International Journal of Research Studies in Agricultural Sciences (IJRSAS)

Volume 4, Issue 12, 2018, PP 1 -9

ISSN No. (Online) 2454–6224
DOI: http://dx.doi.org/10.20431/2454-6224.0412003
www.arcjournals.org

Structure, Conduct and Performance of Potato Marketing in

Sekela District West Gojjam Zone, Amhara Region, Ethiopia
Yaregal Tilahun Geremewe*
Department of Agricultural Economics and Natural Resource, Mizan Tepi University, Mizan Tepi, Ethiopia

*Corresponding Author: Yaregal Tilahun Geremewe, Department of Agricultural Economics and

Natural Resource, Mizan Tepi University, Mizan Tepi, Ethiopia

Abstract: The study examined the structure, conduct and performance of potato marketing in West Gojjam Zone.
The objectives of the study were to examine the structure and conduct of potato marketing system, assess its
performance and estimate the cost and returns in potato marketing. Data collected were analyzed using
descriptive statistics, gross margin analysis, marketing margins, marketing efficiency and the concentration ratio.
Five potato marketing channels were identified in the study area with major share in volume of potato marketed
going through producers to retailers and to consumers channel. Result from analysis of market concentration
indicated that potato market characterized by weak oligopolistic market structure with the buyers’ concentration
ratio of 37.71%. Lack of capital, licensing problem and seasonal supply were identified as the major entry barrier
to potato marketing. Market conduct shows that the price of potato is set by traders while producers are price
taker. When it comes to market performance analysis the highest total gross marketing margin was 30.25% when
producers sold potato to wholesalers and the lowest total gross marketing margin was 16.11% when producers
sell potato to retailers (in channel III). The result showed that potato market in the district deviate from
competitive market norm due to lack of perfect market information, price of potato being set by traders, weak
oligopolized market structure and barrier to entry to potato market. Therefore, attention has to be given to reduce
the problems through supporting local potato markets in order to reduce production and marketing cost and
potato farmers should form a cooperative union in order to facilitate group sales which will increase their
marketing margin.
Keywords: Potato, Market Structure, Conduct, Market Margin and Concentration Ratio

1. INTRODUCTION
Potato (Solanumtuberosum L.) popularly known as „The king of vegetables‟, which is the fourth most
important food crop after maize, wheat and rice worldwide (Naz et al., 2011). It has been considered
as a strategic crop by the Ethiopian government aiming at enhancing food security and economic
benefits to the country. The percentage of potato consumed at home at country level is more than that
of cereals and pulses and at least for once the consumers can eat potato. The reason for huge
consumption level of the crop is due to increasing in the demand of the consumer, increase population
growth, growth in fast food restaurants and a rise in the price of cereal products (Gildemacher et al.,
2009).It is a carbohydrate-rich, high source of vitamin C, vitamins B1, B2 and B6 and minerals such as
potassium, phosphorous and magnesium and energy-providing food with little fat. Its average
composition contains about 80% water, 2% protein and 18% starch (Haverkort et al., 2012). In
addition to production inconsistency, the marketing experience of potato in developing countries
becomes low due to several constraints such as lack of cold storage, poor transportation, limited
market opportunities, lack of infrastructures, lack of market outlets to connect farmer to another
actors, high travel distance, lack of market information and lack of market linkage (Godfrey and
Agnes, 2012). So, the structure, conduct and performance of a market is one of the most important
approaches to analysis of market. Market structure includes the level of concentration of buyers and
sellers; the level of product differentiation; the conditions of entry to the market. Market conduct
refers to possible practices of collusion or exclusion, in addition to price fixing methods. Finally,
performance is evaluated by means of price analyses (price correlation between markets) and costs
and margins between players. An important variable in market structure analysis is concentration,
which shows a situation in which a few large firms have the largest share of business. The effects of
market structure, conduct and performance can go a long way in affecting the supply response of
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Structure, Conduct and Performance of Potato Marketing in Sekela District West Gojjam Zone, Amhara
Region, Ethiopia

agricultural products, especially in horticultural processing and marketing (Egbeadumah, 2008).

