Value Chain Analysis of Groundnut

In Pawi Woreda, Metekel Zone, Ethiopia

Texto Academico , 2019 , 122 Páginas , Calificación: Good

Agronomía

This study was aimed at analyzing value chain of Groundnut in Pawi Woreda, Metekel Zone, Beni-shangul Gumuz Region with specific objectives of identifying groundnut value chain and examining the performance of actors in the chain; analyzing the determinants of groundnut supply to the market in the study area; and identifying and map marketing channels. The data were collected from both primary and secondary sources. The primary data for this study were collected from 155 farmers, 30 traders and 25 consumers through using questionnaires.

Descriptive statistics and Econometrics models were used to analyze the collected data. Results show that the main groundnut value chain actors in the study area groundnut producers/farmer, input suppliers, local assembler, wholesalers, retailers, Processers and consumers. It is also found out that groundnut passes through several intermediaries with little value being added before reaching the end users. The chain is governed by wholesalers and Processers who have capital advantage over the other chain actors. Therefore, farmers are forced to capture a lower share of profit margin.

The result of OLS regression model indicated that marketable supply is significantly affected by sex of household head, age of household head, agricultural extension service, owner ship of transport facility, distance of the nearest market and quantity of groundnut produced. Therefore, policy aiming at increasing farmers’ access to modern inputs, developing and improving infrastructure, gender consideration, and improving extension system are recommended to accelerate the chain’s development.

TABLE OF CONTENT

ACKNOWLEDGEMENT

DEDICATION

ABSTRACT

ABBREVIATIONS AND ACRONYMS

LIST OF TABLE

LIST OF FIGURE

LIST OF APPENDIX

CHAPTER 1. INTRODUCTION
1.1. Background of the Study
1.2 Statement of the Problem
1.3 Research Question
1.4 Objective of the Study
1.5 Significance of the Study
1.6 Scope and Limitation of the Study
1.7 Organization of the Study

CHAPTER 2. LITERATURE REVIEW
2.1 Concept of Value Chain
2.1.1. Major concepts guiding agricultural value chain analysis
2.1.2. Effective demand
2.1.3. Production
2.2. Value Chain Governance
2.2.1. Value chain upgrading
2.2.2. Market and marketing
2.2.3. Marketing efficiency
2.2.4. Marketing channel
2.2.5. Marketing Performance
2.2.6. Measuring value chain
2.3. Benefit of Value Chain in Agricultural Sector
2.3.1 Developing value chain systems towards the benefits of the poor
2.4. Development of Market-Driven Groundnut Value Chain
2.5. Review of Empirical Studies
2.5.1. Value chain approach
2.5.2. Determinants of marketable surplus
2.6. Conceptual Framework

CHAPTER 3. RESEARCH METHODS
3.1 Description of the Study Area
3.2. Types, Sources and Methods of Data Collection
3.3 Sample Size and Sampling Technique
3.4. Methods of Data Analysis
3.4.1. Descriptive and inferential statistics
3.4.2 Value chain analysis
3.4.3. Analysis of groundnut value chain performance
3.4.4. Econometric models
3.4.5. Factors affecting market Supply
3.5. Hypothesis, Variable Selection and Definition
3.5.1. Dependent variable
3.5.2. Independent variable

CHAPTER 4. RESULTS AND DISCUSSION
4.1. Socio-demographic characteristics
4.1.1. Farmer’s demographic characteristics
4.1.2. Land size and land use
4.1.3. Access to markets and other services
4.1.4. Proximity to markets
4.1.5. Access to market information
4.1.6 Use of Credit
4.1.7Access to extension services
4.1.8. Farm Inputs utilization
4.1.9. Household resource ownership
4.1.10. Production, storage and marketing of groundnut
4.2 Value Chain Analysis
4.2.1. Actors and their role in Groundnut value chain
4.2.2 Primary actors
4.2.3 Supporting actors
4.3. Value Chain Governance
4.4 Marketing Channels and Performance Analysis
4.3.1 Groundnut Marketing Channel
4.4.2. Analysis of market performance
4.5 Econometric Model Outputs
4.5.1. Determinants of groundnut market supply
4.6. Challenges and Opportunities in Groundnut Value Chain
4.6.1. Production constraints
4.6.2. Production opportunities
4.6.3. Marketing constraints
4.6.4. Marketing opportunities

CHAPTER 5. CONCLUSION AND RECOMMENDATIONS
5.1. Summary and Conclusion
5.2. Recommendations

CHAPTER 6. REFERENCE

CHAPTER7. APPENDIX

ACKNOWLEDGEMENT

First my praises to the God who created this world of knowledge for us: Thank you for your giving me health, strength, patience and support for completion of the study. Then second to God, I would like to express my deepest thanks to my major advisor Dr. Zemen Ayalew for his unreserved effort, sociable encouragement, academic stimulation as well as productive and helpful comments on the entire document.

I owe thanks to Beles Paradise College specially the general manager of Beles Paradise College Demlash Deriba for semi-financing the research project and for providing me other required facilities. It is a great pleasure to extend my appreciation to the family of Demlash Deriba for their facilitation of the study process and encouragement. My thanks also go to Pawi Woreda Agriculture and Rural Development Coordination Office staff members for their encouragement and gracious support.

I extend my thanks to Fentahun Tesafa my co-advisor for his constructive comments and suggestions in the formulation of the research proposal and also I would like to extend my thanks to all staff members of Beles Paradise College Pawi campus, all groundnut producers in the study area and groundnut trader that helped me at various levels during my research work. Last but not least, I would like to express my heart-felt gratitude to my parents and my beloved for their encouragement and love since my academic career.

DEDICATION

This thesis is dedicated to My dear mother W/ro Misanesh Asinakew for her dedicated partnership in the success of my life, my wife Silitu Abebaw and my darling daughter Elidana who is very proud of me and their love.

VALUE CHAIN ANALYSIS OF GROUNDNUT IN PAWI WOREDA, METEKEL ZONE, BENISHANGUL GUMUZ REGION, ETHIOPIA

ABSTRACT

This study was aimed at analyzing value chain of Groundnut in Pawi Woreda, Metekel Zone, Beni-shangul Gumuz Region with specific objectives of identifying groundnut value chain and examining the performance of actors in the chain; analyzing the determinants of groundnut supply to the market in the study area; and identifying and map marketing channels. The data were collected from both primary and secondary sources. The primary data for this study were collected from 155 farmers, 30 traders and 25 consumers through using questionnaires. Descriptive statistics and Econometrics models were used to analyze the collected data. Results show that the main groundnut value chain actors in the study area groundnut producers/farmer, input suppliers, local assembler, wholesalers, retailers, Processers and consumers . It is also found out that groundnut passes through several intermediaries with little value being added before reaching the end users. The chain is governed by wholesalers and Processers who have capital advantage over the other chain actors. Therefore, farmers are forced to capture a lower share of profit margin. The result of OLS regression model indicated that marketable supply is significantly affected by sex of household head, age of household head, agricultural extension service, owner ship of transport facility, distance of the nearest market and quantity of groundnut produced. Therefore, policy aiming at increasing farmers’ access to modern inputs, developing and improving infrastructure, gender consideration, and improving extension system are recommended to accelerate the chain’s development.

