On trade efficiency in the Ethiopian agricultural markets

The availability of enabling institutions, information systems and infrastructure is a precondition to enhance agricultural markets’ efficiency, and make market actors less vulnerable to price instability. This paper investigates whether the focus on institutional and technological upgrading is enough to make Ethiopian agricultural markets more efficient. In particular, given that a requirement for exchange efficiency is the lack of unexploited mutually beneficial spatial arbitrage opportunities, we look for evidence of increasing returns to transaction size and returns to scale in transport using detailed trader surveys collected in 2001 and 2007. Whilst transport costs could be reduced by assembling loads and avoiding trans-shipments for the transporters, we find no evidence that transport and handling costs are a source of increasing returns to transaction size. Hence, the presence of many small market intermediaries is not a source of inefficiency in Ethiopia, and concentration in market intermediation is not necessary for social efficiency.