COLLEGE OF AGRICULTURAL AND ENVIRONMENTAL ECONOMICS

DEPARTMENT OF AGRICULTURAL ECONOMICS

 ACKNOWLEDGMENT
Primarily we would like to thanks the God who provides us all the courage to make our dream to
come true. Then we would like to thanks our instructor Agerie N. (MSC) for his professional
guidance, constructive criticism, suggestion and lecturing in research methodology course. And
also our appreciation goes to Gondar University Department of Agricultural Economics Staff
members.
 LIST OF ACRONYM AND ABBREVIATION
ANRS Amahara National Regional State

BoFED Bureau of Finance and Economic Development

CSA Central Statistic Authority

DOA District Office of Agriculture

GDP Gross Domestic Product

FAO Food and Agricultural Organization

FDRE Federal Democratic Republic of Ethiopia

MoARD Ministry of Agriculture and Rural Development

S-C-P Structure –Conduct-Performance

USDA United States Department of Agriculture

 LIST OF TABLES
Table1. Shows representation of variables

Table 2. Shows work plan of research accomplishment

Table 3. Shows budget estimation of research project

 ABSTRACT
This proposal attempted to analyze the determinants market supply of wheat in Gondar zuria
districts especially (Tach Teda kebele) with specific objective of assessing the structure-conduct-
performance of wheat marketing, the various marketing channels, and credit and analyzing the
determinants of wheat supply. Multiple linear regression models are employed to estimate the
determinants of wheat supply. Wheat is one of stable food crops and it is very crucial for
farmer’s consumption and marketing. The major barrier to enter into the market was shortage of
capital. Moreover, the markets were overwhelmed by information asymmetry with low degree of
market transparency. Although trading of wheat is profitable across all sample farmers and
traders, problems like oligopolistic market structure and information asymmetry made the
trading business uncompetitive and inefficient. Among the different variables hypothesized to
determine the supply of wheat, econometric result showed that seven variables such as quantity
produced, access to market information, age of household, sex of the household, education status
of household, size of landholding, and access to credit positively significant affected the volume
of wheat supplied to the market. Moreover, three variables namely distance to the market, family
size and price of other crop negatively affected volume of wheat supplied to the market. The
study recommends providing policies that improve wheat production capacity by identifying new
technologies create stable demand for surplus production would enhance farmers’ decision in
marketable surplus.

1. INTRODUCTION

1.1. Background the study

In Ethiopia, Cereal production and marketing are the means of livelihood for millions of small
holder households and it constitutes the single largest sub-sector in economy. Cereal accounts for
roughly 60% of rural employment, 80% of total cultivated land, more than 40% of a typical
household’s food expenditure, and more than 60% of total caloric intake. The contribution of
cereals to national income is also large. According to available estimate, cereal production
represents about 30% of gross domestic product (GDP). This calculation follows from the fact
that agriculture is 48% of the nation’s GDP (World Bank, 2007), and that cereals’ contribute to
agricultural GDP is 65% (Diao et al, 2007). Cereals are the most important food crop of the
world and it provides the world with a majority of its food calories and about half its protein.
They are staple foods in the diets of most population. In the year 2007, 2029 million metric tons
of cereals was produced globally from 658.5 million hectares of land with an average
productivity of 30.83 quintals per hectares Balasubramanian, (2007).

Agriculture sector has particular significance in the Ethiopian economy. It accounts for more
than 50 percent of GDP and provides employment for about 83 percent of the total population. It
is also the sector that is given an overriding focus in the government's plan for growth of the
economy as a whole Berhanu Gebremedhin, (2012).