Key words: Hatchery machine.

ABBREVIATIONS AND ACRONYMS

Abbildung in dieser Leseprobe nicht enthalten

LIST OF TABLE

Table 3.1: Major annual crop pawi woreda

Table 4.1: Demographic characteristics of sample farmers for continuous variable

Table 4.2 Demographic characteristics of sample farmers for dummy variable

Table 4. 3: Land size and land use

Table 4. 4: Annual income and groundnut farming experience of producers sample

Table 4.5: Distance of market

Table 4.6: Accessing market information service

Table 4.7: Access to credit service

Table 4.8: Access of agricultural extension service

Table 4.9: Household resource ownership

Table 4.10: Area cultivated, production and productivity of groundnut

Table 4.11: Demographic characteristics of sample traders by education level & age

Table 4.12: Demographic characteristics trader by education, religion and marital status

Table 4.13: Fixed asset of groundnut trader

Table 4.14: Financial resource ownership of trader

Table 4.15: Marketing Margin of Groundnut at different market channel (Quintal/Birr)

Table 4.16: OLS results for factors influencing volume of groundnut supplied to market

Table 4.17: Constraint of Groundnut Production

LIST OF FIGURE

Figure 2.1 Groundnut value chain conceptual frame work in pawi woreda

Figure 3.1: Map of the study area

Figure 4.1: Value chain map of groundnut in pawi woreda

Figure 4.2: Groundnut market channel in the study area

LIST OF APPENDIX

Table A.1: Conversion factor used to calculate adult equivalent (AE)

Table A.2: Conversion factor for tropical livestock unit (TLU)

Table A.3: Income of producer respondent and experience

Table A. 4: Storage capacity groundnut trader

Table A. 5: Source of capital work

Table A. 6: Factor that affect the production of groundnut

Table A. 7: Test of multi-co-linearity

CHAPTER 1. INTRODUCTION

1.1. Background of the Study

Agriculture is a core driver of the Ethiopian economy. It accounts for about 42 percent of the Gross Domestic Product (GDP), 77 percent of employment and more than 85 percent of the total population that is directly or indirectly engaged in agriculture and generates about 84% percent of the foreign exchange earnings of the country. The role of agriculture in securing the food needs for the fast growing population is considerable (ATA, 2016).

Despite having all this importance, agriculture continues to face a number of problems and challenges. The major ones are adverse climatic conditions, lack of appropriate land use system resulting in soil and other natural resources degradation, limited use of improved agricultural technologies, the predominance of subsistence agriculture and lack of and/or absence of business oriented agricultural production system, limited or no access to market facilities resulting in low participation of the smallholder farmers in value chain or value addition of their produces (Bezabih, 2010).

Ethiopia has immense resources for agricultural production. According to CSA (2017/18) Meher Season Post-harvest Crop Production Survey indicate that a total land area of about 12,677,882.27 hectares are covered by grain crops i.e. cereals, pulses and oilseeds, from which a total volume of about 306,126,383.06 quintals of grains are obtained, from private peasant holdings. According to the above report from the total production of grains crop cereal cover 80.71% of hectares, pulses cover 12.61 % of hectares and oilseed cover 6.68% of hectares. It was first introduced to Eritrea and then to Hararghe in early 1920s by Italian explorers (Yebio, 1984).

For people in many developing countries, groundnuts are the principal source of digestible protein (25 to 34%), cooking oil (44 to 56%), and vitamins like thiamine, riboflavin, and niacin (Savage and Keenan, 1994). In many countries, groundnut cake and haulms (straw stems) are used as livestock feed. As a legume, groundnuts also improve soil fertility by fixing nitrogen and thereby increasing productivity of the semiarid cereal cropping systems (Sibusiso Moyo, 2004).

In order to improve the production and productivity of agriculture, Ethiopia has developed development policies that enhance agricultural production. In 1994/95, the country adopted Agricultural Development Led Industrialization (ADLI) development strategy. The strategy argues that growth starts from agriculture and initiates the growth of other sectors especially the industry sector through backward and forward linkages (MoFED, 2006). Furthermore, Ethiopia launched and commenced implementing earnestly its Growth and Transformation Plan (GTP) in 2009/10. The Agricultural Transformation Agency (ATA) has been established in 2010 to enhance productivity and production of smallholder farmers and pastoralists Growth and Transformation Plan (GTP). The primary aim is to promote agricultural sector transformation by supporting existing structures of government. The Agency has identified its priority eight type of crops. Groundnut is one of the commodities which grouped oil seeds identified. The others are teff, maize, wheat, barley, pulses, rice and livestock for special support.

Groundnut production in Ethiopia, still limited to some lowlands of the country, is playing an increasing role in terms of serving as an alternative oil crop to an increasing number of small holder farmers. However, it has been indicated that the sector is limited by wide range of problems related to marketing, production and distribution. According to CSA (2017/18) 521,326 private peasants holding households have grown groundnut in close to 80,841.57 hectares of land in the 2017/18 Meher season leading to a total production of well 1,451,728.20Qt. According to the same report, Oromia region constitutes the largest proportion of groundnut production areas accounting for 47,825.62 ha. Beni-shangul Gumz is the second largest contributor in terms of groundnut production areas (20,073.96 ha) followed by Amhara (6011.59) ha, Harari (2658.52 ha), and SNNP (1045.16 ha). From the Beni-shangul Gumz Regional State pawi woreda, is the potential source of groundnut production.

Beni-shangul Gumuz Regional State has the largest production of groundnut in the country next to Oromia regional state CSA, (2017/18). Among zones in Beni-shangul Gumuz metekel zone, especially Pawi woreda is particularly known for its extensive groundnut production. However, several problems hinder the performance of groundnut production and productivity in Pawi. The most prominent problem of groundnut production and productivity are: shortage of improved seed variety, low price of groundnut products, high price of fertilizer, pesticides and seed, price instability problems for agricultural products, high costs of labor, loss of yield during harvesting, reduced soil fertility, lack of sustainable market outlet, poor infrastructure, grass weed and disease are the major constraints of groundnut production (Birhanu, 2018).

To reverse this situation and improve groundnut value chain in the area among calls for development of well-performing marketing system which satisfies consumer demands with the minimum margin between producers and consumer prices. Well-functioning marketing system is not limited to stimulation but it also increases production by seeking additional output. This study focused on investigating the groundnut value chain analysis.

1.2 Statement of the Problem

Development policy of Ethiopia has placed emphasis on increasing agricultural production to serve as a base for rural development. Important resources are being utilized by the Ethiopian government to improve the agricultural productivity to alter the state of agriculture in the country. Material resource and human capitals are allocated towards this end. Extension workers, packages or programs, and agricultural inputs are some of the resources that are made available to farmers to change their style of farming and augment productivity CSA , ( 2017/18). Despite of all these efforts of the government, the agricultural productivity and farm household income is still very low in Ethiopia. The major reason behind is mainly the backwardness of the agricultural sector. Using farm technology is enormous for rural households of Ethiopia as land productivity, traditional tools, draft animals and family labor are still the most important factors of production (Bezabih, 2010).

