Governance structures and incentives in the wheat value chain in Ethiopia

Abstract

Empirical studies on the effects of governance structures on incentives have still received little attention in the wheat value chain research of developing countries. The purpose of this paper is to investigate the effects of governance structures on actors’ incentives in different functional nodes of the wheat value chain. This study used personal interviews to collect primary data from input suppliers, wheat producers, wholesalers, wheat processors and co-operatives. Mixed sampling techniques (i.e. random, census and purposive) were applied to select sampling units. Descriptive statistics and the ordered logit model were used to analyse the data. This paper found that governance structures, opportunistic behaviour, asymmetric information and trust influence actors’ incentives in each functional node of the wheat value chain. Specifically, extension services, governance structures, power relations and price information have significant and positive effects on producers’ price incentives. The study provides pioneering evidence of the effects of governance structures on incentives in each functional node of the value chain. The study adds new knowledge to the existing empirical knowledge. The results recommend government to use effective policy interventions to reduce opportunistic behaviours and asymmetric information, and to adopt incentive strategies to encourage investment, and increase productivity and profitability.

Competitive agricultural input markets in Ethiopia: Theoretical promises versus reality

“…Fertilizer was always supplied by the kebeles' cooperative. In the control district, farmers have limited input choices and purchase lower-quality agricultural inputs that adversely affect the agricultural market performance as evidenced by Habte et al (2020) and Shikur et al (2020). In many agricultural input frameworks, increased variety reduces total margins due to increased price competition (Richards & Hamilton, 2013), but it increases producer demand within a retail location, generating indirect network effects and raising retail margins at the expense of wholesale margins.…”

“…This exemplifies that the project implementation reduces market margins and increases the concentration ratio. The interventions would increase input availability for producers (Shikur et al, 2020). The collaborative price-setting strategy decreases wholesale and retail agricultural input market power, which could enable farmers to purchase agricultural inputs at fair prices as compared to the control district.…”

“…Vertical coordination can provide a stable and safe market with a fixed price that sometimes exceeds the market price as an incentive for long‐term commitment. Long‐run relationships produce an incentive to invest in modernizing processes, products, and functions in order to provide a guaranteed income (Shikur et al, 2020). They can reduce risk and vulnerability by insulating participants from value fluctuations.…”

“…In Ethiopia, these crises have predominantly been associated with high market power and concentration. These challenges aggravate the degree of uncertainty and risk pertaining to the quality, quantity, and price of agricultural inputs and outputs (Shikur et al, 2020). Increased market power stems from weak market coordination and information asymmetry in the input supply chain (Shikur et al, 2020).…”

“…These challenges aggravate the degree of uncertainty and risk pertaining to the quality, quantity, and price of agricultural inputs and outputs (Shikur et al, 2020). Increased market power stems from weak market coordination and information asymmetry in the input supply chain (Shikur et al, 2020). Rising concentration results from entry barriers, merger control enforcement, intangible asset investment, and a lack of antifraud enforcement, leading to higher margins and more profit for actors, with no evidence of increased efficiency.…”