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Journal of Economics and Sustainable Development www.iiste.org
ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)
Vol.8, No.13, 2017
81
Value Chain Analysis of Malt Barley (Hordeumvulgarel.): A Way
Out for Agricultural Commercialization? The Case of Lemu
Bilbilo District, Oromia Region, Ethiopia
Samuel Weldeyohanis
Jimma University, College of Agriculture and Veterinary Medicine, Department of Agricultural Economics and
Extension P.O.Box: 307
Rijalu Negash
Jimma University, College of Agriculture and Veterinary Medicine, Department of Agricultural Economics and
Extension P.O.Box: 307
Fikadu Mitiku*
Jimma University, College of Agriculture and Veterinary Medicine, Department of Agricultural Economics and
Extension P.O.Box: 307
The research is financed by Jimma University
Abstract
This paper analyzes malt barley value chain and determinants of malt barley producers’ market orientation in
Ethiopia. Data were collected from 150 randomly selected producers using structured questionnaire, and key
informant interview with different actors along the value chain. Descriptive statistics and econometric methods
were used for data analysis. Multiple linear regression model and ordinary least square (OLS) estimations were
used to analyze the determinants of malt barley producers’ market orientation. Input suppliers, malt barley
producers, cooperatives, union, collectors, grain wholesalers, processors, beer distributors, and retailers are the
main actors in malt barley value chain. About 30% and 42% of the gross marketing margin and 51% and 22% of
net marketing margin are shared by producers and malt factory, respectively. The econometric results show that
literacy of household head, family size, land allocated for malt barely; farming experience, oxen ownership,
access to improved seed, access to credit service, productivity of wheat and agricultural input cost are important
determinants of malt barley producers’ market orientation. Therefore, policy aiming at improving farmers’
access to credit, access to improved seed, cooperative performances and strengthening actors’ linkage can
enhance the development of malt barley value chain and farmers’ market orientation in study area.
Keywords: Malt Barley, Margin Distribution, Market Orientation, Value Chain Analysis, Ethiopia
1. Introduction
Barley (Hordeum vulgare L.) is the most widely grown cereal crop over broad environmental conditions and is
the world’s fourth important cereal crop after wheat, maize and rice. European Union, Russian Federation,
Ukraine, Turkey and Canada were the largest barley producers in the world while Ethiopia, Morocco, Algeria,
Tunisia and South Africa are the top five largest barley producers in Africa (USAID, 2014). Ethiopia is ranked
twenty-first in the world`s barley production with a share of 1.2% and second in Africa next to Morocco with a
share of 26% of the total barley production of the continent (FAO, 2014). In Ethiopia, barley is predominantly
categorized as food and malting barley based on their uses with higher proportion of land for barley production
is allocated for food barley (Asfaw, 2000). Food barley is principally cultivated in the highland where it is
highest consumption in the form of various traditional foods and local beverages takes place. Ceccarelli et al.
(1999) indicated that barley grain accounts for over 60% of food for the highlands in Ethiopia. According to
Birhanu et al. (2005), barley is used in diversity of recipes and deep rooted in the culture of people’s diets.
Malt barley, due to its limited usage and high-quality requirements, is a unique niche product in
international grain market representing only about 1.5% of the total world grain production (USAID, 2014). It is
particularly interesting in the context of smallholder commercialization and food security since it has high value
as both cash and food crop. It is also the major raw material (about 90% of the total raw material cost) used in
beer production and mainly produced in south eastern parts of Ethiopia particularly in east and west Arsi, west
Shewa and Bale administrative zones of Oromia region (Legesse et al., 2007). However, according to Mulatu
and Grando (2011), malt barley supplied to malt factory in Ethiopia is produced by farmers having fragmented
and small plots of land; as a result, the demand for malt barley are not being met. Asella malt factory’s annual
report, shows, only about 60% of the demand for malt barley is covered by domestic production while the rest is
imported from foreign countries (AMF, 2015). Moreover, according to the report of Lemu Bilbilo district, from
55,245 hectares of land covered by cereal crops only 14% of the area is covered with malt barley (WoARD,
2014).
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Despite the available potentials and opportunities for malt barley production and high market demand,
farmer`s market orientation of malt barley in Ethiopia in general and a study area in particular is quite low.
However, there is no or limited study that identify the determinants of malt barley producers market orientation
in Ethiopia. Market oriented production can allow households to increase their income by producing output with
higher return to land and labor and by giving them the opportunity to use the income generated from sales to
purchase goods for consumption (Schneider and Gugerty, 2010). Thus, investigating the determinants of malt
barley producers` market orientation in production is important in the study area in order to identify the
bottlenecks of malt barley production; to meet the demand of breweries in the country and to enhance
agricultural transformation.
Value chain analysis is a better alternative approach to conventional marketing to understand the
determinants of malt barley producers’ market orientation. It also enables researchers to analyze the different
actors and their roles; benefit shares among the actors and the intrinsic need for upgrading the chain. A barley
value chain research conducted by Rashid et al. (2014) in Ethiopia focused on production and productivity,
determinants of quantity supplied and some value chain aspects of barley in general on selected zones using
focus group discussion and key informant interview. Though the findings of the previous study are useful, it did
not focus on malt barley and was more general in its approach. This entails a need for more comprehensive study
which thoroughly analyzes the malt barley value chain in the study area. Therefore, in this paper, we analyze
malt barley value chain with the specific objectives of assessing factors affecting malt barley producers market
orientation; identifying the major malt barley value chain actors, their roles and benefit shares; and analyzing
constraints and opportunities along malt barley value chain in east Arsi zone of Oromia, Ethiopia.