Agro-industry value chain in Ethiopia indicates that the sector faces many challenges due to limited market outlets, limited efforts in market linkage activities and poor market information among actors (Dereje, 2007; Kaleb, 2008; Dendena et al., 2009)). Correspondingly, Mamo (2009) argued that small scale, dispersed and unorganized producers are unlikely to exploit market opportunities as they cannot attain the necessary economies of scale and lack bargaining power in negotiating prices.

The production of groundnut crops is a major element of the farming system in the north western part of Ethiopia such as in Metekel Zone and some part of Beni-shangule Gumuz Regional State. Groundnut production is a major source of cash income for the households and one of the major sources of livelihood for a large number of transporters, middlemen, retailer and trader in the area. Groundnut has significant advantages that make it well suited for farmers. Peanuts, because they are legumes, improve soil fertility due to their capacity to fix nitrogen, and therefore make the soil more productive for cereal crops in subsequent seasons (Sibusiso Moyo, 2004). The crop also requires low inputs, i.e., it can be grown under rain-fed conditions without chemical fertilizer, making it suitable for cultivation in low input agriculture by smallholder farmers. Groundnuts are prepared mainly as a paste, and made into a sauce for consumption with traditional dishes. They are an excellent source of cooking oil, and can be consumed whole, either boiled or roasted. Groundnuts are a highly nutritious food, with 38.6 % protein content and 47% oil content; they have been shown to have specific health benefits, being associated with a reduced risk in the development of type II diabetes and cardiovascular disease. With the increasing costs of animal protein, groundnuts have become the most important source of protein in East Africa (Okello, 2010).

The lack of a shift from subsistence to commercial farming in spite of such comparative advantage may have different reasons like high risks, high transaction costs, limited food markets, limited insurance options and limited access to credit or in general the problem in the value chain. In spite of the fact that markets are crucial in the process of agricultural commercialization, transaction costs and other causes of market imperfections could limit the participation of farm households in different markets (Sadoulet and de Janvry, 1995). This implies that markets could be physically available but not accessible to some of the farm households. Value chain analysis is essential to explain the connection between all the actors in a particular chain of production and distribution and it shows who adds value and where, along the chain. It helps to identify pressure points and make improvements in weaker links where returns are low (Schmitz, 2005).

Problems in the groundnut value chain hinder the potential gains that could have been attained from the existing opportunities. Supply of agricultural crop in the study area is subjected to seasonal variations where surplus supply at harvest is the main feature. The nature of the product on the one hand and lack of properly functioning marketing system on the other, often resulted in lower producers’ price. Several studies that have in the past examined the marketing system of various agricultural commodities and its implications for agricultural and economic development in Ethiopia in general have employed the market value chain approach on different enterprises. However the analysis of groundnut value chain in Pawi Woreda, which is the main source of groundnut for Beni-shangule Gumuz National Regional State was not conducted yet. In the absence of adequate information on groundnut marketing in Pawi Woreda designing appropriate groundnut marketing policy in Ethiopia will take place in an information vacuum. So this study is proposed to investigate the value chain analysis of groundnut in Metekel Zone, Pawi Woreda.

Therefore, this study focuses on identifying the weakest link of the groundnut value chain, in order to narrow the information gap and contribute to an understanding of the challenges and assist in developing improved market development strategies to the benefit of smallholder farmers, traders, and other market participants. Specifically, this research investigated the value chain analysis of groundnut in Metekel zone, Pawi Woreda.

1.3 Research Question

The study was tries to answer the following questions:

1. What are the performances of actors in the chain?
2. What are the determinants of groundnut supply to the market?
3 . What does groundnut value chain look like?
4. What are the major groundnut marketing channels in the study area?
5. What does groundnut marketing channels map look like?

1.4 Objective of the Study

The general objective of the study is to analyze the value chains of groundnuts in the study area.

The specific objectives are:

- To identify groundnut value chain in the study area.
- To examine the performance of actors in the chain in the study area.
- To identify and map marketing channels of groundnut in the study area
- To analyze the determinants of groundnut, supply to the market in the study area.

1.5 Significance of the Study

The study provides a holistic picture of existing challenges, opportunities and entry points in the groundnut value chain. In addition, the study provides information on the determinants of groundnut supply to the market, marketing margin, benefit share of actors, and identifies opportunities and constraints of groundnut value chain in the study area. The information is expected to have valuable input that helps market participants to understand supply potential and performance of groundnut marketing and come up with important recommendations that helps in delivering required efforts to enhance the production and utilization of groundnut at larger scale to bring about economic development in the area. The information generated in this study could help a number of organizations including: national and international research institutions, development organizations, traders, producers, policy makers, extension service providers, government and non-governmental organizations to assess their activities and redesign their mode of operations in the study area.

1.6 Scope and Limitation of the Study

This study is conduct only in Pawi woreda, Metekel Zone, Beni-shangul Gumuze Regional State, with the specific crop category, groundnut value chain analysis. And important information collect from sample households and marketing actors involved in the subsector organization in the study area.

However, there are spatial as well as temporal limitations to make the study more representatives in terms of wider range of area coverage and time horizon. Furthermore, since Ethiopia has wide range of diverse agro-ecologies, institutional capacities, organizations and environmental conditions, the result of the study may have limitations to make generalizations and make them applicable to the country as a whole. These limitations are mainly due to shortage of time, budget and facilities

1.7 Organization of the Study

This thesis is organized five chapters. Chapter one has enveloped introductions, statement of the problem, objectives, research questions, scope and significance of the study. The next chapter has intensely reviewed the available literature by entailing general concepts of market chain and empirical research results executed elsewhere. The third chapter has enveloped components of the research methodology including description of the study area, types of data and its collection method and method of data analysis; while the fourth chapter discerned the credential of the survey results by discussing it in comparison with the results of other studies. Brief narrations of important findings of the study are presented in chapter five.

CHAPTER 2. LITERATURE REVIEW

In this part of the study the basic concepts of value chain, concepts guiding agricultural value chain, benefit of value chain in agricultural sector, markets and marketing, market channel, market performance, measuring value chain, developing value chain towards the benefit of the poor, market deriving development in groundnut value chain, and empirical reviews would be discussed.

2.1 Concept of Value Chain

The value chain describes the full range of activities which are required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), delivery to final consumers, and final disposal after use (Kaplinsky and Morris, 2000). According to UNIDO (2009), As opposed to the traditional exclusive focus on production, the concept stresses the importance of value addition at each stage, thereby treating production as just one of several value-adding components of the chain. The macroeconomic landscape, policies, laws, regulations, standards and institutional elements such as research and innovation, human resource development and other support services form the environment in which all activities take place and therefore are also important actors and activities in the value chain.

Industry chains are classified as either ‘supply’ or ‘value’ chains. The following definitions within the general term ‘industry chain’ are used:

Supply chain: It is taken to mean the physical flow of goods that are required for raw materials to be transformed into finished products. Supply chain management is about making the chain as efficient as possible through better flow scheduling and resource use, improving quality control throughout the chain, reducing the risk associated with food safety and contamination, and decreasing the agricultural industry’s response to changes in consumer demand for food attributes (Dunne, 2001).