Gondar special zone is one of the nine special woredas in the Amahara regional state. The
woreda is endowed with favorable climatic and natural resource conditions that can grow diverse
annual and perennial crops required for household consumption and the market. Production of
wheat by smallholder farmers of the woreda is mainly for market next to maize and sorghum
which is the most important and widely known cash crop of the area. In Gondar zuria districts;
agriculture is the backbone of the regional economy; contributing for about 73% of the regional
GDP and more than 90% of the total employment (BOFED, 2005). Wheat production increased
55 percent, from 2.2 million tons in 2005 to 3.4 million tons in 2012. The production of 3.4
million tons in 2012, a record output, made Ethiopia the leading producer of wheat in Sub-
Saharan Africa and third on the continent, next to Egypt and Morocco. Neighboring countries
produce far less wheat and given Ethiopia’s vast land resources, increasing use of modern input
technology, irrigation and improved infrastructure (resulting in improved yields), it has great
potential to benefit from exporting wheat to neighboring countries (CSA, 2012) . This indicates
that, there was increment in production and marketable volume of wheat but the current level of
wheat marketed is still low and insufficient to meet the domestic consumption and needs of
newly emerging food processing industries. Moreover, in terms of the marketable volume of wheat,
it is estimated that about 21% of the domestic production is marketed, while the bulk of the produce
is retained on-farm for consumption and seed (CSA, 2009).

Wheat is mostly grown in the highlands and mid highland area of the country. Among the nine
regions, Oromia and Amhara regions produce 59% and 27% of the country’s wheat, respectively.
Specifically Arsi and Bale Zones and also some parts of Amhara Region like North Gondar and
North Shewa are the major wheat growing areas MoARD, (2010).

Among the different zone in amahara region, Gondar zone especially central Gondar is one of
the main wheat growing areas in the Ethiopian highlands. Nevertheless, in view of the current
rapidly growing rate of urbanization, coupled with the increased expansion of existing as well as
newly emerging food processing industries, wheat products such as macaroni and spaghetti are
highly demanded in the local market and have become an important part of daily diet in the
urban and peri-urban areas of Ethiopia. However, almost all local pasta manufacturers depend on
imported wheat (EIAR, 2006). At present, the demand for imported wheat is millions of tons of
wheat from abroad, costing three hundred million dollars in foreign exchange (CSA, 2013). The
key reasons why local industries do not utilize locally produced wheat are: the perceived sub-
standards quality. There is an immense potential for increasing domestic production of wheat to
meet the current rapid demand for wheat, but there are a number of constraints that hinder the
intensification production and quality of wheat. These include weak seed production and
distribution, high seed cost, high fertilizer cost, inadequate coordination between research center,
seed multiplication and extension, lack of market information, high transport costs, lack of
access to appropriate storage and marketing facilities and poor infrastructure and shortage of
access to bank credit.

Furthermore, poor farming management and post harvesting handling is also among the major
problems.

1.2. Statement of the problem

Agricultural marketing is a very important factor in economic development and lack of a well-
functioning agricultural market and marketing system severely hinders the increase of social
welfare, income distribution, and food security of developing countries. Moreover markets and
marketing system do not develop simultaneously with economic growth. Markets and marketing
system should be organized deliberately to enable economic development (Wolday, 1994).
Improved information and marketing facility enables farmers to plan their production more in
line with market demand, to schedule their harvest at the most profitable time, to decide which
market to sell their produce to and negotiate on a more even footing with traders and it also
enables traders to move their produce profitably from a surplus to deficit market and to make
decisions about the economics of storage, where technically possible.

Thus the market information is critical to the law of one price and to the price discovery process
(Khols and Uhl, 2002). Provision of improved and high yielding varieties, chemical fertilizer,
pesticides and insecticides may favor the farmer in increasing production; however, this is not an
end by itself. Therefore, (Khols and Uhl, 2002) without modern marketing system, including
communications, transportation, storage facilities and financial arrangement this is not possible.
The efforts of increasing agricultural production and productivity have to be accompanied by a
well-performing marketing system which satisfies consumer demands with the minimum margin
between producers and consumer prices. Higher prices for producer can encourage farmers to
adopt new technologies, increase production, Wolday, (1994). However, there are external and
internal problems that influence the marketing efficiency in the districts. This has to do with lack
of pertinent market information, development of marketing institutions and marketing
infrastructure such as storage, transportation etc. The possible increment in output resulting from
the introduction of improved technology could not be exploited in the absence of well-
functioning marketing system. An efficient, integrated, and responsive market mechanism is of
critical importance for optimal allocation of resources in agriculture and in stimulating farmers to
increase their output as cited in Andargachew, (1990). A well-functioning marketing system is
not limited to stimulation but it also increases production by seeking additional output.