Therefore, there is need to analyze structure, conduct and performance of potato farmers in West
Gojjam Zone, Ethiopia.
The objectives of the study are to:
 Determine the degree of the market concentration among the market participants in other to
classify the structure of potato market.
 Analysis the conduct of potato market state.
 Ascertain the performance of potato markets in the state.
2. METHODOLOGY
2.1. Description of the Study Area
Sekela is one of the fifteen Woredas in West Gojjam Zone of Amhara National Regional State. It is
located at 459 Kms in North West of Addis Ababa, the capital of Ethiopia, it is 160 Kmsin South East
of Bahir Dar, the capital of Amhara National Regional State, and 74 Kmsin North East of Finote
Selam, the capital town of West Gojjam Zone. It is bordered on Southwest by Bure Woreda, on the
West by Agew Awi Zone, on the North by Mecha Woreda, on the East by Quarit Woreda and on the
South East by Jabi Tehnan. The administrative center of Sekela Woreda is Gish Abay town.The
district has a total of 27 kebeles of which 26 are rural based kebeles and only 1 are urban kebeles
(SWAO, 2017).
2.2. Sources and Methods of Data Collection
Both primary and secondary data were used for the study. The primary data were collected from
sample potato producers and traders by using structured and semi-structured questionnaires using
formal survey and informal survey. Separate questionnaires were designed for sampled farmers and
traders. The questionnaires were pretested before the actual data collection practices. In addition to the
questionnaire, an informal survey in the form of market appraisal and focused group discussions were
employed to acquire additional supporting information. Discussions were made with key informant
farmers, potato traders, and potato consumers. In addition to primary data, secondary data were
collected from Sekela Woreda Agriculture and Rural Development agricultural office, Sekela Woreda
Trade and Industry office and published and unpublished documents.
2.3. Sample Size and Methods of Sampling
Two stage sampling procedure was used for the selection of sample household heads. At the first
stage, from a total of 26 kebeles of the district, 4 potato producing kebeles were selected randomly. In
the second stage, from the selected kebles, about 130 sample households were selected randomly
using probability proportionate size. According to the information obtained from the trade and
industry office, there were only 4 licensed wholesalers and 5 processors. So, census survey was
conducted for wholesalers and processors. But due to lack of clear data in the district about how many
retailers involved in potato trade, an informal survey was conducted to come up with clear pictures of
retailers engaged in potato trading activity in the study area. Then, 9 retailers from district market and
4 retailers from village market were selected purposively during the market day constituting a total of
22 traders were interviewed. Finally, 20 sample consumers were select randomly from the market.
This means consumers who came to buy potato were randomly selected and they were asked to
respond the questions.
2.4. Data Analysis
Two types of analysis techniques, namely descriptive statistics tools (like mean, standard deviation
and percentage) and Market structure, conduct and performance analysis were used.
2.4.1. Market Structure, Conduct and Performance Analysis (S-C-P)
Efficiency factors can be evaluated by examining marketing enterprises for structure, conduct and
performance (Abbott & Makeham, 1981).
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Structure, Conduct and Performance of Potato Marketing in Sekela District West Gojjam Zone, Amhara
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Structure of market: is characterized by market concentration, barrier to entry (licensing procedure

and capital requirement), market transparency and price setting behavior.
Market concentration: is defined as a number and size distribution of sellers and buyers in the
market. Other factors, such as the firm‟s objectives, barriers to entry, economics of scale, and
assumptions about rival firm‟s behavior, were relevant in determining the degree of concentration, the
relationship between concentration and behavior and performance (Scherer, 1980).
Concentration ratio (CR):concentration ratio is a way of measuring the proportion of the industry‟s
output accounted by the r largest firms: it shows whether the industry is dominated by a few large
firms or many small or ones.

C   Si i = 1, 2, 3, 4…….r
r
confederate mail
i 1

Where: C- is concentration ratio, Si- is market share of the 𝑖𝑡ℎ firm and
r- is the number of largest firms for which the ratio is going to be calculated

Si 
Vi Where, Si = market share of trader i; Vi= amount of product handled by firm i; and ΣVi
V i

=Total amount of the product supplied to the market.