Value chain: It is taken to mean a group of companies working together to satisfy market demands. It involves a chain of activities that are associated with adding value to a product through the production and distribution processes of each activity (Schmitz, 2005). An organization’s competitive advantage is based on their product’s value chain. The goal of the company is to deliver maximum value to the end user for the least possible total cost to the company, thereby maximizing profit (Porter, 1985).

A value chain is made up of a series of actors (or stakeholders) from input suppliers, producers and processors, to exporters and buyers engaged in the activities required to bring agricultural product from its conception to its end use (Kaplinsky and Morris, 2001).

The value chain concept entails the addition of value as the product progresses from input suppliers to producers and consumers. A value chain, therefore, incorporates productive transformation and value addition at each stage of the value chain. At each stage in the value chain, the product changes hands through chain actors, transaction costs are incurred, and generally, some form of value is added. Value addition results from diverse activities including bulking, cleaning, grading, and packaging, transporting, storing and processing (Anandajayasekeram and Berhanu, 2009).

Value chains encompass a set of interdependent organizations, and associated institutions, resources, actors and activities involved in input supply, production, processing, and distribution of a commodity. In other words, a value chain can be viewed as a set of actors and activities, and organizations and the rules governing those activities. Value chain management is about creating the added value at each link in the chain and a sustainable competitive advantage for the businesses in the chain. How value is actually created is a major concern for most businesses.

Porter (1985) indicates that value can be created by differentiation along every step of the value chain, through activities resulting in products and services that lower buyers’ costs or raise buyers’ performance. In much of the food production and distribution value chain, the value creation process has focused on commodities with relatively generic characteristics, creating relatively small profit margins.

Porter (1985) distinguishes between primary activities and support activities. Primary activities are directly concerned with the creation or delivery of a product or service. They can be grouped into five main areas: inbound logistics, operations, outbound logistics, marketing and sales, and service. Each of these primary activities is linked to support activities which help to improve their effectiveness or efficiency. There are four main areas of support activities: procurement, technology development (including Research & Development), human resource management, and infrastructure (systems for planning, finance, quality, information management etc.).

2.1.1. Major concepts guiding agricultural value chain analysis

There are four major key concepts guiding agricultural value chain analysis (Anandajayasekeram and Berhanu, 2009). These are effective demand, production, value chain governance, and upgrading.

2.1.2. Effective demand

Agricultural value chain analysis views effective demand as the force that pulls goods and services through the vertical system. Hence, value chain analysis need to understand the dynamics of how demand is changing at both domestic and international markets, and the implications for value chain organization and performance. Value chain analysis also needs to examine barriers to the transmission of information in the changing nature of demand and incentives back to producers at various levels of the value chain (MSPA, 2010).

2.1.3. Production

In agricultural value chain analysis, a stage of production can be referred to as any operating stage capable of producing a saleable product serving as an input to the next stage in the chain or for final consumption or use. Typical value chain linkages include input supply, production, assembly, transport, storage, processing, wholesaling, retailing, and utilization, with exportation included as a major stage for products destined for international markets. A stage of production in a value chain performs a function that makes significant contribution to the effective operation of the value chain and in the process adds value (Anandajayasekeram and Berhanu, 2009).

Producing the required amount effectively is a necessary condition for responsible and sustainable relationships among chain actors. Thus, one of the aims of agricultural value chain analysis is to increase the quantity of agricultural production. Understanding the mechanisms of the agricultural production greatly help to design appropriate policy that bring more gain to farmers and the whole society at large. For a long time, sector analyses have been used to measure the different economic aspects of production. However, sector analyses have not been without weaknesses. In particular, sector analysis tends to be static and suffers from the weakness of its own bounded parameters. Such analysis struggles to deal with dynamic linkages between productive activities that go beyond that particular sector (Kaplinsky and Morris, 2000). By going beyond the traditional narrow focus on production, value chain analysis scrutinize interactions and synergies among actors. Thus, it overcomes several important limitations of traditional sector assessments.

2.2. Value Chain Governance

Governance refers to the role of coordination and associated roles of identifying dynamic profitable opportunities and apportioning roles to key players (Kaplinsky and Morris, 2000). Value chains imply repetitiveness of linkage interactions. Governance ensures that interactions between actors along a value chain reflect organization, rather than randomness. The governance of value chains emanate from the requirement to set product, process, and logistic standards, which then influence upstream or downstream chain actors and results in activities, roles and functions. It is important to note that governance and coordination sometimes appear as synonymous or interchangeable terms in the literature.

Already in the 1980s, Williamson (1979, 1985) used the term governance to define the set of institutional arrangements in which a transaction is organized. As Gereffi’s work on Global Commodity Chains and the role of governance appeared, the term coordination took on a new meaning, basically, the vertical organization of activities. The application of contract/private ordering/governance leads naturally into the re-conceptualization of the firm. Not as a production function (in the science of choice tradition) but as a governance structure (Williamson, 2002).

According to Raikes et al. (2000), trust-based coordination is central for goods and services, whose characteristics change frequently, making a standardized quality determination for the purposes of industrial coordination difficult. This applies to the manufacturing industry as well as agri-food chains. It is possible to identify in one industry several coordination forms used by different firms where the choices rely on the trust existent between the firms.

Value chains can be classified into two based on the governance structures: buyer-driven value chains, and producer-driven value chains (Kaplinisky and Morris, 2000). Buyer-driven chains are usually labor intensive industries, and so more important in international development and agriculture. In such industries, buyers undertake the lead coordination activities and influence product specifications. In producer-driven value chains which are more capital intensive, key producers in the chain, usually controlling key technologies, influence product specifications and play the lead role in coordinating the various links. Some chains may involve both producer and buyer driven governance. Yet in further work (Humphrey and Schmitz, 2002; Gibbon and Ponte, 2005) it is argued that governance, in the sense of a clear dominance structure, is not necessary a constitutive element of value chains. Some value chains may exhibit no governance at all, or very thin governance. In most value chains, there may be multiple points of governance, involved in setting rules, monitoring performance and/or assisting producers.

Chain governance should also be viewed in terms of ‘richness’ and ‘reach’, i.e., in terms of its depth and pervasiveness (Evans and Wurster, 2000). Richness or depth of value chain governance refers to the extent to which governance affects the core activities of individual actors in the chain. Reach or pervasiveness refers to how widely the governance is applied and whether or not bases of power compete exists. In the real world, value chains may be subject to multiplicity of governance structure, often laying down conflicting rules to the poor producers (MSPA, 2010).

2.2.1. Value chain upgrading

Upgrading refers to the acquisition of technological capabilities and market linkages that enable firms to improve their competitiveness and move into higher-value activities (Kaplinsky and Morris, 2000). Upgrading in firms can take place in the form of process upgrading, product upgrading, functional upgrading and chain upgrading. Upgrading entails not only improvements in products, but also investments in people, knowhow, processes, equipment and favorable work conditions. Empirical research in a number of countries and sectors (e.g. Humphrey, 2003; Humphrey and Memedovic, 2006) provide evidence of the importance of upgrading in the agricultural sector.