2. Data and Methods
2.1. Background of the study area and sampling procedure
Lemu Bilbilo is one of the districts found in Arsi zone of Oromia Region which is located about 235 km
southeast of Addis Ababa, 56 kilometers south of Asella (Arsi Zone office of Road and Transport, 2016) (Figure
1). Topographically, the area lies within an elevation range of 1,800 to 4,180 meters above sea level with mean
annual rainfall of 800-1400 mm and temperature of 6
0
c to 20
0
c (Woreda communication office, 2016). The
district is characterized by crop-livestock mixed farming system where crop production is dominant. The major
crops grown in the area are malt and food barley, faba bean, field pea and wheat. Most land is allocated to food
crop production and hence the major share of livestock feed is obtained from crop residues (WoARD, 2015). The
study area, Lemu Bilbilo district, is the major barley producing area in general and malt barley in particular
which contributes about 25.2% of total barley production of the zone. The total land used for crop production
(annual crops such as cereals, pulses, oilseed and vegetables) were about 55,245 hectare while the total number
of farmers was 21,450 in 2014/15 production year. The total land used for malt barley was about 7,937 hectare
where the production was about 317,480 quintal with 1,097 Ethiopian birr ETB) average price. Majority of the
production takes place through contract farming with different business organizations like malt factory and beer
factories in the country.
Figure 1: Location of the study area
Data were collected from 150 producers (Table 1) and 58 other actors who participated directly in malt
barley value chain. About four focus group discussions consisting of 5 to 8 people, one in each study kebele,
were also held. A two-stage sampling technique was used to select sample households from malt barley producer
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kebeles. In the first stage, with the help of district agricultural experts and development agents, four malt barley
producer kebeles were purposively selected based on their level of malt barley production. In the second stage,
150 households were randomly selected from the selected rural kebeles according to probability proportional to
the population size of malt barley producers in the respective kebeles using Cochran sample size determination
formula given in Equ. 1:
Where
= sample size,
= the abscissa of the normal curve that cuts off an area α at the tails (1 – α)
equals the desired confidence level of 95%, the area under the normal curve i.e. z= 1.96, P is expected
prevalence or proportion. e – is acceptable sampling error hence is 5%. In this study, P=11%, N=1509, Z=1.96
with 95% confidence interval.
Table 2: Sample size of producers from selected kebeles
No. Name of kebeles Total producers Proportions Sample
1 Bekoji Negesso 438 0.29 44
2 Chiba Michael 389 0.26 39
3 Lemu Dima 295 0.19 28
4 Dawa Bursa 387 0.26 39
Total 1509 1.00 150
Source: Sample distribution among the different kebeles
In addition to producers, about 15 rural collectors and 9 grain wholesalers were randomly selected from the
selected kebeles and study district town respectively. The data were also collected from one union and four
primary cooperatives (one from each kebele) in the district. Furthermore, one malt factory (AMF) and one beer
factory (Meta Diageo) were interviewed since more than 80% of malt barley produced in the area is purchased
by these two actors. Moreover, three beer distributors and 12 retailers (Hotels, grocery and cafes) were randomly
selected from Asella town. The field data collection was implemented using structured questionnaire and focus
group discussion for producers; and key informant interview for other actors from end of April to end of June,
2016. Well-trained enumerators, who have experience in data collection and fluent in local language, have
implemented the household survey under close supervision.
2.2. Descriptive analysis
Descriptive statistics such as actor’s performance analysis and SWOT analysis were used to understand the malt
barley value chain. We map the current malt barley value chain, identify and explain malt barley value chain
actors` functions and characteristics as well as its market channel. Furthermore, marketing performance (margin
and financial profit share) of actors was assessed and finally, chains which need upgrading and governance role
were identified and the intervention needed were suggested. To analyze marketing performance of the actors
involved in the value chain of malt barley, similar steps used by Tegegn (2013) was followed. Marketing margin
was calculated by taking the difference between malt barley producers’ price and retail price. This can be
calculated mathematically as, the ratio of producers’ price to consumers’ price as expressed in Equ. 2:
We compute gross marketing margin (GMM) and net marketing margin (NMM). According to Mendoza (1995),
“marketing margins” should be understood as the gross marketing margins. He advises marketing researchers to
emphasize on gross marketing margins in reporting their findings since net market margin requires some implicit
costs which may be difficult to get them from all actors involved in the value chain. Gross marketing margin is
calculated as specified in Equ. 3:
!
"" #
Where GMM=Gross marketing Margin
Total gross marketing margin (TGMM) is important to analyze the other margins and is given by the difference
between producer’s (farmer’s) price and consumer’s price (price paid by final consumer) and is calculated as
given in Equ. 4:
$ % &
% "" '
The benefit share of actor (j) is computed from TGMM of the actor at that stage and is calculated as given in Equ.
5:
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Vol.8, No.13, 2017
84
())
*
+&,&&,
$ -
""
.
Where,
+&
*
is selling price at j
th
stage and
&&
*
is purchase price at j
th
stage.
The drawback of GMM is its inability to show the importance of marketing costs and it sometimes leads to
wrong conclusion about the marketing performance. Hence, we further compute net marketing margin (NMM)
which is the percentage share of the final price earned by the intermediary by deducting the marketing costs as
given in Equ.6:
/ %
% "" 0
Higher NMM or profit of the marketing intermediaries reflects reduced downward and unfair income
distribution, which could depress market participation of smallholders.
Finally, we computed the total value added and distributed among each actor in the malt barley value chain from
the difference of total revenue (R) and the cost that an actor incurs. The operational costs and the required initial
investment were computed from survey data and R was obtained as a product of malt barley sold (Q) and the
selling price (P).
1 &2
The share of value added by an
34567
*
in the value chain is calculated by subtracting the revenues of consecutive
actors and dividing it by the final retailer revenue as given in Equ. 8
8 !
*
9
*
*:;
< < = "" >
To analyze market orientation of malt barley producers, market orientation index was calculated for
each household in the sample based on the resource a farmer allocates for malt barley production following
Gebremedhin and Jaleta (2012). When crops are grown for both commercial and consumption purposes, farmers
have different market orientation index depending on their resource allocation (land, labor and capital) for the
commodity they produce. Based on the proportion of total amount sold to total production at farming system
level, a crop specific marketability index (
?
@
) is computed for malt barley produced at farm level system as
follows.
AB
C
D< ! E F EF< !GF
$ < ! E FEF< !H I
Where
AB
C
refers to malt barley marketability index for individual farmer in 2015/2016 production year.
Where
?
