Returns to Quality in Rural Agricultural Markets : Evidence from Wheat Markets in Ethiopia Jérémy Do Nascimento Miguel

In many Sub-Saharan countries, farmers cannot meet the growing urban demand for higher quality products. While the literature has focused on production-side constraints to enhancing smallholder farmers’ output quality, there is scarce evidence of market-side constraints. Using a sample of 60 wheat markets in Ethiopia, I assess whether farmers received a price premium for supplying higher quality outputs. I exploit a unique feature of the data which precisely measures observable and unobservable quality attributes, and relate them to transaction prices. I find that observable attributes cannot serve as proxies for unobservable ones. Transaction prices further reflect this, indicating that, markets only reward quality attributes observable at no cost. However, these results hide cross-market heterogeneity. Observable quality attributes are better rewarded in larger and more competitive markets, while unobservable attributes are rewarded in the presence of grain millers and/or farmer cooperatives. Both regression and machine learning approaches support these findings