Skip to main content

Producer to retailer price transmission in cereal markets of Ethiopia


This paper investigates price transmission between producer and retail prices of teff, wheat, and maize in Amhara and Oromia, the two major cereal markets in Ethiopia. Market and cereal specific asymmetric error correction models were estimated to analyze producer-retail price transmission using monthly data from 2001 to 2011. For seven out of eight crop-market combinations, with the exception of the Amhara wheat market, we found no evidence of asymmetric price transmission from producer to retail prices in the long run. Neither contemporaneous nor long-run price transmission asymmetry was found in either the Amhara or Oromia teff markets. This was also the case for the maize market except that there existed a short-run asymmetric price transmission that disappeared in the long run in Oromia. We therefore conclude that there is no strong empirical evidence to support the purported ‘market power’ or ‘inventory holding’ behaviour in the Ethiopian cereal markets to explain asymmetric vertical price transmission in the long run. The evidence of asymmetric price transmission for the Amhara wheat market, unlike the wheat market in Oromia, may indicate some differential in the quality of infrastructure and the length and complexity of wheat value chains between these two markets. Symmetric price adjustments in these cereal markets suggest that input price changes may have positive long run implications for food security and welfare of the poor in Ethiopia.

This is a preview of subscription content, access via your institution.

Fig. 1
Fig. 2


  1. 1.

    For instance, export ban of basic-consumption cereals, introduction of a price cap for major food items, rationing wheat and flour at subsidized prices to poor households in major urban centres and direct government import by the Ethiopian Grain Trade Enterprise (EGTE) for open market sales. The effectiveness of such measures to stabilize the market is, however, outside the scope of this paper.

  2. 2.

    Yet, incomplete transmission of high farm gate prices to retail prices could, in the short-run, be beneficial for food security of urban consumers.

  3. 3.

    According to the CSA (2012) report, in the 2011/2012 harvest season (meher), maize was the largest cereal crop in the country in terms of production volume, followed by sorghum, teff, and then wheat.

  4. 4.

    Meyer and von Cramon-Taubadel (2004) and Vavra and Goodwin (2005) provide a comprehensive summary of the causes of vertical APT as mentioned in the previous studies.

  5. 5.

    Menu costs refer to all costs associated with making adjustments in retail prices, which include advertising and labelling, as well as potential loss in the firm’s reputation due to frequent price changes (Vavra and Goodwin 2005).

  6. 6.

    See Meyer and von Cramon-Taubadel (2004), Weldegebriel (2004) and Frey and Manera (2007) for a comprehensive review of previous studies dealing with potential causes of asymmetries and methodological issues in price transmission.

  7. 7.

    Maize and teff are the main cereal staple food crops in Ethiopia, while teff is the most valuable cereal crop. In this analysis, we considered only white teff and white wheat varieties.

  8. 8.

    1 USD = 18.16 Ethiopian Birr in July 2012 (

  9. 9.

    The CPI obtained from the FAOSTAT database (

  10. 10.

    In the model selection criterion to test for ADF, the lag lengths are selected from the model that gives the lowest Akaike Information Criterion (AIC). Enough lag lengths are included in the model until the serial correlations in the residuals are eliminated. The number of lagged difference term to be included can be determined based on a t-test, an F-test, or using model selection criteria such as the AIC, Schwarz − Bayesian Information Criterion (SIC) and Hannan − Quinn Information Criterion (HQ).

  11. 11.

    The assumption of the linear adjustment from producer to retail market level is motivated for the reason that these commodities do not undergo any sort of processing along the market chain.

  12. 12.

    We start from the general ADF model that contains both a constant and a trend. Since the unit root is not rejected based on the general test form, we proceeded the test without a time trend and a drift. The results showed that both the trend and the drift were statistically not significant based on the ADF τ-statistics at the 5% significance level. Therefore, the ADF test reported in Table 2 was performed without drift and time trend.

  13. 13.

    The Engle-Granger test statistic is computed without any drift or deterministic covariates, and the choice to include lagged difference in the ADF regression was determined using automatic lag selection based on Schwarz Criterion with a maximum lag of 12.


  1. Abbott, P., & Borot de Battisti, A. (2011). Recent global food price shocks: causes, consequences and lessons for African governments and donors. Journal of African Economies, 20(suppl 1), i12–i62.

    Article  Google Scholar 

  2. Abdulai, A. (2002). Using threshold cointegration to estimate asymmetric price transmission in the swiss pork market. Applied Economics, 34(6), 679–687.

    Article  Google Scholar 

  3. Admassie, A. (2013). The political economy of food price: the case of Ethiopia. Working paper series UNU-WIDER research paper, world institute for development economic research (UNU-WIDER), Helsinki Finland.

  4. Alam, M. J., McKenzie, A. M., Begum, I. A., Buysse, J., Wailes, E. J., & Van Huylenbroeck, G. (2016). Asymmetry price transmission in the deregulated rice markets in Bangladesh: asymmetric error correction model. Agribusiness, 32, 498–511.