@
is the proportion of malt barley sold (S
ki
) to the total amount of malt barley produced (Q
ki
) aggregated
over the total sample of households in a farming system.
?
takes a value between 0 and 1, inclusive or a value
between 0 and 100%, inclusive in terms of percentage. A value of zero would signify a totally subsistence level
of production and the closer the index is to 100, the higher the market orientation in production. After the crop,
specific marketability index is calculated, household’s market orientation index in land allocation (MOI
i
) was
computed from the land allocation pattern of the household weighted by the marketability index of the crop (
?
)
derived from Equ. 10
Where MOI
i
is market orientation index of farmer
i
, L
ki
is amount of land allocated for malt barley in hectare, and
J
K
L
is the total crop land operated by farmer measured in hectare.
2.3. Econometric Analysis
The dependent variable analyzed in this paper is market orientation index of malt barley producers as detailed
above. The market orientation index is continuous variable as all farmers in our sample participate in both
production and marketing of malt barley (i.e. MOI
i
is greater than 0 and less than 1 inclusive). Hence, we use
multiple linear regression models and ordinary least squares (OLS) estimation techniques to analyze the
determinants of household market orientation following Gebremedhin and Jaleta (2012) and is given in Equ. 12.
Where: Yi=Market orientation index,
MB
C
for i
th
farmer, , βi= parameters to be
estimated capturing the effect of explanatory variables on market orientation, and Xi = the explanatory variables
influencing market orientation of i
th
farmer representing different forms of capital ownership that are selected
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based on standard micro-economic theory as reflected in the sustainable livelihoods framework (Sen, 1981;
Bebbington, 1999). The definition and expected influence of these explanatory variables along with references is
summarized in table 2.
Table 2: Explanatory variables used in the model along with their measurement and expected signs
Variables used in the model and
measurement
Expected
sign
Reference
Demographic factors
Age of the household head (years) + Adegbola and Gardebroek, 2007; Onubuogu and
Onyeneke, 2012
Sex of the household head(1= male,
0=female)
+ Tefera, 2014
Family size in the household (number) + Gebremedhin and Jaleta, 2010; Onubuogu and
Onyeneke, 2012
Farming experience (years) + Gebremedhin and Jaleta, 2010; Onubuogu and
Onyeneke, 2012
Human capital
Education (years ) + Randela et al.2008
Physical assets
Land allocated for malt barley (ha) + Abay, 2007
Livestock excluding oxen and equines
(TLU)
- Tegegn, 2013; Abayneh, 2007
Oxen ownership (number of oxen) + Samuel and Sharp, 2007; Abera, 2009
Equines ownership (number of equines) +
Institutional factors
Distance to nearest market (walking
hours)
- Berhanu and Dirka (2008)
Access to credit (1= yes, 0= No) + Lerman, 2004; Marteyet al, 2012
Frequency of extension contact
(number)
+ Gebremedhin et al., 2006
Access to market information (1=Yes,
2= No)
+ Tegegn, 2013; CIAT, 2004
Social capital
Cooperatives membership (1= yes, 0=
No)
+ Onubuogu and Onyeneke, 2012
Other factors
Productivity of another crop (qt/ha) -
Access to improved seed (1=yes, 0= No)
+ Onubuogu and Onyeneke, 2012
Agricultural input cost (birr/ha) -
Off or non-farm activity (1=yes, 0= No) +
Source: Authors summary based on literatures provided and the study area context
3. Result and Discussion
3.1. Value chain analysis of malt barley
3.1.1. Malt barley value chain map, actors and their relations
Figure 2 below provides the value chain map of malt barley in the Lemu Bilbilo district. Value chain map shows
the actors, their relationships, and economic activities at each stage with the related physical and monetary flows.
Malt barley products pass through different phases of production, processing, and marketing to reach the final
consumers. The downward arrow shows the flow of money, the double arrow shows the two-way flow of
information and the upward arrow shows the product movement in the study area.
There are many actors involved directly or indirectly in agricultural input supply in the study area.
Currently, the district primary cooperatives and Galama farmer’s cooperatives union, Asella malt factory and
brewery (Meta Diageo through techno serves) are the major input supplier for the farmers of malt barley
producers in the area. All such actors are responsible to supply agricultural inputs like improved seed varieties,
fertilizer, herbicide and pesticide, and farm implements which are essential inputs at the production stage. In the
study area seed multiplier farmers are actors responsible for the multiplication of improved seed varieties and
sell their seed to cooperatives/union/Asella malt factory and techno serve which distribute to the farmers based
on agreement.
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Source: Authors sketch from own survey data
Key: = product flow , = one way flow of money, = two way information and technology flow
Figure2: Value chain map for malt barley in the study area
The next to input suppliers, but key actors are producers. Farmers are the key actors who are directly
involved in malt barley production activities and perform most of the value chain functions starting from farm
inputs, preparation of their farms or gaining of the inputs from other sources to post-harvest handling and
marketing. The major farming and value adding activities which are performed by malt barley producers include
plowing, sowing, fertilizing, weeding, pest/disease controlling, harvesting and post-harvest handling (cleaning).
The larger quantities of malt barley are sold during and soon after the main harvest season to cooperatives, local
collectors, grain wholesalers, union, and malt factory and to consumers of the area within the same production
year. In the study area, due to the recent government and other stakeholders' intervention in promoting group
marketing through cooperatives, majority of malt barley producers are members of such cooperatives and have
interest to sell their malt barley to the cooperatives. About 40.86% of malt barley passes through cooperatives
marketing channel.
According to the survey result, the existence of cooperatives in malt barley value chain has two functions:
firstly, they bring agricultural inputs from Galama union and other suppliers by adding transport and other costs
and then resell it to both member and non-member malt barley producers. Secondly, they act as major actors of
malt barley value chain that has a stabilizing role in the local market through purchasing the product.
In the study district cooperatives purchase malt barley from members and non-members and sell it to malt
barley processors (Asella malt factory) with premium price of 5.5 % to local market price and pay to the
producers through the union by subtracting their commission. The exchange activity of the commodity between
producers and primary farmer`s cooperative is performed based only on observation of physical quality of the
produce without using any laboratory test. Because of this, the same level of malt barley is given different prices.
