High Time to Restructure the Rigid Agricultural Produce Markets

It was unusual to see the political heavyweights of the ruling EPRDF engaged in a personalised trading of blame, and less so for the dispute to be based on the developmental results of the state. Often, these types of wranglings are left hidden behind the closed doors of intraparty meetings, wherein political correctness is thrown out and replaced by openness.

Indeed, the case witnessed at the ninth general congress of the ruling EPRDFites – the first strategic meeting to be held in the absence of ‘the great leader’, Meles Zenawi – was extraordinary. The congress hall was full of tensions. And what lies at the core of the debate was the backbone of the nation’s economy – agriculture.

As the mainstay of the economy, agriculture contributes approximately 45pc of the gross domestic product (GDP) of the nation and about 81pc of the total employment within the economy. Around 83pc of the estimated 86 million people in the nation work in a sector, which remains predominantly subsistent, traditional and rain-fed.

Variations within the productivity of the sector are highly correlated with the health of the overall economy. Any upward surge in productivity often results in a forward push of the macro-economy, whereas a decline could mean a regression of the economy.

This unique tie dates back from historic times up until today. Little has changed in these terms – even under the EPRDFites, who managed to put forward an ambitious and progressive plan to reduce the correlation in favour of light industrialisation.

Ever since the ruling Revolutionary Democrats came into power in 1991, their focus has been on their flagship project – the Agricultural Development Led Industrialisation (ADLI). This is designed to transform the structural basis of the economy. The road has been bumpy, with years of surplus being followed by years of severe deficit. The macro-economy has also been oscillating between exceptional acceleration and unfortunate decelerations, along with the situation in the agricultural sector.

Ever since the relative deficit witnessed in 2002/03, however, the overall situation has been comparatively stable. Agriculture, according to government records, has been growing by over 10pc, eventually resulting in an economy that has been sprinting forward at an 11pc annual growth rate. Farmers became the key drivers of wealth creation, investment and consumption. The state propaganda apparatuses have been busy trumpeting the rapid growth of the sector, as if it was an irreversible shift in the fundamentals of the sector.

Rooted in these achievements, the Growth & Transformation Plan (GTP) stipulated more ambitious goals for the sector. A large part of the blame trading witnessed at the ninth general congress of the ruling party, held in Bahir Dar – the capital of the Amhara Region – relates to the dismal performance of the sector as compared to the intentionally elevated targets. And all fingers were pointing at Tefera Derebew, the mild minister of Agriculture (MoA) and the main man in the Agricultural Transformation Council (ATC) – a club of officials and high-level experts entrusted with strategising the future path of the sector.

Tefera and his regional counterparts were bombarded with critics for their ineffective leadership. Their inability to lead the sector in a coordinated manner was mentioned, almost consensually, as the essential reason behind the faltering growth (at four percent) of agriculture in the second year of the GTP.

Defensive interventions by Tefera and others within the sectoral rank and file did little to change the talks. They continued to adopt the revitalisation of agriculture and the establishment of ‘developmental armies’ as the core tasks of the coming year for the whole leadership.

A year after this disappointment, the agricultural productivity of the nation is projected to grow in leaps and bounds. If one is to go by the latest projection by the Central Statistics Agency (CSA), showing the expectations from the latest Meher season, the produce market will soon be witnessing an increased supply. Officials of the Ethiopian Grain Trade Enterprise (EGTE) and the Ministry of Finance & Economic Development (MoFED) went even further to proclaim that the supply boost could have a direct impact on the prices at the consuming end.

But history stands against their declaration. If the past ten years of fast growth could be reference points to measure the impact of the growth in agricultural productivity on prices, the hypothesis becomes a negative one. Prices have remained sticky throughout all these years, although productivity has changed marginally.

Two possible cases might drive this. The increment may have remained below what is expected to push prices down. Too, the prices could be heavily dependent on aggregate demand, rather than aggregate supply, and thus little could be expected in the form of reduction in price with an increment in supply.

Over the past 10 years, for instance, agricultural productivity has been increasing at an annual average rate of 12.3pc, whereas food prices have been leaping up at an average rate of 17.5pc. Hence, consumers have been forced to pay higher prices even if productivity has been improving with each day.

Tefera and his regional counterparts might rightly know that the incongruence lies in the nature of the agricultural produce market. Although programmatic efforts have improved the institutional structure, provisions and productivity of the agricultural sector, little has changed over the past 24 years in the nature of the produce market. If anything, the market remains archaic.

The players of the agricultural market are numerous. The market chain is long and untraceable. What lies between the farm gate and the consumer is still largely organised in a traditional manner. Licensing and regulating the players remains impossible.

Even after the numerous reforms, identified with weird abbreviations, the agricultural produce market of the nation is stirred by unpredictable grain collectors, a complex chains of brokers, traditional wholesalers and undercapitalised retailers. No smooth flow of information exists, both because of infrastructure problems as well as fragmented markets. Hence, the way production and prices are related remains unconventional.

Things went out of hand after the food price hike of 2008. Prices have continued to go up ever since, although production increased. The dumping of imported grain by the government could offer no help. It was clearly visible that the prices were being inelastic, to say the least.

It seems that the time has come for the EPRDFites, mainly Tefera and Co, to free the agricultural produce market from its long overdue rigidity. Restructuring it in a modern, traceable, flexible and manageable way is the necessity of this time. This would not only help consumers to benefit from the achievements at the production end, but will also enable farmers to gain from the changes at the consumption end.

But, restructuring the market could not be an end in itself. It rather ought to be complemented with targeted fiscal and monetary policy actions, such as fiscal restraint, designed to siphon off the inflationary pressure from the economy. Price elasticity could only be ensured if the macro-economy is stable enough to effect sensible changes in the dynamics of the markets.

Proclamations, such as the ones made at the ninth national congress of the ruling EPRDF, could translate into real-time benefits to society only if they are followed with the proper identification of problems and timely policy actions. The pertinent call of the time is to reinvent the rigid agricultural markets of the nation. There could be no better time do it, than a time where hopes are high.


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