    Article  Google Scholar 

  5. Alemu, Z. G., & Ogundeji, A. A. (2010). Price transmission in the South African food market. Agrekon, 49(4), 433–445.

    Article  Google Scholar 

  6. Azzam, A. M. (1999). Asymmetry and rigidity in farm-retail price transmission. American Journal of Agricultural Economics, 81, 525–533.

    Article  Google Scholar 

  7. Bailey, D. V., & Brorsen, B. W. (1989). Price asymmetry in spatial fed cattle markets. Western Journal of Agricultural Economics, 14, 246–252.

    Google Scholar 

  8. Boyd, M. S., & Brorsen, B. W. (1988). Price asymmetry in the U.S. pork marketing channel. North Central Journal of Agricultural Economics, 10(1), 103–109.

    Article  Google Scholar 

  9. Ceballos, F., Hernandez, M. A, Minot, N. & Robles, M. (2017). Grain price and volatility transmission from international to domestic markets in developing countries. World Development, 94, 305–320.

  10. CSA (2012). Report on area and production of major crops Statistical Bulletin (Vol. I). The Federal Democratic Republic of Ethiopia. Addis Ababa, Ethiopia, Central Statistical Authority: Central Statistical Agency.

  11. Cushing, M. J., & McGarvey, M. G. (1990). Feedback between wholesale and consumer price inflation: a reexamination of the evidence. Southern Economic Journal, 56, 1059–1072.

    Article  Google Scholar 

  12. Cutts, M., & Kirsten, J. (2006). Asymmetric price transmission and market concentration: an investigation into four South African agro-food industries. South African Journal of Economics, 74(2), 323–333.

    Article  Google Scholar 

  13. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427–431.

    Google Scholar 

  14. Dillon, B. M., & Barrett, C. B. (2015). Global oil prices and local food prices: evidence from East Africa. American Journal of Agricultural Economics, 98(1), 154–171.

    Article  Google Scholar 

  15. Dorward, A. (2012). The short- and medium-term impacts of rises in staple food prices. Food Security, 4(4), 633–645.

    Article  Google Scholar 

  16. Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 55, 251–276.

    Article  Google Scholar 

  17. Ethiopian Herald (2008). Promising actions to curb inflation. Ethiopian Herald, LXIV(176), Addis Ababa.

  18. Fiamohe, R., Seck, P. A., Alia, D. Y., & Diagne, A. (2013). Price transmission analysis using threshold models: an application to local rice markets in Benin and Mali. Food Security, 5(3), 427–438.

    Article  Google Scholar 

  19. Gabre-Madhin, E. Z. (2003). Institutions, contracts, and market exchange in developing economies: International food policy research Institute, Washington, DC, USA. 20006.

  20. Goodwin, B. K., & Harper, D. C. (2000). Price transmission, threshold behavior, and asymmetric adjustment in the US pork sector. Journal of Agricultural and Applied Economics, 32(3), 543–554.

    Article  Google Scholar 

  21. Goodwin, B. K., & Holt, M. T. (1999). Price transmission and asymmetric adjustment in the US beef sector. American Journal of Agricultural Economics, 81(3), 630–637.

    Article  Google Scholar 

  22. Granger, C. W. J. (1986). Developments in the study of Cointegrated economic variables. Oxford Bulletin of Economics and Statistics, 48(3), 213–228.

    Article  Google Scholar 

  23. Hahn, W. F. (1990). Price transmission asymmetry in pork and Beef markets. The Journal of Agricultural Economics Research, 42(4), 21–30.

    Google Scholar 

  24. Houck, J. P. (1977). An approach to specifying and estimating nonreversible functions. American Journal of Agricultural Economics, 59(3), 570–572.

    Article  Google Scholar 

  25. Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of economic dynamics and control, 12(2-3), 231-254.

  26. Kalkuhl, M., von Braun, J., & Torero, M. (2016). Volatile and extreme food prices, food security, and policy: An overview food price. In M. Kalkuhl, J. Von Braun, & M. Torero (Eds.); Volatility and its implications for food security and policy. doi:10.1007/978-3-319-28201-5.

  27. Kinnucan, H. W., & Forker, O. D. (1987). Asymmetry in farm-retail price transmission for major dairy products. American Journal of Agricultural Economics, 69(2), 285–292.

    Article  Google Scholar 

  28. Lloyd, T., McCorriston, S., Morgan, W., & Rayner, A. J. (2006). Food scares, market power and price transmission: The UK BSE case. European Review of Agricultural Economics, 33(2), 119–147.

    Article  Google Scholar 

  29. Loening, J. L., Durevall, D., & Birru, Y. A. (2009). Inflation dynamics and food prices in agricultural economy, the case of Ethiopia, World Bank Policy Research working Papers No-4969.

  30. MacKinnon, J. (1996). Numerical Distribution Functions for Unit Root and Cointegration Tests. Journal of Applied Econometrics, 11(6), 601-618.