At similar purchasing time purchasing prices of the cooperatives are not equal since there is malt barley quality
difference among each kebele producers. These price differences sometimes create difficulty between producers
and cooperatives leaders. After all cooperatives purchase quality malt barley from both members and non-
members by competing with local traders, they stock up all in warehouses and transfer bulk of malt barley to
Asella malt factory and to their union.
Union is one of the actors involved in malt barley value chain in the study area. About 24 agricultural
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primary cooperatives are found in the district which jointly established one union called “Galama farmers
cooperatives union” for further increasing producers bargaining power and supplying the bulk volume of malt
barley to the processors. Currently, Galama union performs four major activities, first: purchasing and supplying
agricultural inputs based on input demand from primary cooperatives which distributes to the farmer; second:
grain marketing by creating linkage with farmers through cooperatives, and sell to processors, malt factories and
breweries (meta Diageo and Heineken beer factories), based on agreement; third: mechanization and fourth:
training for farmers who are members as well as non-members of cooperatives.
Rural Collectors are also actors in the malt barley value chain. These are traders or farmer/part-time traders
who collect grain from small rural markets in the kebeles and from Bekoji market, and sell to grain wholesalers.
They play a crucial role, particularly in collecting and transporting grain from inaccessible or distant markets for
re-selling it to grain wholesalers by negotiable price without considering the quality of malt barley. They are
responsible for the trading of over 22% of malt barley from production areas to rural wholesalers. The value
adding activities of collectors include purchasing, assembling and selling to rural grain wholesalers. Survey
result indicates that about 15 grain wholesales are found in Lemu Bilbilo district which are licensed by trade and
marketing sector of the district. The district is the main assembly center for malt barley grain wholesalers from
their surrounding kebeles. They have better access to financial, storage, transport and communication facilities
than other traders found in the district. Almost all grain wholesalers have a warehouse, either owned or rented.
These are suppliers of bulk of malt barley to the processors (Asella malt factory). Grain wholesalers are mainly
involved in purchasing malt barley from local collectors and sometimes they collect directly from producers in
larger volume and then transport it by lorry or truck to processors (Asella malt factory) through their
brokers/middlemen and some part of it to the brewery (Meta Diageo).
Malt barley processors are the important actors towards improving malt barley quality as well as increasing
the volume of domestically produced malt barley which would be distributed (sold) to different brewery
companies in the country. For malt barley, there are two main processing stages – at malt factory and beer
factory. At malt factory they entail the transformation of malt barley into a value-added product called malt.
Processors have strict quality standards/parameters/ and expect their malt barley suppliers to meet these
standards. These standards have different priorities in various malt barley markets (processors).
Once malt barley is finally processed by beer factories, beer pass through distributors and retailers to reach
final consumers. Distributors are wholesalers who involved in distributing the value-added product of malt
barley at brewery level to different retailers of different areas in the country. They have their own truck which is
used to transport the product to different customers of their product. Retailers (Hotels, cafe and grocery) are
traders who are involved in purchasing and retailing beer. They receive the product from the distributors and
resell it to ultimate consumers. Consumers are the final users of malt barley products and the unprocessed malt
barley. Almost 4% of raw malt barley goes directly to consumers without any processing while 96% of it reaches
to consumers as a processed product.
3.1.2. Malt barley marketing channels
Marketing of malt barley is carried out at farm gate, local market and zonal markets. Pricing is decided mainly
by Asella malt factory based on the quality requirement and has six levels of prices where the highest and lowest
quality are priced for 1025 and 925 ETB per quintal respectively. Some times the price of malt barley is also
decided between traders and farmers based on buyers’ preferences and to some extent based on grading the
product through visual estimation. From the total 1896 quintal produced by sample respondents in the study area,
about 1319 quintal of malt barley is supplied by the farmers to different buyers. The product passes through
different channels to reach final consumers (figure 3).
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Source: Authors calculation and sketch from own survey data (Note: Qt= Quintal)
Figure 3: Marketing channels Map for malt barley
About 95.91% of malt barley is processed in to malt before it reaches to final consumer and the balance
(4.09%) is distributed to consumers in the form of whole grain. The main buyers from producers are a rural
collector (village traders), grain wholesalers, primary cooperatives, malt factory (Asella malt factory) and
consumers with an estimated percentage share of 22.67%, 15.54%, 40.86%, 16.84%, and 4.09% respectively.
Farmers` cooperative union and Asella malt factory were the main buyers from farmer’s primary
cooperatives with an estimated share of 27.48% and 13.38% respectively. Malt factory and breweries were the
main receivers from grain wholesalers with respective share of 33.53% and 4.68% whereas malt factory and
breweries (via techno serve) were the main buyers from farmers’ cooperative union with respective share of
18.58%and 8.9%. A total of 82.33% of the malt barley was purchased by Asella malt factory. According to the
response from Asella malt factory malt barley purchasing officer, about 55%, 33%, 8% and 3% of the malted
barley was sold to BGI
1
, Heineken, Meta-Diageo and Raya brewery factories respectively in 2015/2016
manufacturing year. After processing the raw malt into beer, the breweries distribute to the distributors which
finally sell to retailers like hotels, cafes and groceries. According to Asella malt factory, from 100 kg of raw malt
barley about 77 kg of malt is extracted and sold with 2000 ETB/qt. This study identified about nine main
alternative channels for malt barley marketing (figure 4). Moreover, based on the volume that passed through
each channel starting from producers to consumers, channel comparison was made to understand which channel
is the largest or the least, profitable or non-profitable. Accordingly, about 19.89% of malt barley passed through
channel III which is the largest of all in carrying high volume of the product followed by channel VII (18.59%)
and channel VI (16.84%) with respective quantity of 262.37qt, 245.17 qt and 222.11 qt from the total (1319 qt)
of malt barley supplied by the producers to different stakeholders in value chain for average price of 944 ETB/qt.
In another case, the least channels carried small quantity of the product are channels IV, II and I in increasing
order and with respective volume of 25.11 qt, 36.62 qt and 53.94 qt. The rest three channels, IX, VIII and V, are
the medium channels with increasing order carrying about 117.32 qt, 176.5 qt and 179.86 qt of the product
respectively.
