Mekelle University The School of Graduate Studies Faculty of Dryland Agriculture and Natural Resources Performance Efficiency Analysis of Livestock Marketing in Afar region, Ethiopia By Tesfaye Berihun A Thesis Submitted in Partial Fulfillment of the Requirements for the Master of Science Degree in Cooperative Marketing Advisor: Veerakumaran G. (Ph.D) Jun, 2008 Mekelle ACKNOWLEDGEMENT My special and sincere gratitude goes to my Advisor Dr. Veerakumaran G. for his earnest and constructive comments throughout the analysis and preparation of the manuscript. I would also like to acknowledge Prof. G.B. Pillai (PhD.) for his encouraging and helpful comments and suggestions. Moreover, I would like to acknowledge my teachers Dr Kefelgn, Dr. R. Dayanandhan, Dr. Ajay, Prof. S. Nakkiran (PhD.) Dr. S. Karanakaran, Dr. Kelemework for their enthusiastic support and course delivery. I would like to thank my employer, Afar Pastoral and Rural Development Bureau, in general, and Afar Cooperative Development and Promotion Office, in particular for approving and sponsorship of my in-country scholarship in the M.Sc. study and thesis preparation. I would like to acknowledge FARM Africa – Ethiopian Pastoral Program (EPP) for the budget support during my survey. I would like to acknowledge also ACDI/VOCA and GL-CRSP Afar Program Component in providing me the necessary market information and data. My special thanks also go to my friend Ekram Kebir for her support and encouragement. Finally, I want to express my deep gratitude to my beloved family for their wholehearted motivation and support throughout the study period. ii DECLARATION This is to certify that this thesis entitled “Performance Efficiency Analysis of Livestock Marketing in Afar Region” submitted in partial fulfillment of the requirements for the award of the degree of M.Sc., Cooperative Marketing to the School of Graduate Studies, Mekelle Univer sity, through the department of Cooperatives, done by Mr. Tesfaye Berihun, Id. No. --------is an authentic work carried out by him under my guidance. The mater embodied in this project work has not been submitted earlier for award of any degree or diploma to the best of my knowledge and belief. Name of the student: ___ Signature & date __________________ Name of the supervisor: ___________________ Signature& date __________________ iii Table of Content Acknowledgement …………………………………………………………………………..…….ii Declaration …………………………………………………………………………………..……iii Table of Contents …………………………………………………………………………….….. iv Acronyms …………………………………………………………………………………….…...iv List of Tables …………………………………………………………………………………..…vii List of Figures …………………………………………………………………………………... viii List of Appendix ………………………………….…………………………………………….....ix Abstract ………………………………………………………………………………………….. ..x 1 Introduction ……………………………………………………………………………..............1 1.1 Background………………………………………………………………………………...1 1.2 Statement of the Problem ……………………………………………………………….. 2 1.3 Purpose of the study……………………………………………………………………... 3 1.4 Hypothesis ……………………………………………………………………………..4 1.5 Objectives ………………………………………………………………………….....5 1.6 Scope of the study …………………………………………………………………….5 1.7 Limitation of the study …………………………………………………………….6 2 Literature Review……………………………………………………………………………….7 2.1 A livestock marketing system model ……………………………………………………..7 2.2 Concept and definition ……………………………………………………………10 2.2.1 Exchange and price.............................................................................................10 2.2.2 Physical and facilitating functions.......................................................................10 2.2.3 Degree of market efficiency in terms of marketing margin..................................14 2.2.4 Marketing margin, a measure of market efficiency..............................................15 2.2.5 Some approaches to estimating market margins ..................................................17 2.2.6 Reference values of marketing margins for evaluating market efficiency ............17 2.2.7 Price analysis......................................................................................................19 2.2.8 Services ..............................................................................................................20 2.2.9 Structure, conduct and performance analysis.......................................................20 2.2.10 Market information and intelligence ...................................................................22 2.3 Empirical Studies ……………………………………………………………………24 3 Materials and methods…………………………………………………………………….