Kohls and Uhl (1985) bring into play as a rule of thumb, four largest enterprises‟ concentration ratio
of 50% or more (an indication of a strongly oligopolistic industry), 33-50 % (a weak oligopoly) and
less than 33% (competitive or non-concentrated industry). The greater the degree of concentration is
the greater the possibility of non-competitive behavior existing in the market. Even if CR, HHI and
Gini coefficient are methods which are used to measure market structure, CR was used for this study
to analyze the relative degree of potato market structure of sampled potato traders.
Market conduct: refers to the behavior of firms or the strategies used by the firms in their pricing,
buying and selling activities. Meijer (1994) said that, “conduct is pattern of behavior which
enterprises follow in adopting or adjusting to the market in which they sell or buy”, in other words the
strategies of the actors operating in the market.
Market Performance: marketing efficiency is essentially for the degree of market performance.
The two approaches to measure marketing performance are: marketing margin and marketing costs.
The total marketing margin is the difference between what the consumer pays and what the
producer/farmer receives for his product. Computing the total gross marketing margin (TGMM) is
always related to the final price or the price paid by the end consumer and is expressed in percentage
(Mendoza 1995).
Pc  Pp
TGMM   100
Pc
Where, TGMM = Total gross marketing margin
Pc = Consumer price (end buyer price); and
Pp = Producer price (first seller price)
It is use full to introduce here the idea of “producer participation”, “producer portion” or “producers
gross margin” (GMMp) which is the proportion of the price paid by consumer that belongs to the
producer and the producer‟s margin is calculated as:
Pc - TGMM
GMMP   100
Pc
GMMp 1  TGMM
Where, GMMp = the producer's share in consumer price
The above equation tells us that a higher marketing margin diminishes producers‟ share and vice
versa. It also provides an indication of welfare distribution among production and marketing agents.

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Structure, Conduct and Performance of Potato Marketing in Sekela District West Gojjam Zone, Amhara
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3. RESULT AND DISCUSSION

3.1. Major Actors in the Potato Market Chain
The actors participated in potato market chain in the study area were input suppliers, smallholder
farmers, retailers, wholesalers, processors/hotels and consumers.
 Inputs suppliers: the main source of input suppliers to farmer in the district were woreda
agricultural office, traders and informally from farmer to farmer exchange. They provide
seeds, fertilizers, pesticides and farm implements. Majority of sampled producers used seed
from own produce and market (wholesalers).Traders (wholesalers) buy seeds from other
traders from other district and sell to district producers. There is no specialized seed supplier
in the study area. Regarding fertilizers, potato growers obtained either from market or
development agent.
 Producers: are the major actors who perform most of the market chain functions right from
land preparation, application of inputs, disease controlling, produce and store and deliver the
product to the market. Since the product is highly perishable in nature, some producers sold
the crop immediately after harvest. They produce potato product for both consumption and
market by means of rain fed system only. They sell their product to wholesalers, retailers,
processors and final consumers in woreda market but they sell only to retailers and consumers
in village market.
 Wholesalers: are those participants in the marketing system who buy seeds from other traders
those who live in other district and sell to the district producers. Wholesalers are one of the
major actors who supply seeds to farmers even though the distance of the market center from
producer is relatively far.
 Retailers: they buy potato most of the time from producers and sometimes from wholesalers
to sell the product to processors and consumers. Village retailers only buy from producers and
only sell directly to consumers but woreda retailers buy from both wholesalers and producers
and sell to consumers and processors.
 Processors: they buy potato mostly from farmers and retailers in their surrounding and sell
processed potato to consumers. They perform several value addition activities such as buying,
processing and selling to end consumers through converting the fresh product to cooked one.
 Consumers: they are the last agent for potato market chain. Consumers for this particular
study mean those households who directly buy, process and consume potato at their home and
also those who consume from processors.
3.2. Potato Market Channels
The analysis of marketing channels is intended to provide information on a flow of the goods and
services from their producer to the final consumer. The total quantity of potato produced by sample
producers was about 5145 quintal from this 2655 quintal was supplied to the market. The main potato
marketing channels identified from production to end consumption were:
Channel I: Producers Consumers = 718qt (27.04%)
Channel II: Producers Processors Consumers = 234qt (8.82%)
Channel III: Producers Retailers Consumers = 939.75qt (35.40%)
Channel IV: Producers Retailers Processors Consumers = 313.25qt (11.79%)
Channel V: Producers Wholesalers Retailers Consumers = 450qt (16.95%)
The producer sold their product to retailers, consumers, wholesalers and processors with percentage
share of 47.19%, 27.04%, 16.95% and 8.82% respectively. Therefore, channel comparison was made
based on volume that passed through each channel. Accordingly, from a total amount of potato
supplied to the market the largest and the lowest volume of potato passed through channel III and II
respectively. In the district the flow of potato was more concentrated mostly on retailers and

