Quality-graded Wheat Value Chain Development and Agricultural Transformation in Ethiopia

A lack of farm-level quality recognition in domestic trade frequently fails to give incentives to smallholder farmers to improve quality, putting them at risk of being displaced on their own markets by high quality imports. However, there is little evidence available to answer whether quality certification at the farmer level can induce smallholder farmers to produce higher quality crops that will meet import standards. Researchers introduce a new third-party quality certification system for wheat on local markets in order to evaluate whether the combination of a wheat certification booth, a training about the wheat quality certification process, and an opportunity to try the certification services for free will impact the quality and price of wheat.

Policy Issue

With deepening globalization of food markets, demand for higher quality agricultural products has been rising rapidly in Sub-Saharan Africa. Yet, often domestic markets do not pay prices that correspond with the relative quality of crops within the market, which can discourage smallholder farmers from investing in strategies to improve quality. This in turn puts them at risk of being displaced on their own markets by high-quality imports. In Ethiopia, a compounding challenge to improving quality centers is the aggregation of wheat in commercial systems. Without assessing quality before combining outputs from multiple smallholder farmers, aggregation can lead to entire lots or even markets of low-quality outputs. Therefore, commercialization remains difficult without a way to rate the quality of wheat at the farm level and to reward farmers producing high-quality crops. However, there is little evidence about the impact of quality certification for individual farmer’s outputs and whether adding quality certification services to the value chain will increase the amount of high quality crops or change prices (market prices or the prices farmers receive for their crops).

Context of the Evaluation

With around five million wheat farmers in Ethiopia, of which 88% are smallholder farmers with an average land size of 0.34 acres, wheat makes up an important income source for many Ethiopian farmers. Around 35% of all Ethiopian farmers produce wheat and sell their surplus to domestic markets. In order to promote domestic wheat consumption, the Ethiopian government is shifting its priorities to encouraging smallholder commercialization. The study takes place in the five main wheat-producing administrative zones in Ethiopia, which cover 75 percent of wheat farmers.

The study is being implemented by Digital Green. Digital Green empowers smallholder farmers to lift themselves out of poverty by harnessing the collective power of technology and grassroots-level partnerships; they are committed to scaling-up the intervention if it is successful. In addition, Ethiopia’s Agricultural Transformation Agency (ATA) has indicated interest in the study and will also facilitate expansion of the wheat certification system to the country’s relevant regions if the intervention proves successful.

Details of the Intervention

In partnership with Digital Green, researchers will randomly assign woredas, or districts, to receive a wheat certification booth, a training about the wheat quality certification process, and an opportunity to try the certification services for free. The certification will be done by a third-party using government quality standards to certify grain. Once the quality is known, the researchers will also facilitate clear communication about the quality of the wheat throughout the value chain: the farmers producing the wheat, the traders buying it from the farmers, and the millers who buy the wheat from the traders and processing it. Of the 80 woredas, or districts, in the five study administrative zones, half will receive the intervention, and the remaining half of districts will serve as the comparison group. The intervention consists of:

1. Certification booths: Starting in January 2020, Digital Green will install wheat certification booths, where certification is available to farmers for a fee. The certification will be based on existing government standards, including, for example, level of impurities. After being tested, grains will be transferred into standardized 50 kg bags, marked with the quality grade and sealed with a specific thread to certify quality. Farmers can then sell to any trader or millers they choose.
2. Training on certification: Ahead of the marketing season, Digital Green will screen training videos for farmers in nearby villages. Ethiopia already deploys one extension agent for every three to four villages, but this short video will contain information on how the certification booths work and how much the certification costs. The video will also showcase testimonials from millers about the value of high-quality wheat.
3. Free trial period: The certification booths will offer free services for the first 4 weeks of their operations for up to two bags per farmer. This will ensure farmers have the opportunity to try the service and see the possible price premiums for wheat quality.

In all 80 woredas, researchers will also provide millers’ contact information for farmers wishing to engage in direct transactions with millers. In addition, they will provide training on how to produce quality wheat, staring in June 2020 before the growing season. This will allow researchers to disentangle the effect of the whole intervention with the effect of certification. With a subset of farmers, researchers will also randomly assign farmers to receive discount vouchers with different values to measure how much farmers value the certification services.

In addition to household surveys, researchers will collect data from farmers as they sell their wheat to the market. First, the research team will collect a small sample of wheat from farmers on their way to sell wheat in order to estimate farmers’ use of certification services given different quality levels and the impact of certification on price-premiums across quality levels. Researchers will also collect data on the expected and minimum prices the farmers expect to receive at market. Right after farmers sell and leave the market, researchers will collect transaction data including price, weight, whether graded or not, and if so the overall grade obtained, how many traders they consulted (and if they called advertised millers), and whether they hold long-term relationships with this trader. To see the results of the willingness-to-pay (WTP) exercise that proceeds this randomized evaluation, please see, Is the local wheat market a ‘market for lemons’? Certifying the supply of individual wheat farmers in Ethiopia.

Results and Policy Lessons

Project ongoing; results forthcoming.