Adding Benzene to Fire: Overlapping Seasonality as a Pull Factor to Producer Prices in Ethiopia

Abstract

Coupled with the seasonal nature of agricultural production, seasonality of farmers\' cash demand influences the level of actual market supply and price of agricultural products. This study investigates the seasonal behaviours of producer prices and farmers\' cash demand for two crops (white teff and white wheat) that serve as staples and sources
of cash income around Ambo, Ethiopia. Descriptive studies on price time series show that producer prices for the two crops get low during the harvest and immediate post harvest seasons and survey results show that most farmers have a high demand for cash during same seasons and, as a result, sell a great proportion of their marketable stock of the two
crops during such seasons. This creates overlapping seasonality between agricultural production, on the one hand, and high cash demand of farmers, on the other. This overlapping seasonality due to the high cash demand of farmers is expected to aggravate the seasonal decline of producer prices already resulted from the seasonal supply of agricultural production. A most likely policy implication, to raise and stabilize producer prices, is therefore to influence the seasonal behaviour of farmers\' high cash demand in such a way that it coincides with the lean seasons of agricultural supply. This could be approached through rescheduling the time of fertilizer debt and land use tax payment, those
important factors that put farmers into selling a large proportion of their marketable crops during such seasons of low producer prices. By raising and stabilizing farmers\' income from crop sales, such policy will promote the economic incentive of smallholder farmers to increase their productivity.

Keywords: Producer Price; Farmers, Cash Demand; Overlapping Seasonality; Sub-Saharan Africa; Ethiopia

East African Journal of Sciences Vol. 1 (1) 2007: pp. 79-87