the pre-market liberalization period levels (Table 4). For maize the producers’ share of
consumers' price in Addis Ababa increased by 11% to 12% and for white teff it increased by 1%
to 6% while the share decreased for white wheat by 1%. On-going analysis by GMRP is assessing
in more detail the degree of price transmission at retail, wholesale, and farm level.
Changes in price spreads and volatility
Higher prices in surplus-producing areas and simultaneously lower prices in deficit areas indicate
that market liberalization has been associated with a reduction in average wholesale price spreads
(the difference between wholesale prices in surplus and deficit regions). This is confirmed by
direct computation of price spreads for major trade routes in Ethiopia during the pre-liberalization
and post-liberalization period (Table 5). Cereal price spreads have declined during the post-
liberalization period in 22 of 24 cases for which data is available. The decline in price spreads was
especially large for white teff and wheat, the cereals that figured most prominently in the former
AMC’s forced grain procurement system during the control period. For white teff, average
wholesale price spreads across all market pairs declined by 81 birr per quintal (in 1996 Birr) from
149 birr per quintal during the pre-liberalization period, to 68 birr per quintal during the post-
liberalization period. White wheat price spreads similarly declined by 41 birr per quintal after
liberalization (from 95 birr per quintal to 54 birr per quintal), and maize price spreads declined
by 12 birr per quintal (from 52 to 40 birr per quintal).
The only exception has been between the maize price spread between Addis Ababa and Dire
Dawa, which has risen slightly in the post-liberalization period. The increase in the price spread
between Addis Ababa and Dire Dawa may be due to taxes on grain movement between these
markets, which can be seen from the relatively heavy taxation of grain at grain checkpoints on this
route (averaging 15 birr per quintal) as compared to other routes. The issue of grain checkpoints
is discussed later in this section.
While differences in weather conditions may partially account for changes in price levels in the
pre- and post-liberalization periods, favorable weather during the post-liberalization period cannot
serve as an explanation for why prices in surplus-producing markets rose at the same time that
prices in deficit markets declined. Reasons forwarded for the decline in inter-regional marketing
spreads during the post-liberalization period include (1) lower transactions costs in grain trading
from the reduction or elimination of smuggling, bribery, and illegal grain movement (Franzel et
al 1990); (2) the restoration of peace in the country after a civil war during the 1980s that
disrupted commercial trade especially in the northern regions (Dercon 1994); (3) the cessation
after liberalization of forcing traders to sell part of their produce to the state at below-market
prices, which may have forced them to recoup losses by offering reduced prices to farmers and
higher prices to retailers; and (4) lower levels of uncertainty associated with EGTE’s curtailed
grain trading activities during the post-liberalization period.
The absolute volatility of cereal price spreads between different markets has also declined since
liberalization in 23 of the 24 cases for which data are available (Table 5). These findings suggest
that the transfer costs charged by traders for distributing cereal from one region to another have
not only declined but have also become more stable in absolute terms during the post-
liberalization period. However, when considering the lower level of absolute variation in price
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