1
BGI =George Beer Industry
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Figure 4: alternative channels for malt barley marketing in the study area
Source: Authors calculation from own survey data
In channel I, producers sell their produce directly to consumers without any interference of middlemen and
change of the form of the product. Price is negotiable with low variability (800-900 ETB/qt). These channel
benefits consumers since they purchase the product directly from the farmers, hence get homogenous product
and benefit the farmers since they receive the value of their produce as soon as they sell. Channels II and III have
similar characteristics in which different key actors play a bridging role between producers and consumers
except malt factory plays additional processing role in channel III. In both channels, the rural collectors purchase
the raw barley from producers with price ranging from 870 to 930 ETB/qt based on the quality of malt barley
expected to be produced and sold to grain wholesalers.
The action of grain wholesalers distinguishes channel IV from the above three channels. Farmers have
access to sell their produce directly to wholesalers rather than to rural assemblers. Wholesalers have the potential
to purchase and handle a large volume of malt barley through their brokers which will be sold to the factories
with high price. Therefore, farmers have an opportunity to sell the required amount of produce to wholesalers.
This in turn reduces the opportunity costs of the farmer (in terms of transportation costs, labor and time).
Channel V is the third largest marketing channel where malt barley is passed from producers to processors. The
role of grain wholesaler here is that they purchase malt barley from producers and sell to the malt factory. They
purchase from farmers for average price of 930 ETB/qt and sell to malt factory and breweries for average price
of 1035 ETB/qt. Channel VI shows the role of processors (malt factory and brewery) in the malt barley value
chain. Malt barley can be processed in to malt through value adding activity and sold to different breweries for
further processing. Different channels including; channel I, channel II and channel IV hinders the malt barley to
be transported to malt factory. In this channel, the malt factory purchases raw malt barley from producers
directly in the form of contract farming.
Channels VII, VIII and XI give an overview of the bridging role of cooperatives and unions over product
handling and transferring from farmers to malt factories and breweries. Channel VII is the largest channel among
them where large volume of malt barley is handled and transferred to the respective destination.
3.1.3. Performance of malt barley value chain actors in the study area
Table 3 presents the marketing margin of actors in malt barley value chain. According to the survey result, the
total cost incurred by malt factory was the highest of all actors followed by unions and cooperatives with value
of 23.33, 17.47 and 16.89% respectively while that of producers are the least of all which is 10.49% and the
traders were found at middle stages in the value chain of the commodity. Of the total market margin of malt
barley value chain actors, malt factories have the largest share (42.33%) followed by producers (29.84%),
farmers’ cooperative union (8.13%) and grain wholesalers (7.96%), rural collectors and farmers` primary
cooperatives share the least marketing margin (5.87%) each during the survey year. The producers` share is 0.7
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times less than that of the malt factory. This is since; sales price for malt factory is higher as compared to sale
price of producers.
Table 3: Cost and margin distribution of actors in malt barley value chain
Items (ETB/qt) Producers
Rural
collector
Grain
wholesaler
Farmers’
cooperative Union
Malt
factory
Horizontal
sum
Purchase price 0 900 940 975 1000
1035 4850
Production cost 588 0 0 0 0 0 588
Marketing cost
Un/loading cost 0 10 10 6 6 10 42
Transporting cost 35 20 25 25 20 0 125
Material cost 8 8 8 8 8 15 55
Storage cost 0 0 2 2 2 3 9
loss 0 0 0 0 0 159 159
Processing cost 0 0 0 0 0 180 180
Commission fee 0 0 0 0 15 0 15
Tax 0 0 2 0 0 2 4
Total marketing cost 43 38 47 41 51 369 589
Total cost 631 938 977 1016 1051
1404 6017
Total cost (%) 10.49 15.59 16.24 16.89 17.47
23.33 100
Sale price 944 970 1035 1045 1097
1540 6631
Market margin 356 70 95 70 97 505 1193
Share of margin (%) 29.84 5.87 7.96 5.87 8.13 42.33 100
Profit margin 313 32 58 29 46 136 614
Share of profit (%) 50.98 5.21 9.45 4.72 7.49 22.15 100
Source: Authors calculation from own survey data
Regarding share of profit of actors in malt barley value chain, producers and malt factory get the highest
share of profit margins with respective value of 50.98% and 22.15% followed by grain wholesalers (9.45%) and
farmers’ cooperative union (7.49%); local collectors (5.21%) and farmer’s primary cooperatives (4.72%). The
profit margin for the producers is higher than malt factory (2.3 times), grain wholesalers (5.4 times), farmer’s
cooperative union (6.8 times), local collectors (9.6 times) and primary cooperatives (10.8 times). The profit
margin showed that, the farmers primary cooperatives had the poorest position followed by local collectors while
the producers had the highest position followed by traders in the study area. This result is also in line with
Rashid et al. (2014) who show the minimal role of cooperatives in barley value chain despite heavy public
emphasis on them.
3.1.4. Marketing performance of actors across malt barley market channels
Table 4 presents the results of margin distribution along the different channels. Accordingly, channel III and V
have the highest TGMM followed by channel VII or VIII and channel VI while channel I and channel IX had the
least total gross market margin (TGMM). Producers share is the highest value of gross margin in channel I, IX
and IV with respective value of 100, 90.7 and 88.57% implying that creating market linkage directly with
consumers and breweries through wholesalers and cooperatives is more worthwhile for producers. About 9.52%
and 11.43% of the gross market margin goes to grain wholesalers in channel I and channel IV respectively
implying that direct selling to breweries is more worthwhile for grain wholesalers rather than selling to malt
factory.
