Analysis of red pepper marketing: the case of Alaba and Siltie in SNNPRS of Ethiopia

This research attempts to examine red pepper marketing in Alaba and Siltie with the specific objectives of identifying marketing channels, and the role and linkage of marketing agents; quantifying costs and margins for key marketing channels; identifying factors affecting volume of pepper supply in Alaba and Siltie and examining integration between regional markets and the terminal market. Red pepper marketing channels, and the role and linkage of marketing agents has been evaluated using structure, conduct and performance approach. This study also attempts to investigate the performance of pepper marketing channel by analyzing marketing costs and margins, and examines the integration of pepper markets over the 2001/02-2004/05 period by using Cointegration and Error Correction Model. Moreover Tobit and Heckman two stage econometric models were used to investigate factors affecting pepper market participation decision and quantity supply of pepper. According to the results of the study, in 2004/05 regional wholesaler and urban assemblers purchased about 44% and 28% of farmers production, respectively. Sample markets were inefficient, characterized by oligopolistic market structure in Addis Ababa, Alaba and Tora markets. Research findings suggest that an improvement in producers bargaining power through cooperatives is necessary to reduce the olgopolistic market structure. In Alaba Kulito market, traders set purchase price after the mid nigh. Based on this price setting strategy, there is an urgent need for government intervention. Structure of the markets indicates that licensing and years of pepper trade experience did not hinder entry into pepper market, but education and capital were barriers. Market information is the main problem. Markets also are characterized by low producers’ share and high marketing cost. Based on the Heckman two-stage model, the study has identified the main determinants of pepper market participation decision and its effect on the quantity supply. One of the most important variables influencing the decision to participate in pepper market is pepper production. Consequently, extension work should focus on encouraging farmers to participate in pepper production especially, there is a need to increase new varieties that are disease resistant variety and disseminate these technologies to potential areas. The other factors that adversely affects market participation is crop yield of the households. Keeping their specialization and social role in pepper production potential areas is necessary. Moreover, pepper production and extension contacts are the determinant factors of the quantity of pepper supplied. Therefore, policies that would improve pepper production capacity by identifying new technologies and create stable demand for surplus production would enhance farmers’ decisions on marketable surplus. Non farming income and number of livestock affected the quantity of pepper supplied negatively. Thus, stakeholders have to make further investigations on cost and benefit of non-farm income and livestock production of farmers and let them know the result to make their decision. Further, the result shows that Siltie zone pair markets (Tora – Silti, Tora - Alem Gebeya, Tora – Dalocha, Silti – Alem Gebeya, Silti – Dalocha and Alem Gebeya - Dalocha) are integrated. However, the terminal market (Addis Ababa) is not integrated with the regional markets (Alaba Kulito, Silti, Dalaocha, Tora, and Alem Gebeya) even though, the regional markets are the major pepper supplier to Addis Ababa market. This implies that there is poor market information system, limited bargaining power of farmers, oligopolistic market structure in the pepper market. The findings suggests that, effective market information service has to be established to provide accurate and timely information to farmers and traders on current supply of pepper output, demand and prices at national and regional levels. Market structure of pepper (strong oligopoly market) also influenced market integration, implying the need for creating competitive market structure.

CIDA