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Structure, Conduct and Performance of Potato Marketing in Sekela District West Gojjam Zone, Amhara
Region, Ethiopia

consumers In the district the flow of potato was more concentrated mostly on retailers and consumers
and less on wholesalers and processors.
3.3. Structure- Conduct - Performance (S-C-P) of Potato Market
In this section the structure, conduct and performance of potato market was analyzed and discussed.
3.3.1. Structure of Potato Market
In this study, potato market structure was judged using market concentration, degree of transparency
(timeliness and reliability of market information) and entry condition (licensing procedure, capital
limitations and seasonal supply).
3.4. Degree of Market Concentration
The concentration ratio is expressed in terms of CR 4 which stands for the percentage of the market
sector controlled by the biggest 4 firms. Since the number of traders in the district market level was
few, therefore, the analysis of the degree of market concentration ratio was carried out for all traders
to analyze the type of markets prevailed in the district.
Table1. Potato trader’s concentration ratio in Sekela district
Frequency % of traders Quantity purchased Total quantity % share of % cumulative
(A) (B = A/22) in quintal within a purchased purchase purchase
year (C) (D=C*A) (Si=D/5144) (𝑪 = 𝒏𝒊=𝟏 𝑺 𝒊 )
1 4.54 600 600 11.67 11.67
1 4.54 550 550 10.69 22.36
1 4.54 420 420 8.16 30.52
1 4.54 370 370 7.19 37.71
2 9.1 250 500 9.72 47.43
1 4.54 240 240 4.67 52.1
3 13.62 200 600 11.67 63.77
4 18.2 180 720 13.99 77.76
4 18.2 156 624 12.13 89.89
1 4.54 150 150 2.92 92.81
1 4.54 130 130 2.53 95.34
2 9.1 120 240 4.66 100
Total 100 5144 100
Source: Own survey results, 2017
The result of sample market potato traders‟ concentration ratio CR 4 was found to be 37.71%.
According to Kohls and Uhl (2002) this value of potato market concentration ratio in the study area
indicates a weak oligopoly market structure. This suggests that there is market imperfection since a
few traders seem to have oligopolized the potato market.
Market transparency: It refers to the adequacy, timeless and reliability of market information that the
traders have for their marketing decision. The result in the given table indicated that there is no well-
established system of dissemination of market information in the district. Therefore, market was not
transparent in district market since producers lack it.
Table2. Access and sources of market information for respondents
Variables Response Frequency Percent
Access to information Yes 79 60.8
No 51 39.2
Types of information Price information 47 74.6
Market channel option 6 9.5
Time of year to sell 10 15.9
Where you get information Through personal observation 51 39.2
From other farmers 48 60.8
From potato traders 13 16.5
From both farmers and traders 18 22.7
Source: Own survey result, 2017

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Structure, Conduct and Performance of Potato Marketing in Sekela District West Gojjam Zone, Amhara
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3.4.1. Barriers to Entry into the Potato Market