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Table 4: GMM and NMM of malt barley value chain actors along the marketing channels
Margins in percent I II III IV V VI VII VIII IX
TGMM 0 14.29 44.41 11.43 42.55 39.16 39.78 39.78 9.3
Gross marketing margin (GMM)
Producer 100
85.71 55.59 88.57 57.45 60.84 60.22 60.22 90.7
Collector -- 4.77 3.09 - - - - - -
Wholesaler - 9.52 5.52 11.43 4.63 - - - -
Primary Cooperative - - - - - - 2.78 4.20 4.18
Cooperative union - - - - - - 4.76 - 5.12
Malt factory - - 32.79 - 37.92 39.16 32.24 35.58 -
Net Marketing Margin (NMM)
Collector - 1.14 0.74 - -- - -- - -
Wholesaler - 5.05 2.35 6.95 1.73 - - - -
Primary Cooperative - -- - - - - 0.25 1.67 0.37
Cooperative union - -- - - - - 1.61 - 0.37
Manufacturing - - 13.28 - 15.13 16.37 9.45 12.79 -
Source: Authors calculation from own survey data, “-“ no transaction
In channels VI and V, about 39.16% and 37.92% of the gross market margin goes to malt factory implying
that direct market linkage with producers and grain wholesalers is worthy relative to having marketing linkages
to local collectors or other intermediaries like cooperatives or unions. Channels VII, VIII and XI describe the
marketing partnership of cooperatives and unions with processing factories like malt and beer factory. In channel
VIII about 4.2% of gross marketing margin goes to cooperatives while 2.78% and 4.18% in channels VII and IX
respectively implying that creating market linkage directly with processors is worthwhile for cooperatives.
From overall actors involved in marketing of malt barley, the malt factory shared the highest net market margin
followed by grain whole sales in channels VI and IV with share of 16.37% and 6.95% respectively while the
cooperatives and unions share the lowest net market margin in channel VII and IX with share of 0.25% and 0.37%
respectively. From all channels, channel III is the longest and the largest of all carrying larger volume of malt
barley in which local collectors, grain wholesalers and malt factory are the main participants. From all actors
involved in channel III, the NMM of malt factory was ranked as fist (13.28%), followed by grain wholesalers
(2.31%) and local collectors (0.74%).
3.1.5. Value addition and distribution in malt barley value chain
In calculating the value added at each stage, reference has been made to one quintal of malt barley final product
called malt and input requirements of preceding activities were determined using standard conversion factors.
The malt factory uses 1.3quintal of raw malt barley to produce one quintal of malt (i.e. 1qt raw malt barley =
0.77qt malt). Channel III and channel VII are the longest and significant channels for value addition of malt
barley value chain actors. Since there is no linkage in transferring malt barley from traders to
cooperatives/unions and vise-versa, the two channels were selected to analyze the value addition by traders and
government institution separately.
Table 5: Value added by actors in malt barley value chain
Channel III (Producer to processors through traders)
Actors Cost
(ETB/qt)
Revenue
(ETB/qt)
Net income
(ETB/qt)
Value added
(ETB/qt)
Value share (%)
Producers 631 900 269 900 58.44
Collectors 938 950 12 50 3.25
Grain wholesalers 997 1035 38 85 5.52
Malt factory 1404 1540 136 505 32.79
Total 3970 4425 455 1540 100.0
Channel VII (Producer to processors through government institutions)
Actors Cost
(ETB/qt)
Revenue
(ETB/qt)
Net income
(ETB/qt)
Value added
(ETB/qt)
Value shared (%)
Producers 631 975 344 975 63.31
Cooperative 1016 1020 4 45 2.92
Union 1071 1097 26 77 5.0
Malt factory 1404 1540 136 443 28.77
Total 4122 4425 455 1540 100.0
Source: Authors calculation from own survey data
As can be seen from table 5, among all actors participating in channel III and channel VII, the rural
collectors and primary cooperatives took the lowest position in respective order while producers added the
highest value followed by malt factory in both channels. Grain wholesalers took the third rank in channel III and
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union took the third rank in channel VII. The value added (share) of producers were 58.44 and 63.31% in
channel III and channel VII respectively, followed by malt factory with respective shares of 32.79 and 28.77%
respectively. The value added (share) by rural collectors and grain wholesalers was about 3.22 and 5.52%
respectively while that of primary cooperatives and union is 2.92 and 5% in channel III and channel VII
respectively.
3.2. Determinants of malt barley producers market orientation
3.2.1. Descriptive results for market orientation and explanatory variables
Table 6 presents the descriptive statistics of our outcome variable (market orientation index). The survey result
shows that market orientation index of malt barley is below 20% (0.17) where the minimum and maximum index
were 0.067 (subsistent level) and 0.5 (moderately market oriented) respectively. The marketability index of malt
barley show that nearly 70% of the crop is sold on average which shows that the crop is important cash crop in
the study area. However, small proportion of land is allocated for it in the study area due to different factors.
Table 6: Market orientation Indexes of malt barley producers` in the study area
Market orientation index Crop marketability index
Types of crops Mean Standard deviation Mean Standard deviation
Wheat 0.15 0.06 0.58 0.20
Food barley 0.09 0.05 0.26 0.13
Malt barley 0.17 0.07 0.70 0.06
Bean 0.02 0.03 0.15 0.20
Linseed 0.04 0.06 0.30 0.44
Potato 0.02 0.04 0.22 0.36
Average 0.08 0.01 0.37 0.12
Source: Authors calculation from own survey data
Table 7 presents the descriptive statistics for independent variables used in econometric regression. About
89% of the sample households in our sample are male headed with average age of 49.37 years and 9.13 years of
malt barley producing experience. Average family size is high with an average of 6.67 persons per household.
About 72% of the heads are literate and received formal education. Education of the household head is expected
to influence production and productivity of producers through adoption of newly introduced technologies and
innovations. Hence, literate producers are expected to be in a better position to get and use information which
contributes to improve their farming practices and market orientation for malt barley in the study area.
