SUPPLY AND INCENTIVES IN WHEAT VALUE CHAIN AND IMPACT OF INDUSTRIAL POLICY ON ECONOMY OF OROMIA REGION: THE CASE OF ARSI AND EAST SHEWA ZONES, OROMIA NATIONAL REGIONAL STATE, ETHIOPIA.

Abstract

This study identifies factors affecting commodity supply and incentives in each functional node of the wheat value chain, and evaluates the impact of industrial policy on regional economy. Mixed sampling techniques (random, census and purposive) were applied to select sampling units. Interview schedules, informal group discussion and observation were used to collect primary data from actors. Multiple linear regression, ordinal logistic regression, computable general equilibrium models, and social accounting matrix multiplier analysis were used to analyze the data. Marketed surplus of wheat was significantly influenced by landholding size, road distance, crop rotation, tractor use, fertilizer used, extension service and cost of wheat production. The governance structure, incentive mechanisms, transaction attributes and trust affect actors’ incentives at each functional node of the wheat value chain. Particularly, wheat producers’ incentives significantly increased with extension services, governance structure, economies of scale and wheat price information. The computable general equilibrium models results indicate that the industrial policy has a positive impact on the components of the regional economy. The results of social accounting matrix multiplier analysis indicate that agricultural and service sectors had relatively the highest output, income and employment multipliers. Shock injections into regional wheat value chain brought about much higher changes in wheat processing industries output, urban and rural households’ consumption of wheat and wheat products. The finding supports industrial policy as a base for industrialization and economic growth in developing countries if the industries operate at their full capacity. The study suggests a combination of incentives with disciplines approach to promote industrialization. GO and NGOs should work for betterment of input markets to address unfair incentives, poor coordination, low raw materials and final products supply at each functional node of the wheat value chain.