  31. Matz, J. A., Kalkuhl, M., & Abegaz, G. A. (2015). The short-term impact of price shocks on food security-evidence from urban and rural Ethiopia. Food Security, 7(3), 657–679.

    Article  Google Scholar 

  32. Meyer, J., & von Cramon-Taubadel, S. (2004). Asymmetric price transmission: a survey. Journal of Agricultural Economics, 55(3), 581–611.

    Article  Google Scholar 

  33. Minot, N., Warner, J., Lemma, S., Kasa, L., Abate, G. T., & Rashid, S. (2015). The wheat supply chain in Ethiopia: Patterns, trends, and policy options. Washington, D.C.: International Food Policy Research Institute (IFPRI).

  34. Muth, M. K., & Wohlgenant, M. K. (1999). A test for market power using marginal input and output prices with application to the US Beef processing industry. American Journal of Agricultural Economics, 81(3), 638–643.

  35. Negassa, A., Myers, R., & Gabre-Madhin, E. Z. (2004). Grain marketing policy changes and spatial efficiency of maize and wheat markets in Ethiopia. International Food Policy Research Institute (IFPRI) Discussion Paper 66. Washington DC, USA.

  36. Osborne, T. (2005). Imperfect competition in agricultural markets: Evidence from Ethiopia. Journal of Development Economics, 76(2), 405–428.

    Article  Google Scholar 

  37. Peltzman, S. (2000). Prices rise faster than they fall. The Journal of Political Economy, 108(3), 466–502.

    Article  Google Scholar 

  38. Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346.

    Article  Google Scholar 

  39. Rashid, S. (2010). Variation in staple food prices: causes, consequence, and policy options: paper prepared for COMESA policy seminar under the African agricultural marketing project (AAMP) Maputo, Mozambique.

  40. Rashid, S. (2011). Intercommodity price transmission and food policies: an analysis of Ethiopian cereal markets: Ethiopian strategy support program II, International Food Policy Research Institute.

  41. Rashid, S., & Lemma, S. (2011). Strategic grain reserves in Ethiopia: institutional design and operational performance. International food policy research Institute (IFPRI) discussion paper 01054. IFPRI: Washington DC, USA.

  42. Reagan, P. B., & Weitzman, M. L. (1982). Asymmetries in price and quantity adjustments by the competitive firm. Journal of Economic Theory, 27(2), 410–420.

    Article  Google Scholar 

  43. Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66(1–2), 225–250.

    Article  Google Scholar 

  44. USAID (2010). Staple foods value chain analysis: country report-Ethiopia: United States Agency for International Development. Chemonics International Inc: Washington DC.

  45. Vavra, P., & Goodwin, B. K. (2005). Analysis of price transmission along the food chain: OECD food, Agriculture and Fisheries Working Papers: OECD Publishing, Paris, France. doi:10.1787/752335872456.

  46. von Braun, J., & Torero, M. (2012). Implementing physical and virtual food reserves to protect the poor and prevent market failure. In B. Lilliston & A. Ranallo, Grain reserves and the food price crisis: selected writings from 2008-2012. Institute for Agriculture and Trade Policy: Minneapolis, USA.

  47. von Cramon-Taubadel, S. (1998). Estimating asymmetric price transmission with the error correction representation: an application to the German pork market. European Review of Agricultural Economics, 25(1), 1–18.

    Article  Google Scholar 

  48. von Cramon-Taubadel, S., & Loy, J. P. (1999). The identification of asymmetric price transmission processes with integrated time series. Jahrbucher Fur Nationalokonomie und Statistik, 218, 85–106.

    Google Scholar 

  49. Wohlgenant, M. K. (1985). Competitive storage, rational expectations, and short-run food price determination. American Journal of Agricultural Economics, 67(4), 739–748.

    Article  Google Scholar 

  50. Wolffram, R. (1971). Positivistic measures of aggregate supply elasticities: some new approaches—Some critical notes. American Journal of Agricultural Economics, 53(2), 356–359.

    Article  Google Scholar 

  51. Yu, X., & Shimokawa, S. (2016). Nutritional impacts of rising food prices in African countries: a review. Food Security, 8(5), 985–997.

    Article  Google Scholar 

  52. Zappacosta, M., Breen, J., & Kathuku, P. (2010). Crop and food security assessment mission to Ethiopia. FAO/WFP, Rome, Italy: Special Report.

    Google Scholar 

Download references

Author information



Corresponding author

Correspondence to Muhammed A. Usman.

Ethics declarations

Conflict of interest

The authors declare that they have no conflict of interest.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Usman, M.A., Haile, M.G. Producer to retailer price transmission in cereal markets of Ethiopia. Food Sec. 9, 815–829 (2017).

Download citation


  • Asymmetry vertical price transmission
  • Error correction model
  • Cereals
  • Ethiopia

JEL classification

  • C32
  • D40
  • Q13