over the longer run. These market-oriented approaches may prove to be more cost-effective over
the long-run in stabilizing producers' revenues and promoting farm technology adoption and
production than administered fixed price policies.
The Effects of Food Aid
The depressing effect of food aid on grain prices is observed in 7 of the 16 cases examined for the
three commodities. Food aid negatively affected the prices of maize in Jimma, white tef in Addis
Ababa, Dire Dawa, Bahir Dar and Mekele markets and the price of white wheat in Hosaenna and
Mekele markets. However, the effect of food aid on grain prices in surplus markets is found to
be either positive or negative but not significant in most of the cases. While these results should
be interpreted cautiously, they suggest that food aid distribution over the 1987-1993 period, at
least to some extent, was substituting for local market purchases or was being sold onto markets.
The fact that market prices have apparently become more integrated since liberalization implies
that leakages of food aid in one regional market may now affect prices to a greater extent in other
regions as well.
Policy Options for Consideration
In general, while liberalization may have improved allocative efficiency and reduced marketing
costs related to policy restrictions, there may be substantial scope to improve technical efficiency
of marketing activities through strengthening of market institutions. This implies an important
positive role for government in the following areas:
1. improved road, rail, port, and communication infrastructure. Investment in market
infrastructure reduces costs and risks across a broad range of commodities and inputs in
contrast to expenditures confined to particular crops (e.g., crop subsidies). Donor
support in this area would make the market liberalization measures they advocated more
successful. Improved market infrastructure also requires further policy change to remove
remaining import tariffs on vehicles and spare parts.
2. Removal of taxes on grain at regional road checkpoints: While taxes on the movement
of grain support fiscal objectives of the regions, they increase grain marketing costs and
work against government efforts to stimulate incentives to use productivity-enhancing
farm technology. Other research has shown the value-cost ratio of fertilizer use on maize
could be increased by 8% in key producing regions if the elimination of checkpoint tariffs
were half passed on to producer prices (Mulat, Ali, and Jayne 1996). Also, since the poor
spend a comparatively large proportion of their income on food, the taxation of grain is
likely to be regressive.
3. improved public market information systems to accelerate both private and public
response to supply gluts and shortages. The timely dissemination of market information
can also help policy makers to better monitor the evolving effects of market liberalization,
identify problems that require mid-course correction, and to respond to impending supply
fluctuations in a more timely way.
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