…...27 3.1 Description of the area ……………………………………………………………27 3.1.1 Description of the woredas selected for traders survey. .......................................30 3.2 Sample selection procedure ……………………………………………………………33 3.3 Survey methodology ……………………………………………………………………36 3.4 Data Analysis ……………………………………………………………………………38 3.4.1 Variables ............................................................................................................38 3.4.2 Analysis..............................................................................................................40 4 Results and Discussion…………………………………………………………………….......43 4.1 Structure of livestock marketing system ……………………………………………43 iv 4.2 Market chains and destination of livestock ……………………………………………45 4.3 Marketing facilities ……………………………………………………………………46 4.4 Transportation systems ……………………………………………………………49 4.5 Actors in the livestock market yards ……………………………………………………50 4.6 Traders’ profile ……………………………………………………………………53 4.7 Trading activities ……………………………………………………………………55 4.7.1 Price determination.............................................................................................56 4.7.2 Use of intermediaries..........................................................................................57 4.7.3 Trading business relation ....................................................................................58 4.8 Marketing problems ……………………………………………………………………60 4.9 Market structure ……………………………………………………………………61 4.9.1 Market concentration ..........................................................................................61 4.9.2 Market entry.......................................................................................................64 4.10 Market conduct ……………………………………………………………………64 4.11 Market performance ……………………………………………………………………66 4.11.1 Marketing margin ...............................................................................................66 4.12 Livestock Price ……………………………………………………………………69 4.12.1 One-Way Analysis of Variance and t-Test: results and discussion.......................69 4.12.2 Impact of seasonality on livestock price..............................................................76 4.12.3 Price co-movement and market integration .........................................................80 4.12.4 Livestock supply and price..................................................................................83 5 Conclusion and Recommendation……………………………………………………………..86 5.1 Conclusion ……………………………………………………………………………86 5.2 Recommendation ……………………………………………………………………88 Reference……………………………………………………………………….….......................90 Appendix……………………………………………….…………………………………………94 v ACRONYMS ACDI/VOCA Formerly Agricultural Cooperative Development International and Volunteers in Overseas Cooperative Assistance CSA Central Statistics Authority GDP Gross Domestic Product FAO Food and Agricultural Organization GL-CRSP Global Livestock Collaborative Research Support Program GOE Government of Ethiopia LINKS Livestock Information Network System MEDAC Ministry of Economic Development and Cooperation MOARD Ministry of Agriculture and Rural Development BOFED Bureau of Finance and Economic Development/ PLI-LM Pastoralist Livelihood Initiative - Livestock Marketing Project USAID United States Agency for International Development USD United States Dollar VCA Value Chain Analysis vi LIST OF TABLE Table 1: Characteristics of livestock markets …………………………………………….8 Table 2: Number of traders and sample size by market towns in the region…………….35 Table 3: Sample livestock traders’ response by their sources of purchase at their main trading location (2007) …………………………………………..44 Table 4: Sample livestock traders’ response by their sales market (2007) ……………...46 Table 5: Sample livestock traders by age group (2007) ………………………………...55 Table 6: sample livestock traders by level of education (2007) ……………………… ..55 Table 7: Traders price determination at purchase market and sales market.(2007) …….56 Table 8: Traders use of intermediaries at their purchase and sale market (2007) ……...57 Table 9: Traders by their trading business relations (2007) ……………………………58 Table 10: Traders’ problem with customers (2007) …………………………………….59 Table 11: Livestock marketing problems of sample traders (2007) …………………….61 Table 12: Four firms market concentration ratio at selected markets (2007)……………63 Table 13: Cattle marketing costs and margins at regional and terminal markets (2007)..68 Table 14: Means of goat price for One-way ANOVA (2007) …………………………..70 Table 15: Means of sheep price for One-way ANOVA (200)……………………… .…72 Table 16: Means of cattle price for One-way ANOVA (2007) ………………………....74 Table 17: Means of camel price for One-way ANOVA (2007) ……………………...…76 vii LIST OF FIGURES Figure 1: Livestock marketing system model (FAO, 1999)……………………………………7 Figure 2: The new Chifra market under construction by ACDI/VOCA ……………………...48 Figure 3: Livestock Market Channels