surplus-producing region (but statistically insignificant at 10%), which, other factors constant,
increases the price spread between these two markets. For every market pair examined, the
impact of food aid released in the region of the given deficit market was to depress the teff price
spread between these market-pairs, significantly in four of eight cases at the 5% level.
In the case of white wheat, market liberalization has been associated with lower white wheat price
spreads between all the different market pairs considered (Table 13). The effect was significant
at the 5% level for Mekele-Addis Ababa, Dire Dawa-Hosaenna , and Mekele-Hosaenna. The
volume of food aid released in the regions of the surplus and deficit markets has had ambiguous
effects on white wheat price spreads, depending on the effect on price levels in the different
markets considered.
6. SUMMARY AND POLICY IMPLICATIONS
The Effects of Seasonality
The effect of seasonality on the price levels of the grains considered in this study is significant for
most of the markets. Based on household-level information on farmer grain selling patterns, most
of the farmers in Ethiopia dispose their grain to the market just after harvest due to distress sales
when the prices are not favorable (see, for example, Legesse and Asfaw 1989). A preliminary
report from GMRP household survey indicates that about 83% of the grain sale transactions by
the farmers occurs between January and May. Most farmers are not in a position to take
advantage of seasonal price differences because of limited income to cover their financial
commitments which in most cases have to be settled soon after harvest, and possibly because the
returns to storage are not high under prevailing smallholder conditions.
The effect of seasonality on marketing margins between different markets is not significant in most
of the cases. Most of the factors affecting seasonal price rises are comparable in magnitude across
markets, hence the price spread between them has little seasonal pattern. This implies a fairly
constant margin being charged by private traders throughout the marketing season. This result
might suggest that there is limited incentive for private temporal arbitrage. However, a recent
survey of 219 private grain traders throughout Ethiopia in 1996 indicated that over half stored
grain for an average of over two months (Gebremeskel 1997).
The Effects of Market Liberalization
The effect of market liberalization on equilibrium grain price levels varied by the type of grains
and markets considered. Market liberalization has been associated with lower real cereal price
levels in six of nine cases involving markets in deficit regions. These findings were statistically
significant at the 10% level in three of these nine cases after controlling for other factors affecting
cereal prices such as rainfall, food aid, and seasonality. Market liberalization has been associated
with higher real cereal prices in each of the seven cases involving markets in surplus regions
(statistically significant in five cases).
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