2.2.2. Market and marketing

Market can be defined as an area in which one or more sellers of given products/services and their close substitutes exchange with and compete for the patronage of a group of buyers. Originally, the term market stood for the place where buyers and sellers are gathered to exchange their goods, such as village square. A market is a point, or a place or sphere within which price making force operates and in which exchanges of title tend to be accompanied by the actual movement of the goods affected (Backman and Davidson, 1962). The concept of exchange and relationships lead to the concept of market. It is the set of the actual and potential buyers of a product (Kotler and Armstong, 2003). Conceptually, a market can be visualized as a process in which ownership of goods is transferred from sellers to buyers who may be final consumers or intermediaries.

2.2.3. Marketing efficiency

Efficiency in marketing is the most used measure of market performance. Improved marketing efficiency is a common goal of farmers, marketing organizations, consumers and society. It is a commonplace notation that higher efficiency means better performance whereas declining efficiency denotes poor performance. Most of the changes proposed in marketing are justified on the grounds of improved efficiency (Kohls and Uhl, 1985).

2.2.4. Marketing channel

According to Mendoza (1995), marketing channel is the sequence of intermediaries through which whole commodity passes from farmers (producers) to consumers. The analysis of marketing channels is intended to provide a systematic knowledge of the flow of the goods and services from their origin (producer) to the final destination (consumer). Formally, a marketing channel is a business structure of interdependent organizations that reach from the point of product or origin to the consumer with the purpose of moving products to their final consumption or destination (Kotler and Armstong, 2003). This channel may be short or long depending on kind and quality of the product marketed, available marketing services, and prevailing social and physical environment (Islam et al., 2001).

2.2.5. Marketing Performance

Market performance can be evaluated by analyzing costs and margins of marketing agents in different channels. A commonly used measure of system performance is the marketing margin or price spread. Margin or spread can be useful descriptive statistics if it used to show how the consumer’s price is divided among participants at different levels of marketing system (Mendoza, 1995).

Marketing costs: Marketing costs are the embodiment of barriers to access to market participation by resource poor smallholders. It refers to those costs, which are incurred to perform various marketing activities in the transportation of goods from producer to consumers. Marketing costs includes handling cost (labour, loading and unloading, costs of damage, transportation and etc) to reach an agreement, transferring the product, monitoring the agreement to see that its conditions are fulfilled, and enforcing the exchange agreement (Holloway et al., 2002).

Marketing margin: It is a commonly used measure of the performance of a marketing system (Abbot and Makeham, 1981). It is defined as the difference between the price the consumer pays and the price that is obtained by producers, or as the price of a collection of marketing services, which is the outcome of the demand for and supply of such services. The size of market margins is largely dependent upon a combination of the quality and quantity of marketing services provided the cost of providing such services, and the efficiency with which they are undertaken and priced. For instance, a big margin may result in little or no profit or even a loss for the seller involved depending upon the marketing costs as well as on the selling and buying prices (Mendoza, 1995).

Under competitive market conditions, the size of market margins would be the outcome of the supply and demand for marketing services, and they would be equal to the minimum costs of service provision plus “normal” profit. Therefore, analyzing market margins is an important means of assessing the efficiency of price formation in and transmission through the system. There are three methods generally used in estimating marketing margin: (1) detailed analyses of the accounts of trading firms at each stage of the marketing channel (time lag method); (2) computations of share of the consumer’s price obtained by producers and traders at each stage of the marketing chain; and (3) concurrent method: comparison of prices at different levels of marketing over the same period of time (Mendoza, 1995; Scarborough and Kydd, 1992).

2.2.6. Measuring value chain

A fundamental aspect of global value chain research is how ‘value’ itself, is conceptualized and measured. According to Gereffi (1999) profit, value addition and price markups are indications of income shares across value chain actors. Value–added shares can be calculated for different links in the chain. A second way to calculate value added is to look its distribution by each value chain actors of vegetable market and decomposing for each actor to get approximations of each value-added share. Marketing margin is the difference between the value of a product or a group of products at one stage in the marketing process and the value of an equivalent product or group of products at another stage. Measuring this margin indicates how much has been paid for the processing and marketing services applied to the product(s) at that particular stage in the marketing process (Smith, 1992).

2.3. Benefit of Value Chain in Agricultural Sector

It is an innovation that enhances or improves an existing product, or introduces new products or new product uses. This allows the farmer to create new markets, or differentiate a product from others and thus gain an advantage over competitors. In so doing, the farmer can ask a higher premium (price) or gain increased market share or access. Adding value does not necessarily involve altering a product; it can be the adoption of new production or handling methods that increase a farmer’s capacity and reliability in meeting market demand. Value-added can be almost anything that enhances the dimensions of a business. The key is that the value-adding activity must increase or stabilize profit margins, and the output must appeal to the consumer (AAFC, 2004).

Value chain is useful as a poverty-reduction tool if it leads to increase on and off farm rural employment and income. Increased agricultural productivity alone is not a sufficient route out of poverty within a context of globalization and increasing natural resource degradation. A focus on post-harvest activities, differentiated value added products and increasing links with access to markets for goods produced by low-income producers would appear to be the strategy open to smallholders (Lundy et al., 2002).

Traditionally, little attention has been paid to the value chains by which agricultural products reach final consumers and to the intrinsic potential of such chains to generate value added and employment opportunities. While high-income countries add nearly US$185 of value by processing one tone of agricultural products, developing countries add approximately US$40. Furthermore, while 98 percent of agricultural production in high-income countries undergoes industrial processing, barely 38 percent is processed in developing countries. These indicate that well developed agro-value chains can utilize the full potential of the agricultural sector (UNIDO, 2009).

In the process of preparing an agro-industrial master plan for Ethiopia, a prioritization process was conducted for several commodities to identify those offering the highest prospects for growth (UNIDO and FAO, 2009). Group 1: Commodities that are highly important to the economy due to the large population involved in their production and to their contribution to national food security. This group includes: cereals, oilseed, coffee and sugar. Group 2: Commodities that are importance to the economy, due to the number of people involved in production, processing and marketing as well as to their contribution to food security. This group includes: dairy products, meat, tea and fruit and vegetables. Group3: Commodities that entail a competitive advantage for Ethiopia. This group includes: honey, pulses, spices; and grapes/wine.

2.3.1 Developing value chain systems towards the benefits of the poor

In recent years, the pro-poor growth approach has become one of the key concerns of developmental organizations. The focus of the approach lies in the promotion of economic potentials of the poor and disadvantaged groups of people (OECD, 2006). The main aim is to enable them to react and take advantage of new opportunities arising as a result of economic growth, and thereby overcome poverty (Berg et al., 2006). The promotion of value chains in agribusiness aims to improve the competitiveness of agriculture in national and international markets and to generate greater value added within the country or region. The key criterion in this context is broad impact, i.e. growth that benefits the rural poor to the greatest possible extent or, at least, does not worsen their position relative to other demographic groups. Pro-poor growth is one of the most commonly quoted objectives of value chain promotion. In recent years, the need to connect producers to markets has led to an understanding that it is necessary to verify and analyze markets before engaging in upgrading activities with value chain operators. Thus, the value chain approach starts from an understanding of the consumer demand and works its way back through distribution channels to the different stages of production, processing and marketing (GTZ, 2006).