Table 7: Descriptive statistics of variables used in the model
Variables used in the model Obs
Mean Std. Dev. Min Max
Demographic factors
Age of the household head (years) 150
49.37 8.33 36.00 68.00
Sex of the household head(1= male ,0=female) 150
0.89
Family size in the household (number) 150
6.67 1.81 2.00 12.00
Farming experience (years) 150
9.13 2.14 3.00 17.00
Human capital
Education (years ) 150
4.13 3.30 0.00 12.00
Physical capital
Land allocated for malt barley (ha) 150
0.44 0.17 0.25 1.50
Livestock excluding oxen and equines (TLU) 150
3.96 1.21 2.04 9.02
Oxen ownership (number of oxen) 150
2.11 0.91 1.00 4.00
Equines ownership (number of equines) 150
1.44 0.67 0.00 3.00
Institutional factors
Distance to nearest market (walking hours) 150
0.88 0.38 0.30 2.40
Access to credit (1= yes ,0= No) 150
0.29
Frequency of extension contact (number) 150
4.33 1.72 1.00 8.00
Access to market information (1=Yes,2= No) 150
0.84
Social capital
Cooperatives membership (1= yes, 0= No) 150
0.69
Other factors
Productivity of another crop (qt/ha) 150
36.34 10.84 21.00 65.00
Access to improved seed (1=yes, 0= No) 150
0.51
Agricultural input cost (birr/ha) 150
1288.50 547.03 649.50
4659.50
Off or non-farm activity (1=yes, 0= No) 150
0.34
Source: Authors calculation from own survey data
We also controlled for different physical assets such as land and livestock owned by the household, which
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potentially influence the market orientation of the household. Resource endowment especially availability of
land for crop production is one of the most important influencing factor. The survey revealed that the mean land
size of sampled households is 2.19 hectares and the average land allocated for malt barley production is 0.44
hectare. Moreover, the sampled respondents own an average of 3.96 other livestock (apart from oxen and
equines) in TLU, 2.1 oxen and 1.44 equines. Oxen ownership is common among all respondents and is the major
contributor to crop production serving as a source of draft power.
3.2.1. Econometric Result
Table 8 presents the output of the regression (OLS) analysis. The model F-tests applying appropriate degrees of
freedom indicate that the overall goodness of fit of the OLS model is statistically significant at less than 1%
indicating that the independent variables included in the OLS model regression significantly explain the
variation in the market orientation of malt barley producers in the study area by 74% (the coefficient of
determination, R
2
= 0.7388). Regarding relationship of the variables with the market orientation of malt barley
producers, education level of the household, land size allocated, farming experience, oxen owned, access to
credit and access to improved seed have positive relationship whereas family size, wheat productivity and input
cost have negative relationship with malt barley producers` market orientation. Family size of the household has
negative relationship with malt barley producers` market orientation in the study area. A unit increase in family
size decreases the market orientation of malt barley producers by 0.47%. This result is in line with Gebremedhin
and Jaleta (2010) who indicated that, large household sizes diminish households from market orientation due to
its effect on increasing household domestic consumption requirements. Education of household head is
positively associated with market orientation of malt barley producers. A year increase in household head’s
education increases the market orientation of malt barley producers by 0.77%. This can be explained by the fact
that as an individual get access to more education he/she is empowered with the market information and skill of
production that will outgrowth individual to allocate more land for more market oriented product. This study is
in line with a finding of Kemisola et al. (2013), who report an increase in market orientation of cassava farmers
by 3.6% as their education increase by a year. Malt barley area has positive and significant effect on household
market orientation. If the household increases farm size allocated for malt barley by 1 hectare, its market
orientation increases by 37.44%. This study is in line with Onubuogu and Onyeneke (2012) who shows that, an
increase in farm size cause an increase in market orientation of root and tuber crop production at Imo State of
Nigeria.
The effect of farming experience on producing malt barley is also positive and significant at 5% level. The
result implies that as the number of years of the household head experience increases by one year, the
household`s market orientation towards malt barley production increases by nearly 0.32%. This result is
consistent with Agwu (2012), who studied socio-economic determinants of commercialization among small
holder farmers in Nigeria and revealed that as the number of years of the farmers’ experience increases, the
probability of farmers` market orientation also increases. Productivity of wheat was negatively related with
market orientation of malt barley producers and highly significant at 1% significance level. The negative
relationship of wheat productivity and market orientation showed that, as the productivity of wheat increase by
1%, the market orientation of malt barley producers decreases by 0.29%. This is intuitive since the productivity
of wheat is higher as compared to malt barley and since the farmers need the crop which gives higher
productivity; they focus more on the crop with higher productivity.
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Table 8: OLS result for determinants of malt barley market orientation
Variables Coef. Robust Std.
Err.
P-value
Age of the household head (years) 0.0003 0.0004 0.562
Sex of the household head -0.0013 0.0130 0.921
Family size (number) -0.0047
**
0.0020 0.023
Education level (years) 0.0077
**
0.0036 0.036
Distance to nearest market (walking hours) -0.0073 0.0070 0.303
Land size for malt barley (ha) 0.3744
***
0.0712 0.000
Off/non-farm activity (yes/No) -0.0084 0.0074 0.257
Farming experience (years) 0.0032
**
0.0014 0.025
Productivity of wheat (qt/ha) -0.0029
***
0.0005 0.000
Livestock’s excluding oxen (TLU) -0.0035 0.0026 0.179
Oxen ownership (number) 0.008
**
0.0038 0.037
Access to improved seed (yes/no) 0.0160
**
0.0066 0.017
Access to credit (yes/no) .0152
*
0.0088 0.088
Frequency of extension contact .0009 0.0021 0.660
Access to market information (yes/no) .0063 0.0079 0.430
Cooperative membership (yes/no) .0022 0.0073 0.762
Input cost for production(birr/ha) -0.00004
**
0.00002 0.013
Equine ownership (number) 0.0012 0.0043 0.783
Constant term 0.1091 0.0493 0.029
Number of observation 150
F-test statistic 16.88
F-test p-value 0.0000
R2 0.7388
***, ** and * are significance at 1%, 5% & 10% levels respectively,
Source: Authors calculation from own survey data
The effect of oxen ownership on market orientation of malt barley producers is also positive and
statistically significant at 5% significance level. The finding implies that, a unit increase in number of oxen
increases the market orientation of producers by 0.80% keeping other variables constant. This result indicates
that households who have a larger number of oxen are more likely to plough more land for production that
enabled to produce more malt barley. This finding is in line with the study by Tefera (2014) who reports that
households who have large number of oxen typically go through in to share in land agreement with farm
households who have no ox which and supports the present study.