In Ethiopia, agricultural growth induces higher overall growth than non agricultural sectors.

This leads to faster poverty reduction since it generates proportionately more income for farm
households who represent the bulk of the poor. From within agriculture, staple crops have
stronger growth linkage resulting from more than proportionate increase in total GDP.

Moreover, such growth linkage becomes stronger overtime (Diao et al, 2007).

Supply of agricultural crop in the study area is subjected to seasonal variation where surplus
supply at harvest is the main feature. The nature of the product on the one hand and lack of
properly functioning marketing system on the other, often resulted in lower producers’ price.
This study is designed to address the prevailing information gap on the subject and contribute to
proper understanding of the challenges and assist in developing improved market development
strategies to benefit of smallholder farmers, traders, and other market participants.

1.3. Objective
1.3.1. General objective

to analyze the market supply of wheat production among smallholder farmers in Gondar District
particularly in Tach Teda kebele.

1.3.2. Specific objective

1. To assess the determinants of marketed supply of wheat in the districts.
2. To study the market structure-conduct- performance of wheat market in the study area.
3. To identify the opportunities and challenges of wheat marketing in the study area
1.4. Research question
1. What are the determinants of market supply of wheat in the study area?
2. What is the structure-conduct-performance of wheat in the study area?
3. What are the opportunities and problems of wheat producers?
1.5. Significance of the study

This study focuses on the determinants of wheat supply, credit condition, and marketing margin
and identifying opportunities and constrains of wheat production and marketing in Gondar zuria
district specially Tach Teda kebeles. The information is expected to assist market participants to
understand the supply potential, and analyze the performance of wheat marketing activities
which could serve as a major input to formulate appropriate marketing policies and strategies in
Gondar zuria districts by identifying interventions that improve efficiency of the marketing
system. The study can also serve as an additional source to conduct detailed studies by
identifying research agenda. Thus, the result of this study expected to provide valuable input to
formulate appropriate crop production and marketing policies and procedures. This study can
also pinpoint options to promote market oriented production system by giving equal emphasis to
both production and marketing side. The result can be also used to make appropriate decisions by
the farmers, traders, investors, and other development stakeholders, who need the information for
making relevant decision. Finally, the study served as a spring board for other similar studies.
 1.6. Scope and limitation of the study

This study will undertake in Gondar zuria districts special kebele of Tach Teda. The study
emphasized different market levels, role of market actors in the marketing channel, market
directions, producers bargaining characteristics, traders buying and selling strategies, storage,
transportation, market information, and financial institution involved in the market and
determinants affecting supply of wheat in the study area was also seen. The study was restricted
to the market supply analysis of wheat production in the above mentioned districts. In addition,
the shortage of logistics and budgets made the researcher unable to consider additional sample of
wheat producing kebeles and other neighboring markets found in and out of the study area.

2. LITERATURE REVIEW
2.1. Basic concepts and definitions

This section attempts to provide basic definition of a market, marketing, marketing system,
identifying the factors affecting the market supply, and methods of evaluating the efficiency of
agricultural markets.

Market: The word “market” has many connotations. It defines “markets” as a single
arrangement in which one thing is exchanged for another. A market consists of buyers and sellers
with facilities to communicate with each other. According to (Abbot and Makeham, 1981), a
market can be defined as an area in which exchange can take place. A market according to (kohls
and Uhl, 2002) is an arena for organizing and facilitating business activities and for answering
the basic economic questions: what to produce, how much to produce, how to produce, and how
to distribute production.

Marketing: The term marketing has a variety of meanings. To some shoppers it means
purchasing groceries and all other household needs. From the point of view of farmer or rancher,
it means selling their commodities. From the perspective of handler of the commodity, it means
storing the commodity, transporting the product in to a form that consumers want, shipping it to
retail outlet and promoting its sale (Crammer and Jensen, 1997). According to (Kotler and
Armstrong, 2004) defined marketing as a social and managerial process by which individuals
and groups obtain what they want and need through creating and exchanging products and value
with others. According to Lamb et al, (2004) Marketing is the process of planning and executing
the consumption pricing, promotion and distribution of idea, goods and services to create
exchange that satisfy individual and organizational goals.