The value chain approach seeks to identify long-term solutions to reduce the vulnerability of developing countries to fluctuating world market prices or trade shocks. It does not just focus on adding value to existing traditional commodity exports (in other words, diversifying the same product), but also on promoting alternative products. Another characteristic of the approach is that it does not solely concentrate on functional dimensions such as supplying appropriate inputs, or applying good agricultural processing, handling and distribution practices. It emphasizes the importance of institutional arrangements, or rather governance issues, along the value chains that link and coordinate producers, processors and distributors of a certain product. Moreover, this aspect covers authority and power relationships that determine how financial, material and human resources are allocated and flow within the chain (Gereffi et al., 1994). Dynamic value chain systems respond to market shifts by developing and transferring knowledge to intermediaries and producers, so that they can adapt and maintain a competitive market position over time. Vibrant value chain systems grow and continuously incorporate new businesses, generating ever-increasing jobs, income, and assets. In this manner, value chain systems can have the potential to significantly reduce poverty for large numbers of poor people (Alexandra and Mary, 2006).

2.4. Development of Market-Driven Groundnut Value Chain

The value chain approach considers both the added value of a product and an insight into the actors’ roles and relations. The value chain approach analyses a product’s development process from input supply through production and processing level, transport, trade and marketing, to consumption. Despite the fact that, earlier work on agriculture concentrated mainly on improving the supply side of the respective value chains e.g. production conditions and output, recent studies have also paid attention to the demand side (Diao, 2007). Here the value chain analysis concentrates on both ends of the chain corresponding with the two sides of a market.

The development of the domestic markets of groundnut is strongly determined by factors on the supply side; example agricultural input like: improved seed, pest sides and fertilizer, seasonality, soil aridity, agricultural knowledge, competition, weather, and market infrastructure as well as on the demand side example increase in population, urbanization, and income-elasticity. Natural occurrences such as aridity, the composition of soils, and the weather are mainly responsible for creating opportunities and constraints on the supply side of the market. Production of groundnut in rain fed is highly affected by seasonality (high and low supply on the markets), which is mainly influenced by the climate and weather conditions. Furthermore, the importance of market co-ordination and market participation have been highlighted and described as one of the most important constraints responsible for the poor performance of groundnut (Okello et al., 2010).

Agricultural potential and market access alone cannot make farmers profitable. Availability of market infrastructure (storage, transport, etc) is important for farmers to avoid flooding of markets and enables them to increase their profit by selling in times of low supply. Due to seasonality, market prices fluctuate depending on the quantity and the quality of the products on the markets. Especially on the wholesale and retail markets prices also fluctuate even during one day. Often the limited availability of storage is the reason that traders and retailers try to sell all their produce by the end of one day, even if they achieve only a low price. In times of high supply, traders benefit more; in times of low supply farmers can sell everything they harvest for good prices (Okello et al., 2010).

2.5. Review of Empirical Studies

2.5.1. Value chain approach

There are a number of studies that have employed the value chain approach to agricultural commodities. Fitter and Kaplinsky (2001) used a value chain analysis to examine inter-country distributional outcomes of the global coffee sector by mapping input-output relations and identifying power asymmetries along the coffee value chain. Their study showed that returns to product differentiation taking place in the face of globalization do not accrue to the coffee producers. They also found that power in the coffee value chain was asymmetrical. At the importing end of the chain, importers, roasters and retailers compete with each other for a share of value chain rents but combine to ensure that few of the rents return to the farmer or the producer country.

Value chain study conducted on Groundnut in North western Ethiopia by Addisu Getahun and Erimias Tefera (2017) in Metekel zone indicated that the subsector faces some challenges such as lack of knowledge among the producers of the proper usage of fertilizers and pesticides as well as poor soil fertility management, limited access to reliable market information, unorganized market center, limited collection centers, and lack of proper packaging and transportation facilities. The study recommended short-term and long term infrastructural and institutional innovation to reduce the above challenges.

Ponte (2002) also used a value chain analysis to examine the impact of deregulation, new consumption patterns and evolving corporate strategies in the global coffee chain on the coffee exporting countries in the developing world. The study concluded that the coffee chain was increasingly becoming buyer-driven and the coffee farmers and the producing countries were facing a crisis relating to changes in the governance structure and the institutional framework of the coffee value chain.

Maize seed value chain study conducted in Bihar identified different problems on the chain (Agricultural Economics Research, 2012). The major constraints of marketing identified by the same study include lack of markets to absorb the production, high price for the products of seed, farmers have also felt that the improved varieties need huge capital investment in terms of assured irrigation and fertilizer to respond to their potential, lack of marketing institutions safeguarding farmers' interest and rights over their marketable produces (e.g. cooperatives), lack of coordination among producers to increase their bargaining power, and lack of transparency in market information communications. This study conclude that there is need to harmonize existing laws and regulations governing the seed sub-sector besides ensuring good and stable producer prices; quality farm inputs and improved extension services.

Dereje (2007) used value chain approach to study the competitiveness of Ethiopian coffee in the international market. The study indicates that Ethiopian farmers have low level of education, large family size with small farmland and get only 3% of the retail price in the German market. Thus, policy intervention was suggested to improve farmers’ performance.

2.5.2. Determinants of marketable surplus

It is boldly underlined in economic theory that human being is always under process of choice from a number of alternatives. The basis for the decisions could be issues ranging from in house to the exogenous uncontrollable factors. A case in point here is market supply where scholars put each owns point of determining variables. The study of market supply help filling the gap for success of commercialization. The analysis can identify factors that determine market supply. Knowing the determinants mean reckon where to focus to extensive production. The point is to improve marketable surplus based on the capacity of potential market. However, how much can be increased is a question of supply determinants and demand.

Market supply refers to the amount actually taken to the markets irrespective of the need for home consumption and other requirements where as the market surplus is the residual with the producer after meeting the requirement of seed, payment in kind and consumption by farmer at source (Wolday, 1994). In order to describe market supply words like marketable surplus and marketed surplus are usually used.

Marketable surplus is the quantity of produce left out after meeting the farmer’s consumption and utilization requirements for kind payments and other obligations such as gifts, donation, charity, etc. This marketable surplus shows the quantity available for sale in the market. The marketed surplus shows the quantity actually sold after accounting for losses and retention by the farmers, if any and adding the previous stock left out for sale (Thakur et al., 1997).

The surplus product supply stands for what the household brings to the market, but this does not necessarily imply an excess over his “subsistence requirement”. It includes parts of the product needed for consumption by the farm household when the farmer is forced to sell to pay rents, buy inputs, cancel debts, buy non-farm staples, to meet socio-cultural obligations, and to cover other immediate expenses. As a result, marketed surplus represents actual surplus and the quantity sold in the form of forced selling (BNRSBoARD, 2016 report).

Neway (2006) sited two options for commercialization. The most common form in which commercialization could occur in peasant agriculture is through production of marketable surplus of staple food over what is needed for own consumption. Another form of commercialization involves production of cash crops in addition to staples or even exclusively. At the farm household level, commercialization is measured simply by the value of sales as proportion of the total value of agricultural output. At the lower end, there would always be some amount of output that even a subsistence farmer would sale in the market to buy basic essential goods and services. For this reason, the ratio of marketed out put up to a certain minimum level cannot be taken as a measure of commercialization. Neway (2006) proposed the proportion to be 20 percent of marketable surplus in the Ethiopia as a cut of rate for commercialization.

