Livestock Trader Behaviour in Ethiopian Highland Markets Mohammad Jabbar and Samuel Benin ILRI
Background • Livestock perform multiple functions in the economy, so can serve as a vehicle for food security, better livelihood and rural development • Large livestock population but contribution less than potential • Some of the problems may lie in the marketing structure and infrastructure serving the livestock sector
Domestic market structure and price formation • Four tier structure- farm gate, local/primary market,secondary market and terminal market • Up to date detailed information on overall structure, its performance and integration rare • Information on stock routes and prices across levels of markets and space missing. • How traders search sellers and buyers, how information is procured and shared, how contracts are negotiated and enforced, who gains how much from transactions at what cost are not well known. • These are required for designing policy to support market improvement
Objectives and data source • A survey of markets and traders to understand market structure and performance, and trader behaviour • 38 markets and 131 traders from Tigray, Aamhara and Oromiya regions • 63 exclusively or mainly cattle traders, 68 exclusively or mainly sheep and goat traders • Trader behaviour may be influenced by region, main market level operated, types of animals traded and other factors • Analysis by animal type traded did not show many significant differences, market classification could not be done due to some lacking information
The market environment • Understanding of the market environment in which traders operate is required to understanding trader behaviour • Products are non-standardized and traders do not have a proper understanding of the product definition and standards though some local standards may be in use • Information on supply, demand and prices in local and distant markets either not available or procured mainly through physical presence, following several markets, consulting various people and engaging a number of own people and personal observation • These two factors largely determine trading behaviour, costs and margins.
Demographics andbusiness characteristics • Traders are young, especially shoats traders, indicating graduation to cattle trading through experience • All except one are sole ownership, 65% established by self, 33% assisted by other family/non-family members and only 2% by bank/NGO loan • A few worked as broker or agent or worked for another trader/business including family business before starting own trade. This was a learning/training mechanism as virtually none had any formal training in trading • Also some act as broker while doing own trade
Business operations and decisions • On average traders operate in 3 purchase and 1.5 sale markets collecting from more smaller markets to supply fewer larger markets. • They buy about 60% from the main purchase market and sell about 88% in the main sale market • About 20% traders use family, non-family or wage employees to help business. Employed 1.4 other workers on average • Average business age 10 years, 40% have another occupation, mainly farming, few are students • They work 4 days per week but 90% traders remain occasionally absent from business premises • But only about 20% of such businesses operate in absence of the owner, with purchase and sale decisions taken by others involved in the trade
Physical and financial assets • 57% have working space in market, 22% use residence for buying/selling • 69% have stocking facilities, 73% of them owned, others rented or both owned and rented. Average stocking capacity 56 cattle or shoats • 37% use residence compound for stocking, average capacity 41: 28 cattle or 57 shoats • Scales, motor vehicles, telephones are rarely owned. Only 12% have shop and storage facility with average value of : cattle trader Birr 12000, shoats traders Birr 1250 • Average working capital (birr): current 1 yr ago start of business Cattle traders 11023 13305 2936 Shaots traders 5490 6978 1267 All traders 8152 10026 2070
Current access to credit and borrowing Source Cattle traders Shoats traders No Birr/headNo Birr/head Bank 1 60000 - - Micro-finance 3 1933 3 3833 Friends/relatives 6 6500 14 1758* Saving society - - 1 2000 NGO 1 2000 1 1000 Other traders - - 1 200 Money lender 1 3000 1 3400 Others 2 10500 1 100 All 14 (22%) 9343 22 (32%) 1946 Interest rate: 12% formal, 10% NGO Friends, others: mostly 0% but some 36-60%
Commercial relationships and social capital • None but one is a member of any formal society or association • Average trader knows 35 other traders in purchase and 25 in sale markets compared to 13 and 9 when they started business • Use of buying /selling agent rare, only 28% use brokers, indicating highly personalised business operations. • Most brokers are from other ethnic groups or religions, few are relatives or regular social acquaintances or work exclusively indicating a network of trusted intermediaries • In last 12 months, 8-21% traders used brokers in purchase and sale markets and they conducted 44-51% purchases and 48-60% sales through brokers. About 50% brokers paid on a per animal basis, others include lump sum, own discretion etc • 28% have regular suppliers and 40% have regular customers, about half from other ethnic or religious groups. 40-45% of purchases and sales occur through regulars indicating business trust. • Credit sale is fairly common, in some cases a higher price is charged but credit purchase or advance payment are less common perhaps because farmers are principal sellers.