Marketing system: the concept of marketing system includes both the physical distribution of
economic input and products and the mechanism of process or coordinating production and
distribution cited in Andargachew, (1990).

In broad terms, marketing system may be defined as the totality of product channels, market
participants and business activities involved in the physical and economic transfer of goods and
services from producers to consumers. Marketing system operates through a set of intermediaries
performing useful commercial functions in chain formations all the way from the producer to the
final consumers (Islam et al., 2001).

Market channel: the term channel is derived from the Latin word canals, which means canal.

The marketing channel can be viewed as large canal or pipeline through which products, their
ownership, communication, financing and payment, and accompanying risk flow to the
consumer (Backman and Davidson, 1962). Formally, a marketing channel is a business structure
of interdependent organization that reaches from the point of product origin to consumer with
purpose of moving products to their final consumption destination (kotler and Armstrong, 2003).
Marketing channel is the set of interdependence organization that ease the transfer of ownership
as products move from producer to consumer.

2.2. Theoretical literature review

2.2.1 Wheat production in Ethiopia

According to CSA estimates, Ethiopia produced 3.9 million tons of wheat in 2013, making it the
largest wheat producer in Africa south of the Sahara by a considerable margin. The second
largest producer is South Africa with 1.7 million tons, followed by Kenya with just 0.5 million
tons. Ethiopia represents just 0.6 percent of the 713 million tons produced globally (FAO, 2015).
Current wheat yields are roughly double the average wheat yields in 1995-96, implying an
annual growth rate of 3.9 percent. Thus, more than half the growth in production since 1995-96
can be attributed to yield growth. The rate of yield growth has been even higher in recent years:
since 2008, yield has increased by more than 7 percent per year. Some sources suggest that
wheat yields in Ethiopia may be somewhat lower than official estimates. For example, the U.S.
Department of Agriculture estimates that wheat yields in Ethiopia are about 2.1 t/ha compared to
official estimates of 2.4 t/ha (USDA, 2015). Similarly, the results of a 2008 household survey
suggested that wheat yields were about 1.0 t/ha, during the year when official estimates were 1.6
t/ha (Alemu et al., 2008). The main factors influencing the distribution of wheat production in
Ethiopia are rainfall and altitude. Wheat grows best at temperatures between 7 o C and 21o C and
with rainfall between 750 mm/year and 1600 mm/year.

2.2.2 Wheat marketing

Wheat marketing refers to the process by which wheat moves from farmers to consumers.
However, most wheat in Ethiopia is not marketed; instead it is retained by the farmer and used
for their own consumption, seed, and possibly other uses. According to the 2013/14 Agricultural
Sample Survey, just 18 percent of wheat output was sold. However, the share of wheat
production that is sold varies widely across households. Most wheat growers (54 percent) do not
sell any of their wheat output. Just 10 percent of them sell more than 40 percent of their harvest
while 5 percent sell more than half.
2.2.3 Market Structure, Conduct and Performance Analysis (S-C-P)
Market structure: Market structure is defined as characteristics of the organization of a market
which seems to influence strategically the nature of competition by pricing behavior within the
market cited in Scott, 1995). Market structure is the description of the number and nature of
participants in a market. (Cramer and Jenson, 1982 and Abbott and Makeham, 1981). Structural
characteristics may be used as a basis for classifying markets. Markets may be perfectly
competitive, monopolistic, or oligopolistic (Scott, 1995).

The four salient aspects of market structures include the degree of seller concentration, the
degree of buyer concentration, the degree of product differentiation, and the condition of entry
cited in Scott, (1995).