Barriers to entry into market reflects a constraint which restrict competitive relationships between
existing traders and potential entrants. If the barriers to entry are low, new traders can easily enter into
potato markets and compete with established traders.
Table3. Barrier to entry in potato market
Source of barriers to entry Frequency Percent
License 7 31.8
Lack of capital 15 68.2
Lack of continuous supply 10 45.4
Source: Own survey results, 2017
Generally, due to lack of market transparency, entry barrier and weak oligopoly market structure,
potato market in Sekela district had deviated from competitive market structure.
3.4.2. Potato Market Conduct
As stated in Bain (1968), market conduct is analyzed in terms of price setting, purchasing and selling
strategies of producers and traders.
Price setting and selling strategy of potato producers: The survey result showed that about 85.4% of
farmers don‟t negotiate on price to sell their produce; indicating this large amount of producers are
price taker. But 86.9% of the respondents stated the term of payment is conducted through cash in
hand system.
Selling and buying strategy potato traders: About 45.5% of traders reported that potato price was set
by themselves. From this about 90.9% of sampled traders reported that buying price was set
individually. About 63.6% of traders attract their supplier by fair weighting. Giving better quality and
credit was the main aim of traders to attract buyers.
3.4.3. Performance of Potato Market
The performance of potato market was evaluated based on level of market margins and marketing
costs for key market participants.
a) Production Cost of Potato Producers
Potato producing farmers of the study area incur costs mostly during the production phase. They incur
an average production cost of 163.89 birr per quintal. The estimated cost include labor cost, seed cost,
fertilizer cost, pesticide cost, oxen rent, and land rent.
b) Marketing Cost and Gross Profitability of Potato Producers and Traders
Marketing costs are estimated to calculate the share of profit captured by key actors in the market
chain. The highest marketing cost was incurred by wholesalers (58.26birr/qt) followed by processors
(51.25birr/qt).
Table4. Potato average marketing costs and profitability for different marketing agents (birr/qt)
Marketing costs Producers Wholesalers Retailers Processors
Production cost 163.89 - - -
Average purchasing price - 316.85 326.26 335.25
Packaging material 5.00 4.5 4.5 4.5
Labor cost for packaging 2.00 1.5 2.00
Loading/unloading 5.45 6.65 5.3 5.00
Transportation 10.5 15.8 2.7 3.5
Storage - 5.67 1.89 -
Sorting - 4.68 1.5 2
Processing - - - 17.45
Wastage (loss) 20.5 14.46 7.82 11.5
Telephone/information cost - 2.5 2 2
Tax - 2 2 3.3
Total cost/qt 205.16 58.26 29.21 51.25

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Structure, Conduct and Performance of Potato Marketing in Sekela District West Gojjam Zone, Amhara
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Selling price/qt 334.9 - - -

Average purchase price/qt 316.85 366.9 358.9
Total cost/qt 375.1 396.1 410.2
Average selling Price/qt - 407.5 407.3 454
Gross profit/qt 129.74 32.4 11.2 43.8
Source: Own survey results, 2017
c) Marketing margin
Marketing margins is a measure of the percentage of price paid by the consumer that is maintained by
each agent in the marketing chain.
Table5. Potato marketing margin for different channels (Birr/qt)
Potato Marketing Channel
Actors I II III IV V
Producers Production cost 163.89 163.89 163.89 163.89 163.89
Marketing cost 41.27 43.34 39.8 39.8 43.34
Selling price 358.61 335.25 326.26 326.26 316.85
Gross profit 153.45 128.02 122.6 122.6 109.62
GMMp (%) 100 73.85 83.89 71.87 69.75
Wholesalers Purchase price 316.85
Marketing cost 58.26
Selling price 407.5
Gross profit 32.39
GMMRw (%) 19.95
Retailers Purchase price 326.26 326.26 407.5
Marketing cost 29.21 29.21 29.21
Selling price 388.93 378.65 454.32
Gross profit 33.46 23.18 17.61
GMMRr (%) 16.11 11.54 10.30
Processors Purchase price 335.25 378.65
Marketing cost 51.25 51.25
Selling price 454 454
Gross profit 67.50 24.10
GMMpr (%) 26.15 16.59
TGMM (%) 0 26.15 16.11 28.13 30.25
Where TGMM, GMMp, GMMRw, GMMRr and GMMpr represents Total Gross Marketing Margin, Growth
Marketing Margin of producers, Growth Marketing Margin of wholesalers, Growth Marketing Margin of
retailers and Growth Marketing Margin of processors respectively.
Source: Own survey results, 2017
The result showed that potato producers‟ gross profit was highest when they directly sell to consumers
in channel I which is 153.45birr/qt and to processors in channel II which is 128.02birr/qt. Producers
take a lower gross profit when they sell to wholesalers which is 109.62birr/qt in channel V. So,
producers are more profitable if they sale to consumers and processors. Processors from traders shared
the highest profit 67.5birr/qt when they direct purchase from producers in channel II and they sold
directly to consumers. Retailers gained the second highest profit 33.46birr/qt in channel III when they
purchase directly from producers and sold to consumers.
In the study area, both processors and retailers received the highest gross profit when both of them
purchase directly from producers and they sold directly to consumers. Since both retailers and
processors purchase the product from producers‟ relatively lower price and processors add value to
the product, the profit they gained for both became relatively higher.Also both processors and retailers
received the lowest profit when processors purchase from retailers and retailers purchase from
wholesalers since the price paid to them was relatively higher.
The result indicated that total gross marketing margin (TGMM) is highest in channel V which was
30.25% and lowest in channel III which was 16.11%. Without considering channel I (producers
selling directly to consumers) producer‟s share (GMMp) was highest in channel III which was
83.89birr/qt and lowest in channel V which accounts 69.75birr/qt. This difference might support the
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Structure, Conduct and Performance of Potato Marketing in Sekela District West Gojjam Zone, Amhara
Region, Ethiopia

