ETHIOPIAN DEVELOPMENT RESEARCH INSTITUTE

Transaction costs, transportation costs and modern inputs in Ethiopia

Bethlehem Koro, David Stifel, and Bart MintenIFPRI ESSP-IIEthiopian Economic Association ConferenceJuly 19-21, 2012Addis Ababa

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Transaction costs, transportation costs, and modern inputs in Ethiopia

1. Introduction2. Background3. Data 4. Modern inputs and perceived constraints5. Transaction costs6. Transportation costs7. Conclusions

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1. Introduction - Agricultural productivity increases and modern input

use high on the agenda, especially in Africa; most promising way to increase agricultural production is the more widespread adoption of modern inputs

- However, several constraints to adoption in Africa, most importantly related to profitability issues and lack of familiarity of farmers with new technologies

- This paper looks at transaction costs and transportation costs as a constraint to adoption (adding to the profitability debate)

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2. Background Ethiopia- Rapid growth in agricultural productivity. However,

modern input use has contributed little to that growth. As conventional sources of growth are running out (land), increasing use of modern inputs in Ethiopia very important

- Ethiopia imported about 500,000 tons for a value of 500 million USD last year; Fertilizer distribution almost exclusively done by cooperatives; share of private sector very limited

- Improved seeds low adoption rates; might possibly be addressed through new seed law that is being considered

• Sample area selected purposefullyo Homogeneous region

o Except for transport costs

• Households’ circumstances differ because of different transport costs...

• ...not because of land characteristics, etc.

3. Data

• Donkey costs (Birr/kg)o Cost of renting donkey

o Weight donkey can carry

• Economic transport costso Include the opportunity cost

of time

Transport Costs

Average Travel Times and Transport Costs to the Market Town

Travel Time Transport Cost    (hours) (Birr/Quintal)Transport Cost Quintile

Least Remote 1.5 18.2Quintile 2 3.6 40.2Quintile 3 5.2 52.5Quintile 4 6.0 60.4Most Remote 6.5 73.4

Total 4.5 48.4

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4. Modern input use and perceived constraints

Chemical Improved fertilizer maize seedsDid the household use… 80.2 26.0Major reason for not using modern input

I lacked the money at the time of need 39.7 47.6 No need 17.0 0.0

No need because of share cropped out 14.2 5.4 Fertilizers are too expensive 12.8 8.9

I do not have enough land 5.0 2.7 I was unable to find them 5.7 10.4

There is too much hassle 2.1 2.9 I do not know how to apply them 2.1 2.3 Other 1.4 2.7 I don't grow maize 0.0 17.2

Total 100.0 100.0

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4. Modern input use and perceived constraints

Chemical Improved fertilizer maize seedsWas farmer able to buy as much modern inputs as desired? 30.7 51.1Reason for not buying enough mod. inputs lacked the money to buy more 86.5 42.5

There is too much hassle 5.4 8.5 Lack of transportation 4.1 0.9

I was unable to find enough 3.9 47.2 The topography of the land problem 0.2 0.0

Others 0.0 0.9Total 100.0 100.0

Farmer is aware of recommended fertilizer on plot 37.1 -

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5. Transaction costs (before acquisition) Chemical improved

fertilizer seedsNumber of trips made before each transaction…… before the farmer was able to pick up modern input

0 trips 34.6 37.71 trip 21.7 23.72 trips 22.1 22.83 trips 12.6 8.8> 3 trips 9.0 7.0Total 100.0 100.0

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5. Transaction costs (before acquisition) Chemical improved

fertilizer seedsReasons for the unsuccessful trip:Credit issues 39.4 46.9

Form did not have signature of an official 8.4 11.2 Not enough people on the form 31.0 35.7

Hassles of working with cooperative 52.4 37.1 Cooperative office not open 15.5 11.2 There was no supply of modern inputs 9.2 10.5 Too long queue 23.7 14.0 Money collector was not there 4.0 1.4 Looking for/met with committee member 4.2 5.6Other 4.1 10.5

Total 100.0 100.0

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5. Transaction costs (acquisition)

Unit 2010Chemical Improved

fertilizer seedsAverage time spent on acquisition trip:Travel there hours 3.2 2.3Time at location hours 5.5 5.0Travel back hours 3.6 2.0Was input stored between the time of acquisition and transport % yes 42.5 8.5

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5. Transaction costs after acquisition (for those that received credit)

Ch. fertilizerNumber of trips for each transaction…… before the farmer was able to pay (exclude payment trip)0 trips 66.41 trip 18.32 trips 10.23 trips 5.1Reasons for the unsuccessful trip:

Form was lost 32.4 Money collector was not there 22.5

Cooperative office was not opened 21.1Queue too long 18.3

Other 5.6 Total 100.0

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5. Transaction costs and late access to modern inputs

Unit Total

Percentage of plots that the households are late in planting due to delays in acquiring fertilizer % 13.5

Were there any days in the 2010 season when an adult household member could not work on the farm because of searching modern input % 44

Lost day in search of modern inputs number 3.6

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6. Transportation costs

UnitLeast

remote Quintile Quintile Quintile Most

remote Total quintile 2 3 4 quintile Modern input use:- DAP % of hh 90 84 80 67 69 78- Urea % of hh 83 65 45 47 43 56- Improved maize seeds % of hh 90 84 81 67 69 78- DAP kgs/ha 84.2 43.8 47.8 35.1 34.7 51.4- Urea kgs/ha 47.2 25.7 23.6 21.6 18.9 28.6- Ch. fertilizer kgs/ha 131.4 69.5 71.4 56.7 53.6 80.0- Improved maize seeds kgs/ha 9.9 7.3 7.1 1.2 2.7 6.1

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7. Conclusions

Our study highlights constraints with respect to three variables for adoption of modern inputs:- Most farmers link lower use than desired to limited

access to credit- Transaction costs limit the profitability of modern

input use - Transportation costs important determinant in

adoption (indicating that farmers respond to profitability concerns)

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7. Conclusions

Policy implications:1. Recent policy is to move away from credit provision

for modern input acquisition; will have implications on fertilizer use

2. Further capacity building for cooperatives required as well as further de-licensing as to allow for a more competitive environment

3. Further improved transportation infrastructure required in rural areas (12% of population in Ethiopia lives further than 10 hours from a city)