A) Degree of buyers and sellers concentration; refers to the number and size distribution
of buyers and sellers in the market. According to (Khuols and Uhl, 2002), market
concentration, the portion of the industry sales made by the largest firms, is another
source of imperfect competition. Successful competitors frequently eliminate their rivals
or discourage new firms entry, contributing to more concentrated market. In general, the
higher the level of market concentration, the less perfectly competitive the market is. The
common methods of measuring market concentration are the following.
N
C=∑ Si
i=1

Where c, market concentration Si percentage of market share in ith firms and I=1, 2, 3…N

B) Condition of entry: refers to the relative ease or difficulty with which new dealers in to
the market.
C) Degree of product differentiation: refers to the extent to which competing products in a
market are differentiated is expected to influence the competitive interrelationship of
sellers in the market.

Market conduct: market conduct refers to the patterns of behavior that enterprises followed in
adopting to the markets in which they sell or buy. The principal dimensions of market conduct
according to (Tadie Mirie, 2016) include price setting, the manner in which the value and quality
ranges of products are determined, advertising and marketing strategy, research, development
planning, implementation, and legal tactics. Market conduct refers to the practices or strategies
of traders in maximizing their profits. Among these practices are the use of regular partners,
long-term relations with clients, and suppliers, the use of intermediaries, and trade within
personalized networks Wolday, (1994). Conduct of the market refers to the strategies that firms
pursue with regard to price, product and promotions, and the linkages/relationships between and
among firms. The market behavior of firms will determine whether or not they compete and
whether they are acting innovatively to improve market efficiency.

Market performance: Marketing efficiency is essentially the degree of market performance. It

is defined as having the following two major components: (i) the effectiveness with which a
marketing service would be performed and (ii) the effect on the costs and the method of
performing the service on production and consumption. These are the most important because
the satisfaction of the consumer at the lowest possible cost must go hand in hand with
maintenance of a high volume of farm output (Dagne Getachew, 2014).

The two approaches to evaluating marketing performance are: marketing cost and margin and
market integration.

Market cost: Marketing costs refers to those costs, which are incurred to perform various
marketing activities in the shipment of goods from producers to consumers. Marketing cost
includes: Handling cost (packing and unpacking, loading and unloading putting inshore and
taken out again), transport cost, product loss (particularly for perishable fruits and vegetable),

storage costs, processing cost, capital cost (interest on loan), market fees, commission
and unofficial payments (Heltberg and Tarp, 2001

Market margin: A marketing margin is the percentage of the final weighted average
selling price taken by each stage of the marketing chain. The total marketing margin is the
difference between what the consumer pays and what the producer/farmer receives for his
product. In other words it is the difference between retail price and farm price (Cramers and
Jensen, 1982)

Market integration: Price transmission studies are apparently empirical that test the
predictions of economic theories and provide important insights as to how changes in one
market are trans mitted to another, thus reflecting the degree of market integration, as well
as the extent to which markets function efficiently (Rapsomanikis et. al. 2003).

2.2.4. Major problems and opportunities

i. Production and marketing problems of farmers

Farmers’ production problems: the following key problems are Rain failure, higher fertilizer
price and delayed delivery, Soil erosion, Labor shortage, Lack of credit access, Draft power, and
Prevalence of crop diseases.

Farmers’ marketing problems: the following things are main market problem of farmer’, such
as unfair pricing and cheating of traders during weighting, lack of market information providing
institutions, multiple taxes, higher input price, and chemical herbicides adulteration.

Marketing problem of traders: The major marketing problems sample traders faced in the
study area were capital shortage, credit access, poor product quality of the commodity, lack of
market information, multiple taxation, high transportation cost, lack of demand and unfair
competition with unlicensed traders.

ii. Opportunities of farmers

The potential opportunity of the area is its proximity to highly populated and newly booming
towns like Gondar, bahirdar, and other surrounding nearby towns create potential demand for the
products produced in the area. Obviously the increased demand would be followed by better
farm price for producers. As a result farmers will have an incentive to expand their output.