Access to inputs and services is also important determinant of malt barely producers market orientation. For
instance, access to improved seed has positive and significant effect on farmer’s market orientation. The result
indicates that as the probability of access to improved seed increase by 1%, farmer’s market orientation increases
by 1.6%. Access to credit service also has positive and significant influence on market orientation of malt barley
producers. The estimates show that, farmers who have access to credit are more likely to produce malt barley
which directly leads to allocate larger proportion of land. The result implies that as farmers` access to credit
services increase by 1% their market orientation increases by 1.52%. This finding is in line with Tefera (2014)
who reports that increase in farmer’s access to credit increases in the level of chickpea producer’s market
orientation. The input cost incurred to produce malt barley negatively and significantly affects market orientation
of malt barley producers. If input cost increase by 1 ETB, malt barley producers’ market orientation decreases by
0.004%. This study is in line with Tefera (2014) who found negative effect on market orientation of chickpea
production and states that, increase in expense on fertilizer reduces the market orientation of chickpea.
3.3. Challenges and Opportunities in Malt Barley Value Chain
One of the merits of value chain analysis is that it helps to clearly identify bottlenecks to the development of the
chain right from input supply up until the consumption level in concentrated way. Accordingly, several
challenges and opportunities were explained by different actors through group discussion and questionnaire as
well as from key informant interview in the study area which are currently hindering the development of the malt
barley value chain and were categorized according to the three basic stages: input supplying stages, production
stage and market stage.
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Table 9: Challenges and opportunities of malt barley at different stage of the value chain
Stages Constraints Opportunities Intervention needed
Inputs
supply
•
Shortage of good quality
seed, Shortage of
chemicals for emerging
disease
• High cost of fertilizers
and high interest,
• Low quality of seed from
seed supplier companies,
• Mixed seed with other
varieties
High demand for
purchased quality seed,
chemicals
High demand for
agricultural inputs,
High demand of
extension services
Expansion of seed
supplier cooperatives in
the study area
Government support for
easy access to inputs
Strengthen linkage between
input suppliers and farmers
strengthening research
center
strengthening farmers seed
multipliers in the study
area
designing product
upgrading
Production
•
Shortage of improved
malt barley seed
• Poor linkage with value
chain actors
• Low price of product,
high price of inputs
• Lack of capital to
purchase inputs
• Higher market distance
• Lack of storage, and
diseases and pest attacks
• High price, poor quality
and low availability of
malt barley seed
• Limited services of
extension and credit
• Shortage of land
Favorable climatic
conditions and fertile
land for malt barley
production
presence of value chain
supporters and enabling
policy environment and
support from public
organization and NGOs
High market demand for
malt barley product
high demand for malt
barley production at
farmer level,
high demand for malt
barley by different
factories,
its potential for value
addition
possibility of farming
advice
Training to smallholders
on disease/pest control
method
Strengthen credits service
provider’s institutions and
improve storage facility
increasing the extension
service for the producers
designing process
upgrading strategy
Marketing/T
rading
•
Product quality problem,
• Presence of unlicensed
traders,
• Low price for the
products,
• Limited function of
cooperatives,
• Limited market research
and credit service,
• Lack of appropriate
storage facility for malt
barley,
• Unequal dissemination of
market information,
• Shortage of malt barley
and
• Lack of laboratory
sampling test
High market demand
and availability of
buyers,
Expansion of breweries
in the country, high
competition among the
buyers of malt barley,
Government investment
on infrastructure
development,
Establishment of
cooperatives in the
study area,
Establishments of credit
providers,
Closeness of study areas
to Asella Malt Factory
Strengthen functions of
farmer’s cooperatives,
Control unlicensed
traders,
Increase credibility and
market linkages of malt
barley value chain actors,
Improving farmers
bargaining power by
supporting farmer’s
cooperatives
Source: Authors summary from own focus group discussion
4. Conclusion and policy implication
Our finding shows that close to 70% of malt barley produced is sold suggesting that the crop is an important
component of the households’ cash source. However, market orientation index of the producers revealed that
malt barley is found at nearly subsistent level (below 20 percent) indicating that there is a resource allocation
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problem for this crop or small proportion of land is allocated for the crop while the degree of market
participation is higher among the farmers. The important factors including literacy status, land size allocated for
the malt barley, farming experience, oxen owned by the household, access to credit service and access to
improved seed were found to be positively and significantly affecting market orientation of malt barley
producers. Moreover, family size, wheat productivity and agricultural input cost are found to be negatively
affecting market orientation of malt barley producers.
Many actors play in malt barley value chain. Farmers` primary cooperatives are the most important buyers
of malt barley from producers, followed by traders and malt factories. The market margin, profit share and value
addition among the value chain actors indicates that the farmer’s primary cooperatives and rural collectors are
poorly positioned due to limited working capital, and business management skill followed by grain wholesalers
and unions while malt factory is better positioned in malt barley value chain. Farmers gain better benefit when
they are better connected through short links to the processing factories than when there are many more actors in
between.
There are different bottle necks constraining malt barley value chain. At district level cooperatives, rural
collectors, grain wholesalers and unions purchase malt barley only by inspecting through physical quality (color
and impurity) of malt barley. Only physical quality inspection may not be enough to check the whole malt barley
quality. Moreover, there is a communication gap between producers and end buyers of the product in malt barley
value chain. These and other factors affect malt barley value chain development at input supply, production and
marketing stages.
Our findings entail important policy implications for malt barley value chain development. Policies aiming
at improving technical knowhow of farmers on malt barley production; facilitating adult education; farmers’
access to credit and its sustainability; can help increase market orientation of malt barley producers. Process
upgrading strategy by government and non-government organization as well as private enterprises through
promoting and providing improved technology packages and better practices would increase the productivity of
malt barley which can in turn attract the farmers towards allocation of more resources for malt barley production.
Enhancing forward linkage of producers; strengthening functions of farmers’ cooperatives; increasing credibility
and market linkages of malt barley value chain actors, and improving information dissemination at input supply,
production and marketing stages could help improve the value chain development and functioning of malt barley
in the study area.
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