in the production of barley. Barley grain is primarily cultivated in the highlands of Arsi, West-Arsi and Bale in the Oromia region. Worldwide, malt barley is primarily processed, also known as malting, in order to make the grain suitable for the brewing of beer. Shortage in supply of high qualitative malt barley and increased demand of breweries has resulted in increasing import of malt in Ethiopia. The commissioner for this research is Agriterra, a Dutch agri-agency. The role of Agriterra is to strengthen unions and multipurpose primary cooperatives so they can realize their market ambitions. In the Arsi and West-Arsi zone several Agriterra partner unions are established. The knowledge gap that leads to this research is that Agriterra has no insight in the behavior of (potential) malt barley smallholder farmers in the Arsi and West-Arsi zone, and in particular on their decisions to cultivate and commercialize malt barley and whether or not to sell their produce to the multipurpose primary cooperatives. The objective of this research is, therefore, to get a better understanding in first of all, the (socio-) economic, geographical, and agronomic factors that influence cultivation and commercialization and second, the market preferences by smallholder farmers in order to give recommendations to enhance buyer-seller relationships between multipurpose primary cooperatives and smallholder farmers.

Economists have traditionally sketched market participation decisions by households by making use of two levels: first, the decision level whether households participate in the market or remain autarkic, and second, conditional on market participation the decision on the level of participation. The literature review reveals that determinants for cultivation and commercialization of grains and cash crops in developing countries can be classified into socio-demographic, socio-economic, agronomic and transaction cost categories. Transaction cost theories play an important role in commercialization decisions of smallholder farmers. In addition, farmers have different attitudes towards buyer functions and transaction arrangements. Based on governance structures these preferences can be related to sales of the harvest at the spot market or by making use of hybrid governance structures as contract farming and cooperatives.

Research methods applied during the empirical part of this research include semi-structured in-depth interviews, focus group discussions and a survey among smallholder farmers (n=200) in the Arsi and West-Arsi zone in Ethiopia. Sampled cooperative unions are the Galema and Raya Kejewa cooperative union. From each of these cooperative unions one experienced and one unexperienced multipurpose primary cooperative in cultivation and marketing of malt barley has been selected.

In the Ethiopian malt barley chain smallholder farmers are supplying about 94% of the total malt barley demand to the Assela Malt Factory (AMF). The market power of cooperative unions and multipurpose primary cooperatives is considered to be weak as more than 90% of the supply to the AMF is handled by traders. The AMF used to be the dominant actor in the Ethiopian supply chain. However, power in the malt barley chain has moved since the 2013/2014 cropping season as a result of several developments. First of all, in 2013 the new-established private Gondar Malt Factory (GMF) has started production in the North-Gondar zone in the Amhara region. In addition, contract farming is a new development in the Ethiopian malt barley chain. After different pilots in the 2013/2014 cropping season Heineken, Diageo, and the AMF itself, have scaled up their contracting operations in 2014/2015 in order to secure sufficient local supply.

Malt barley is facing competition from wheat and food barley in the cultivation decision of smallholder farmers. Farmers consider the agro-ecology, productivity (i.e. yield), and market price of last year as most important factors for crop planning decisions. Food barley is usually more productive than malt barley. Wheat, however, is by definition not more productive in the Arsi and West-Arsi highland areas. Receiving agronomic technical assistance from Development Agents at kebele (i.e. village) level and being member of a credit and or saving institution increases significantly the probability of malt barley cultivation. Total landholding size (+) and amount of household members (-) significantly influence the probability of cultivation. Membership in a seed multiplication cooperative has a positive and significant effect on the share of assigned land to malt barley cultivation. In addition, experience in cultivation of malt barley and competing crops has respectively a significant positive and negative effect on the share of land assigned to malt barley cultivation. Farmers utilize malt barley more for commercialization purposes in contrast to household consumption purposes. Wheat and food barley are mainly used for household consumption purposes. The distance to the multipurpose primary cooperative has a significant negative effect on the share of commercialized malt barley during the 2013/2014 cropping season. The more distant a farming household is from the multipurpose primary cooperative the smaller the share of commercialized malt barley. Finally, there is a significant positive relationship between technical assistance received from NGOs and the share of commercialized malt barley. Each year farmers have to make marketing decisions. As a result of limited available malt barley surplus farmers are forced to make trade-offs and decisions when selecting their buyer. In general price, trust, and accessibility are the most important determining factors for their decisions to supply to different types of buyers. Preferences for selling to traders are related to their ability to pay directly in cash and their easy accessibility. Farmers that supply mainly to the multipurpose primary cooperative value trust as an important factor.

In order to enhance the buyer-seller relationship between smallholder farmers and their multipurpose primary cooperatives it is, among others, recommended to cooperative unions, multipurpose primary cooperatives and NGOs to:
- review market price adjustment mechanisms for supply of smallholder farmers by delegating more responsibilities from cooperative unions to purchase committees of multipurpose primary cooperatives;
- enhance awareness among members of the multipurpose primary cooperative about marketing possibilities. Training should, therefore, be provided to members concerning marketing operations and the potential of receiving dividends in case of increased marketing activities;
- enhance accessibility of the multipurpose primary cooperative by increasing the number of opening days during the trading season and timely start of the trading season.


Share this article:


Willemsplein 42
6811 KD Arnhem
The Netherlands

+31 (0)26 44 55 445