2.3. Empirical literature review

2.3.1. Factors affecting market supply
The market supply refers to the amount actually taken to the markets irrespective of the needs for
home consumption and other requirements. Whereas, the marketed surplus is the residual with
the producer after meeting the requirement of seed, payment in kind, and consumption by farmer
Wolday, (1994).
According to Wolday A. (1994), identified factors that affected market supply of food grain (teff,
maize and wheat) by using variables such as the size of output, market access, family size, and
income from pepper. He identified that size of output wheat significantly and positively affected
and wheat supplied. On the other hand, access to market significantly and negatively affected
volume of sale of maize. Poor accesses to the market negatively affected maize sold while
positively affected wheat sold. Family size also significantly and positively affected quantity
supplied of wheat while it negatively affected quantity supplied of maize.

Results of econometric model indicated the relative influence of determinants of different

variables on market supply of wheat in the study area. A total of ten (7 continuous and 3 dummy)
explanatory variables were included in the model for wheat independently. Of the total 10
variables, four variables of the three variables of the wheat had shown significant relationship
with market supply of wheat.

Accordingly, quantity of wheat produced, access to market information, sex of the household,
size of landholding, education status of household, and age of household will find to have
positive and significant influence on market supply of wheat. Likewise, quantity of wheat
produced, and access to credit were found to influence market supply of wheat positively and
significantly. Contrary to this, price of other crop, family size, and distance to the market have
show negative and significant relationship with volume of wheat marketed.

3. RESEARCH METHODS
3.1. Description of the study area

The FDRE is administratively divided into nine national regional states and two administrative
councils. The ANRS is one of the nine regional states. The ANRS is again divided into eleven
administrative zones, one of which is North Gondar. Gondar Zuria is one of the 21 Districts of
North Gondar Administrative Zone. Gondar Zuria shares borders with Wogera and West Belesa
districts in the North, with Lay Armachiho in the West, with Dembia district and Lake Tana in
the South and Libo kemikem District in the East. Gondar Zuria is divided into 35 rural kebeles
and 3 urban kebeles. As estimated by the District Office of Agriculture (DOA), this District has
an area of 114,983 hectares.

Topography of the district’s area is 65% flat land, 25% hill and 10% valley type. Gondar Zuria’s
area coverage 63% is for cropland, 14.8% grass land, and 9.6% is covered with forest, 7.5% is
taken by physical constructions, 2.6% of is regarded as wasteland and 2.5% for other. Based on
traditional agro-ecological classification, Gondar Zuria is described as 22 % Dega and 78%
Woina Dega. The annual average rainfall of the district ranges from 950 to 1035mm. The yearly
average temperature also ranges in between 24 – 33 C0

The altitude of the District ranges from 1800 to 2700 m.a.s.l. Gondar Zuria (DOA).

The District had a human population of 224,460 with 113,702 (or 50.6%) males and 110,758 (or
49.4%) females based on CSA projection (CSA, 2014). In addition, 87.2% of Gondar Zuria’s
population lives in rural areas while the remaining lives in Makisegnit, Enferaz and Degoma
towns (CSA, 2014). As specifically related to farming life, the ever-increasing population
overstocks the limited land resource. The total population density of Gondar Zuria district will
find to be about 203 persons per Km2 while the agricultural density, considering both crop and
grazing lands regardless of slope, was 250 persons per Km2.

This shows that there is high population, which should be seen from the high subsistence
requirement and the limited sources of earnings. Hence, using improved technology is a gear to
escape from poverty. It has high potential of wheat production and arable land coverage. In the
district, improved technologies were demonstrated and popularized in the previous years.

3.2. Sample size and sampling technique

The sample size depends on the number of wheat market supply on the basis of their size.

For the primary data collection, a multi stage sampling technique was used to draw the sample.
In the first stage, Gondar zuria districts was selected purposively based on highly and agro-
ecologically suitable and potential area for wheat production.

In the second stage, the District have only one kebeles selected purposively based on their wheat
production potentials, namely yayira kebele.

In the third stage, based on the population number of sample kebeles, representative wheat
sellers/producers/ will be select using probability proportional to size sampling technique from
sample kebeles. The maximum number of respondents was determined by using a formula developed
by (Yamane, 1967).
n=N/ (1+N (e2))

Where n= sample size, N= the population size, e= level of precision

3.3. Data source and methods of data collection

The data will be collected both primary and secondary data source. The secondary data on
market supply, trends in agricultural production, wheat marketing and other secondary data
relevant for knowing volume sale on the market.