Type of animal traded –year round pattern • Year round trade in four major markets show the following: Animal type % traders involved Yefereng 39.3 Milk cows 2.3 dry cows 2.0 Heifer 2.3 45.9 Adult male sheep/ram 35.0 Adult female sheep 10.5 Young sheep 4.0 Kids 4.6 54.1 • From this it appears yefereng may not actually mean exotic or foreign breeds but animals bought for fattening (see later)
Case transaction: its pattern, costs and margins Items cattle trade Yefereng trade Shoats trade Traders involved 38 19 74 Animals purchased 8 7 20 Animals sold 6 6 17 Distance b/ween markets 96 76 69 N days to purchase 2.7 7.6 5.1 N people from whom purchased 6.8 5.6 13.7 N people to whom sold 4.7 4.4 12.7 Per animal (birr) Purchase price 520 650 101 Variable cost 54 126 15 Total cost 574 776 116 Sale price 597 546 111 % gain/loss on purchase price 4.4 -35.3 -5.4
Structure of variable cost of case transaction % total variable cost Items Cattle Yefereng Shoats Feed and water 14.0 76.7 30.0 Stocking cost 1.5 3.3 1.1 Levies at purchase market 23.0 1.3 16.1 Levies at sale market 8.5 2.0 5.9 Transport 21.6 5.7 11.9 Payments at road stops 10.4 0.001 0.001 Travel cost 10.9 7.7 20.5 Agent cost at pur/sale markets 5.8 0.001 1.1 Others 4.0 2.5 13.1 Total 100 100 100
Summary of case transactions • Cattle traders earned 4.4% gross margin on purchase price, yefereng traders lost 35% and shoats traders lost 13% • When only those who used brokers/agents in purchase and or sale markets were considered, cattle traders’ gain increased to 7.5% , yefereng and shoats traders’ loss increased to 45% and 22%. • Cattle traders bought and sold at higher prices per animal than the overall average, incurred higher cost due to broker use yet had higher rates of return. Yeferneg traders paid higher prices, incurred higher cost but sold at lower prices, hence their loss increased. Same for shoats traders. • Overall structure of variable cost shows market levies, transport, travel, payment at road stops and feed are major items for cattle and shoats traders but feed and stocking covered 80% of cost for yefereng traders (indicating they are fattening cattle). • Most likely there are reporting and estimation errors in these figures because these rates of gross margins seem unrealistic for the business.
Nature of contract violations Items % traders had Had bad quality from purchase 30 Attempted to renegotiate price 57 Had animals stolen 20 For purchase orders had delivery after agreed date 33 ,,,, had no delivery 3 ,,, had partial delivery 33 If not paid supplier, others will know 78 Had experience payment after agreed date 43 Had experience in partial payment with customers 41 Had experience of no payment with customers 37 If one customer don’t pay, other suppliers will know 70
Dispute settlement methods with suppliers with customers Number of disputes in 12 months 3057 3137 Average per trader 23.3 23.9 Methods for solving (%) Personally negotiated 80.4 80.6 Friends, peers 2.9 8.9 Community/elders 3.2 1.5 Others including formal courts 0.001 0.001 No resolution 11.6 6.4
Protection of property rights • 40% traders suffered from theft of animals during 12 months worth birr 1345 per cattle trader and 523 per shoats trader • In a few cases own employees were involved, in a few cases the their involvement was not certain • Usually stocked animals are kept under lock and key, guarded by • a paid guard or the owner sleeps on the premises or kept near a reputable person’s premises • While trekking, some traders travel in convoy, by employing a guard or employing other mechanisms but sometimes avoid hiring additional employees for fear of theft
Perceived marketing problems • Major problems • Multiple taxes, • unstable price, • non-transparent taxation system, l • imited access to credit, • weak demand for types of animals traded Other problems • inadequate market infrastructure/facilities • Inadequate market information • Unlicensed traders • Poor quality products • Weak legal system/govt support
Conclusions • Preliminary analysis and results • Non-standard product, lack of trader perception about product definition and standards and lack of information about supply, demand and price are major factors that determine how the market is organised and how traders operate • Because of the above livestock is largely a personalised business with involvement of few intermediaries, especially brokers • This means high cost of search for all kinds of market information. contract negotiation and enforcement. Contracts are informal which often lead to disputes, some of which are resolved informally, others remain unsolved. • Estimated costs and margins of case transactions show low returns, in some cases losses on investment but more detailed analysis is required to draw firm conclusion.