ON THE ROLE OF THE BROKERAGE INSTITUTION IN THE DEVELOPMENT OF ETHIOPIAN AGRICULTURAL MARKETS

The recognition that policies aimed at “getting prices right” in less developed countries werefailing due to incomplete markets has spurred a new wave of reforms, directed instead at“getting markets and institutions right”. Although previous studies have documented thepotentially crucial role of the brokerage institution in crop commercialisation, few haveinvestigated what determines wholesalers’ decisions to use brokers.Using data collected in 2006/07 by Gabre-Madhin, IFPRI and EDRI, we examine Ethiopiantraders’ decisions regarding whether or not they should use brokers, and how much.Independent variables are human, financial and social asset availability, implementedtrading practices, access to infrastructure and institutions, location, travelled distance andtraded crops. Results show that brokerage services are particularly valuable for wholesalerslacking social capital and storage capacity, who are based in areas with low populationdensity, and who trade at a distance especially when roads are not asphalted. Buyers indrought-prone domains rely on brokers more for their long-distance purchases, while sellersin moisture-reliable domains employ brokers more for their long-distance sales. These resultsprovide useful indications regarding where and how the recent formalisation of brokeragefunctions through the ECX could be most beneficial for the functioning of Ethiopianagricultural markets.