Primary data will be collected through a household survey. The household survey focused on
collecting quantitative data on production and marketing of farm produce, as well as
demographics, resource ownership, and non/off-farm activities using pre-tested questionnaire.

3.4. Methods of data analysis

In these study two types of data analysis, namely descriptive statistics and econometric analysis
were used for analyzing the data collected from wheat producers and traders.

3.4.1. Descriptive statistics

This method of data analysis refers to the use of ratios, percentages, means, and standard
deviations in the process of examining and describing marketing functions, household
characteristics, role of intermediaries; market and trader characteristics, the structure of
production costs, and major constraints and opportunities of production and supply. Descriptive
statistics such as measures of averages, percentages and standard deviation was employed to
assess the current level of market supply of wheat production in the study area, and in the
process of explain variation in the level of market supply of wheat among households. The main
hypothesized variables expected to influence marketable supply of wheat in the study area are
explained in the following manner:

i. Dependent variable

To deal with smallholders’ market supply of wheat, which is the main issue explained in the
present study, the volume of wheat produce sold is used as a dependent variable to measure
market supply level of wheat production.

Quantity Supplied: It is a continuous variable which represents dependent variable; the amount
of wheat actually supplied to the market by which is measured in quintals.

ii. Independent variable

Quantity produced family size, access to credit, distance to the market center, educational status
of the household, sex of the household, age of household, access to market information, price of
other crops, and size of landholding.

3.4.2. Econometric analysis

To analyze the determinants of wheat market supply of smallholder farmers we will use multiple
linear regression models of OLS (ordinary least square) estimation. It will be an essential method
of econometric analysis to recognize and realize patterns of the influencing factors. The most
important variables that determine wheat market supply includes quantity produced, family size,
access to credit, distance to the market center, education status of house hold, sex of house hold,
age of house hold, access to market information, price other crops, and size of landholding.

3.5. Definition of variables and working hypothesis

Quantity produced: It is an economic factor and continuous variable that can affect the
household level marketable supply and measured in quintals per hectare. The variable is
expected to have positive contribution in smallholder marketable supply of wheat. According to
(Tomek and Robinson, 1985) argued, quantity produced is assumed to affect the marketable
supply positively, because a farmer that obtains high yield can supply more to the market than a
producer who had fewer yields

Family size: It is a continuous variable measured in adult equivalent (Strock et al., 1991) i.e. the
availability of active labor force in the household, which affects farmer’s market supply. Since
production is the function of labor, availability of labor assumed to have positive relation with
volume of supply. However, family size is expected to have positive impact on volume of sales,
but larger family requires larger amount for consumption which reduces marketable surplus.
From this context, family size is expected to have positive or negative impact on volume of sale.

Access to credit: Access to credit was measured as a dummy variable taking value of 1 if the
wheat producing farmer had access to credit and 0 otherwise. This variable is expected to
influence the marketable supply of wheat positively on the assumption that access to credit
improves the financial capacity of wheat producing farmers to buy modern inputs, thereby
increasing production which is reflected in the marketable supply of wheat.

Distance to the market center: It is a continuous variable measured as average distance to

market center in kilometers. Near road accessibility can have important influence on markets
from both the supply and demand side because it reduces the imperfect information and
transaction costs. (Binswanger et al., 1993) identified that the lack of roads is a significant
barrier to the ability to respond to agricultural supply. Similarly in Ethiopia, (Pender and Dawit
Alemu, 2007) and (Berhanu Gebremedhin and Moti Jaleta, 2010) and other authors also
examined that marketing costs is completely hindering or limiting the level of smallholder
market participation. Hence, in the present study it is hypothesized to affect volume of wheat
sold negatively.