The study of marketable surplus turned out to be very vital for agricultural based countries because the transition of smallholder farmers towards commercial production is determined by it. Wolelaw (2005) found out the major factors that affect the marketable supply of rice at Fogera woreda using multiple linear regression models. He investigated the relationship between the determinant factors of supply and the marketable supply of rice and his study revealed that the current price, lagged price, amount of rice production at farm level and consumption at household level had influenced marketable supply of rice at the woreda.

Study undertaken by Kinde (2007) also indicated the major factors that affect marketable supply of sesame in Metema woreda by using cross-sectional data and multiple linear regression models to identify the relationship between the marketable supply of sesame and the hypothesized explanatory variables. His study acknowledged that amount of sesame productivity, use of modern inputs, number of language spoken by the household head, number of oxen owned, sesame area and time of selling of sesame influenced marketable supply of sesame positively.

Getachew (2009) has noted that the transition of the small-scale sector towards commercial production will ultimately be determined by the ability and willingness of producers to provide a commodity. Similarly, Mamo (2009) argued that the development of markets, trade and the subsequent market supply that characterize commercialization are fundamental to economic growth.

There are a number of empirical studies on factors affecting the marketable surplus of agricultural commodities. Ayelech (2011) identified factors affecting the marketable surplus of fruits by using OLS regressions. She found that fruit marketable supply was affected by; education level of household head, quantity of fruit produced, fruit production experience, extension contact, lagged price and distance to market.

Abay (2007) applied Heckman two-stage model to analyze the determinants of vegetable market supply. Accordingly, the study found out that marketable supply of vegetables were significantly affected by family size, distance from main road, number of oxen owned, extension service and lagged price.

According to Wolday (1994) marketable supply of agricultural product could be affected by different factors including the size of land holding, the output level, family size, market access, price, inputs, formal education, oxen number, accesses to extension and credit services, distance to market, time of selling, access to labor and age. In sum, empirical evidences indicate that marketable supply approach has become an important framework to analyze economic agents in agricultural sector. In this study an attempt was made to identify factors affecting the marketable supply of groundnut.

2.6. Conceptual Framework

A value chain consists of all stages of a technical production process as well as of the interaction between these stages. The production process starts at the stage of input supply, than covers production, processing and marketing and ends with the consumption of a certain product. It can be seen as the hard skill of a value chain. The second part of a value chain, the interactions between the single stages, is the relationships and contractual linkages that not only determine the way the goods are traded between the different stages but are decisive for the overall character of the chain. The linkages between the stages lead to the so called governance structure of a chain that can be seen as the soft skill of it (Schipmann, 2006).

The conceptual framework of groundnut value chain, views as a network of horizontal and vertically integrated value chain actors that are jointly aimed toward providing products to a market. The value chain includes direct actors who are commercially involved in the chain (input suppliers, producers, traders, retailers, consumers) and indirect actors who provide services or support the functioning of value chain. These include financial or non-financial service providers such as bankers and credit agencies, business service providers, public research, transportation, extension agents and NGOs. Figure 1 below depicts the conceptual framework of the study which reflects possible order of analysis of groundnut value chain.

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Source: Own sketch

Figure 2.1 Groundnut value chain conceptual frame work in pawi woreda

CHAPTER 3. RESEARCH METHODS

3.1 Description of the Study Area

Pawi woreda is established the 1984 famine in the country which forced the government to resettle the highly populated area. Pawi woreda is located in Beni-shangul Gumuz National Regional State in Metekel zone border in the north Jawi woreda, in south Dibati woreda, in west Dangur woreda and in the east Jawi woreda. The woreda has a total of 20 kebeles of which 17 are rural based kebele administration areas and 3 are town kebele. Total human population of the woreda is estimated at 64,431 of whom 33,302 are males and 31,129 females. Of the total households 90% are rural agricultural households (Gizachew, 2018).

In Pawi woreda there are different Ethnic groups, from those Amhara, Tigry, Agew, Kenbata, Hadya and Oromo peoples are peacefully lived. These resettle were originally from: North showa, wollo, south nation nationality (kembata, wolayita and Hadia), Tigre, Agew from Sekota, North Gondar and Oromiyia. Pawi is located 575k/m north west of Addis Ababa. Its longitude is 36019’ 60.00’’E and latitude 11019’60.00’’N. The altitude of pawi ranges from 1000-1220 m.a.s.l. It is characterized by long rainy season (from May to October). Based on the recording from 1987-2009 the mean annual rain fall 1586 mm and the amount is reliable from year to year and its average minimum and maximum temperature is 16.5[0]c and 32.66[0]c respectively. However variation in temperature goes from 8[0]c in the coolest period especially July and August and around 41[0]c in the hottest period, March and April.

The soils types in the woreda are predominantly black (60%), red (31%), and mixed (9%). The woreda is characterized by subsistence mixed farming system in which production of both crops and livestock is common economic activity. The total land of the woreda is estimated to be 64,300 ha, out of which 44% of hectare is cultivated land, 16.5% of hectare is grazing land, 30.6% of hectare is forest and the remaining 8.9% of hectare is covered with others (Birhanu, 2018).

The woreda is known for its high production potential of crops and livestock. Crop production takes the lion’s share of consumption and income generation of the household. Oil seed crops widely produced in the area include sesame, groundnut and soybean and cereal crop. Moreover, vegetables and root crops produced in the area include onions, tomato, pepper, cabbage and sweet potato. Annual crops are predominant and rain-fed agriculture is mainly practiced using animal power. Livestock production is also another source of income and food source next to crop production. In addition, it is the source of traction power and used as a means of transpiration. Farmers keep a significant number of livestock (cattle, sheep, got and poultry) for various purposes in the study area (Birhanu, 2018).

Table 3.1: Major annual crop pawi woreda

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Source: computed from (PARDCO) Annual report 2018

Pawi woreda is suitable for groundnut production due to its favorable agro-ecology and availability of excess land. As depicted in Table 1, in 2016/17 production season total production of groundnut in pawi woreda is estimated to be 30949 quintals shelled on 4147.5 hectares of land. Where, in 2017/18 about 49,111.33 quintals was produced on 4,658.7 hectares of land. This implies the production and coverage of lands by groundnut in pawi woreda has increased even if the shortage of improved seed the major problem. Groundnut was commonly grown annual production cycles in the woreda. Map of study area is shown under figure 2.

3.2. Types, Sources and Methods of Data Collection

In order to address the objectives of the study the data was collected both from primary and secondary sources. Primary data included the whole situations of the marketing system from the producing farmer up to the end consumer. Primary data were collected through formal sample survey method from producers, wholesalers, local assemblers, retailers, cooperatives and agricultural input suppliers. The main data types collected include production, buying and selling, pricing, volume and direction of trade, input delivery and distribution, market supply of groundnut, identification of market participants, relationship among marketing agents, role of marketing agents, number of buyers and sellers in the market, marketing functions, facilities and services, production and marketing costs, production and marketing support the study area services, major constraints and opportunities, and other socio-economic variables of groundnut producers and traders were collected.