Education status of household: This variable was measured using formal schooling of the
household head and hypothesized to affect marketable supply positively. It has taken dummy
values 1 if the household head attended any formal education and 0 otherwise. This is due to the
fact that a farmer with good knowledge can adopt better practices than illiterates that would
increase marketable supply. When a farmer is literate he/she adopts appropriate technology, due
to this fact, education with higher grade are expected to have better skills, and better access to
information and ability to process information. This helps them to produce efficiently and thus may
be positively associated with a volume of produce sold.

Sex of household: mixed farming system, both men and women take part in crop production &
management. Generally, men contribute more labor input in area of land preparation, planting,
weeding, harvesting and sale of wheat. However, obstacles, such as lack of capital, and access to
institutional credit, access to extension service, may affect men’s participation and efficiency in
wheat production.

Age of house hold: It is a continuous variable and measured in years. This may be the fact that
age is a proxy measure of farming experience of household. Aged households are believed to be
wise in resource use, and it is expected to have a positive effect on marketable surplus.

Access to market information: Its dummy variable that takes values 1 if the household
accessed market information and 0 otherwise. Farmers market decision are based on market price
information, poorly integrated markets may convey inaccurate price information, and leading to
inefficient product movement. It has been hypothesized to positively influence the volume of
wheat marketed of farm households. Because, producers that have access to market information
are likely to supply more wheat to the market. (Mohammed Urgessa, 2011) found that if wheat
producer gets market information, the amount of wheat supplied to the market increases.

Price of other crops: it is a continuous variable that can affect the marketable supply and
measured in birr per quintal. An increase in price of other crops produced in the farm is expected
to have negative effect on marketable supply of wheat.

Size of land holding: This variable was a continuous variable measured in terms of number of
hectares allocated to wheat and was expected to affect the household level of or wheat
marketable supply positively (Tomek and Robinson, 1985). This is because, producers who own
large area holding can produce more than a producers who own less area and thus to supply more
to the market.

3.5.1. Econometric model specification

3.5.1.1. multiple linear regression function
In this study, multiple linear regression will be use to analyze factors determining the volume of
wheat sold in the study area because dependent variable is continues. This model is also selected
for its simplicity and practical applicability (Greene, 2000). Econometric model specification of
supply function is the following.

𝑌= 𝑋′𝐵+𝑈

Y =X1B1+X2B2+X3B3+X4B4+X5B5 +X6B6+X7B7+X8B8+X9B9+X10B10

Where: 𝑌 = Volume of wheat marketed

𝑋′= A vector of explanatory variables

𝐵 = A vector of parameters to be estimated

𝑈 = Disturbance term/Error term/

3.6. Expected output

We expect from this proposal paper to analyze what are the major determinants of market supply
of wheat production in case of Gondar zuria districts particularly yayira kebele major factors
influencing supply of wheat production are lack of credit, distance to the market, price of other
crops, sex and ages of household and education status of household in the future. The other
expectation is to study market SCP, which is important for to analyze performance, ability and
capacity of farmers to supply products from market. Moreover, we will expect to answer what
are major problems and opportunities of farmers.

We expect from this proposal is determinants of market supply negatively and positively,
therefore those negative factors are correcting in the future wheat production and marketing.

Table 1. Shows variables that represent whether numbering or category

Variables Numeric Category

Quantity produced 
Age of household 
Sex of household 
Distance to the market 
Access to credit 
Education status of household 
Size of landholding 
Access to market information 
Price of other crops 
Family size 

3.7. Work plan of the study

Table 2. The research will be conducted during 2020 within five months, starting from January
up to May

Activities 2020
Jan Feb Mar Apr May
Literature survey 

Proposal writing 

Data collection 

Data entry 

Data analysis 

1st draft project 

writing
Final draft project 

writing
Project presentation 

3.8. Budget

Table 3. Budget plan shows the budget estimated for the accomplishment of the research

No Item Unit Unit price Amount of Total price

 description required
1. Paper Packet 90 1 90
2. Pen Number 8 15 120
3. Flash Number 200 1 200
4. Printing Page 1.60 45 72
5. Photo copy Page 0.5 100 50
6. Fixing Number 9 2 18
7. Telephone Three months 250
8. Internet 100
9. Transport 200
10. Sum/total 1000

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