[Figure 3.1 was removed by the editorial staff due to copyright reasons.]

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The data were collected formally by the method of individual interview using pre-tested interview schedule questionnaire and through focus group discussion with key informants using checklists.

The secondary data were collected reviewing documents of secondary sources namely pawi woreda office of agricultural and rural development coordination office, office of pawi woreda small scale, trade, industry and transport, pawi woreda revenue office and woreda marketing agency, Central Statistical Authority (CSA), Bureau of Agriculture and Rural Development (BoARD), Bureau of Finance and Economic Development of BGRS and other sources. Beside relevant published and unpublished reports the researcher browsed websites, and bulletins to generate relevant secondary information focusing on groundnut production and marketing. Furthermore, from these secondary sources data on prices, output, number of licensed groundnut traders, groundnut marketing system, legal requirement to enter groundnut trading business, total land size and population types were collected.

3.3 Sample Size and Sampling Technique

For this study, in order to select a representative sample a three random sampling technique were implemented to select groundnut producer kebeles and sample farm households. In the first stage, with the consultation of Woreda agricultural experts and development agents, out of 20 kebeles of pawi woreda 8 groundnut producer kebeles were purposively selected based on the level of production. In the second stage, from the identified or selected rural kebeles, 4 sample kebeles were selected randomly. In the third stage, using the household list of the sample kebeles 155 sample farmers and other were selected randomly based on proportional to the population size of the selected kebeles.

For this study, data from traders and consumers were also collected. The sites for the trader surveys were market towns in which a good sample of groundnut existed. The lists of wholesalers were obtained from the respective Woreda Office of small scale, Trade, Industry and transport and for other traders there is no recorded list. Rural assemblers, wholesalers, and Retailers sampling were Researchers do not agree on sample size and procedure that should be used in each segment of the marketing chain (Mendoza, 1995). The decisions involved were partly a function of information currently known, time and resources available, accessibility to and openness of the marketing participants as well as the estimated size of the trading population.

It is estimated that about 5 rural assemblers (collector), 15 retailers, and 10 wholesalers used to participate in the marketing of the product. However, it was arbitrarily believed to take three from each for detail interviewing. In fact, frequent rapid informal and observational surveys were also followed. The number of sample households is determined using Yamane (1967)’s formula.

The formula use for sample size determination is ,

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Where n= sample size

N= Population size (13,923) n =

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e= margin of error (8%) n =

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3.4. Methods of Data Analysis

Descriptive statistics, inferential statistics and econometric analysis were used to analyze the data collected from groundnut producers, traders and consumers.

3.4.1. Descriptive and inferential statistics

These methods of data analysis refer to the use of percentages, means, standard deviations, t-test, F-test and maps in the process of examining and describing marketing functions, facilities, services, and household characteristics.

3.4.2 Value chain analysis

As products move successively through the various stages, transactions take place between multiple chain actors, money and information are exchanged and value was progressively added. The analysis of groundnut value chains highlights the need for enterprise development, enhancement of product quality, and quantitative measurement of value addition along the chain, promotion of coordinated linkages among producers and improvement of the competitive position of individual enterprises in the marketplace. Moreover, individual enterprises may feed into numerous chains; hence, which chain will target depends largely on the point of entry for the research inquiries (Kaplinsky and Morris, 2001). The following four steps of value chain analysis were applied for this study:

1. Mapping the value chain to understand the characteristics of the chain actors and the relationships among them, including the study of all actors in the chain, of the flow of groundnut through the chain, of employment features, and of the destination and volumes of domestic sales. This information can be obtained by conducting surveys and interviews as well as by collecting secondary data from various sources.
2. Identifying the distribution of actors’ benefits in the chain. This involves analyzing the margins and profits within the chain and therefore determined who benefits from participating in the chain and who would need support to improve performance and gains. In the prevailed context of market liberalization, this step is particularly important, since the poor involved in value chain promotion were the most vulnerable.
3. Defining upgrading needed within the chain. By assessing profitability within the chain and identifying chain constraints, upgrading solutions could be defined. These may include interventions to: (i) improve product design and quality and move into more sophisticated product lines to gain higher value; (ii) reorganize the production system or invest in new technology to upgrade the process and enhance chain efficiencies; (iii) introduce new functions where in the chain to increase the overall skill content of activities; and (iv) adapt the knowledge gained in particular chain functions in order to redeploy it.
4. Emphasizing the governance role. Within the concept of value chain, governance defines the structure of relationships and coordination mechanisms that exist among chain actors. By focusing on governance, the analysis identified actors that may require support to improve capabilities in the value chain, increase value added in the sector and correct distributional distortions. Thus, governance constituted a key factor in defining how the upgrading objectives were achieved.

Following the above procedure, the main aspects of groundnut value chain analysis was done by applying some quantitative and qualitative analysis. First, an initial map was drawn which depicts the structure and flow of the chain in logical clusters. This exercise was carried out in qualitative and quantitative terms through graphs presenting the various actors of the chain, their linkages and all operations of the chain from pre-production (supply of inputs) to consumption. After having developed the general conceptual map of the value chain, the next step is analyzing the chain’s economic performance and benefit share of actors.

3.4.3. Analysis of groundnut value chain performance

Market performance refers to the impact of structure and conduct on prices, costs, and volume of output (Pomeroy and Trinidad, 1995). An investigation of market efficiency is one approach to evaluate the degree of market performance.

Marketing efficiency has the following two major components: (i) effectiveness with which a marketing service would be performed and (ii) the effect on the costs and the method of performing the service on production and consumption. These are most important because the satisfaction of the consumer at the lowest possible cost must go hand in hand with maintenance of a high volume of farm output (Ramakumar, 2001).

Marketing Margin - In a commodity subsystem approach, the institutional analysis is based on the identification of the marketing channels. This approach includes the analysis of marketing costs and margins (Mendoza, 1995). A marketing margin can be defined as a difference between the price paid by consumers and that obtained by producers; or as the price of a collection of marketing services that is the outcome of the demand for and supply of such services (Tomek and Robinson, 1990). It measures the share of the final selling price that is captured by a particular agent in the marketing chain (Mendoza, 1995). It, in its simplest form, can be defined as the difference between prices paid for a commodity (groundnut tea) by consumers at a retail level, and prices received by farmers when they sell their commodity (e.g. groundnut) to assemblers or other first handlers. Measured in this form, the margins reflect the amount of services added to a commodity once it leaves the farm and sits on a shelf in a retail outlet in a form that is acceptable, useful, and appealing to consumers.

[...]

• Universidad: Bahir Dar University (College of Agriculture and Environmental Science)
• Curso: Agricultural economics
• Calificación: Good
• Autor: TIZAZU AMBAW (Autor)
• Año de publicación: 2019
• Páginas: 122
• No. de catálogo: V505489
• ISBN (Ebook): 9783346109064
• Idioma: Inglés
• Etiqueta: value, chain, analysis, groundnut, pawi, woreda, metekel, zone, ethiopia