theory that as the number of marketing agents increases the producers share decreases. The results
also shows that the maximum gross marketing margin from traders was taken by that of processors,
which accounts 26.15% of the consumer‟s price in channel II followed by wholesalers which was
19.95% in channel V. Generally, producers obtained higher percentage share of profit when they sold
their product directly to final consumers. However, when there are intermediaries between producers
and final consumers, the percentage share of producers from the total marketing margin was highest
in channels where only one intermediaries are involved which includes retailers in channel III.
4. CONCLUSION AND RECOMMENDATION
The result of this study revealed that different market actors were involved in the potato market chain.
The major actors involved in marketing of potato include input suppliers, producers, wholesalers,
retailers, processors and consumers. From a 5145qt of potato produced by sample producers about
2655qt (51.6%) was supplied to the market through five channels. Mostly producers sell more of their
produce to retailers and consumers compared to wholesalers and processors. Moreover from five
channels, major share of potato was goes in channel III (producers-retailers-consumers).
The structure of potato market was analyzed by using concentration ratio, market transparency and
entry barrier into potato market. The analysis of market structure through four firms‟ concentration
ratio indicated that about 37.71% of the total volume of potato purchased in 2016/17 was concentrated
in the hand of few traders who controlled the larger share of the market. The market transparency
indicated that there is no clear market information for all potato market actors and being licensed in
potato trade business and capital requirement were required to participate in potato market. These
barriers reduce the number of participants entering in to potato trade business and thereby reduce the
level of competition in the market. Starting from production up to marketing, every farmer produce
and sold on individual basis due to absence of cooperative member in their surroundings. The market
conduct analysis also showed that the price of potato was set by traders that are traders being a price
setter and producers are a price taker. This indicated that potato market in the area was deviates from
competitive market structure.
The result of market margin analysis showed that potato producers‟ gross profit was highest when
they directly sell to consumers in channel I which was 153.45 birr/qt and lowest when they sell to
wholesalers in channel V which was 109.62 birr/qt. Processor from traders shared the highest profit
when they purchase from producers and sell to consumers in channel II which was 67.5 birr/qt and
retailers shared the lowest profit when they purchase from wholesalers which was 17.61 birr/qt in
channel V. The total gross marketing margin (TGMM) was highest in channel V which was 30.25
birr/qt and lowest in channel III which was 16.11 birr/qt. The survey results also showed that the
maximum producers share (GMMp) is highest in channel III which was 83.89 birr/qt and lowest in
channel V which was 69.75birr/qt. It is observed that as the number of intermediaries‟ in market
increases, the producers share in consumers price decreases. So, without considering channel I
(producer-consumer) to make the market efficient, the producer should sell their produce to retailers
since the price difference between producer and consumer price is lower than other channels.
Based on the study results, it is possible to conclude that; the market chain system of potato in the
study area is inefficient since there is no coordination among producers and traders to sell their
product. Due to lack of market linkage and market information, oligopoly market structure, entry
barrier and high price paid by consumers and low price paid to producers for potato produce. There
are also factors affecting market supply of potato and outlet choice of potato produces, which require
interventions.
Based on the results and discussions, the study made the following recommendation are drown: potato
market in the study area is characterized by weak oligopoly (concentrated in the hands of few trades),
low bargaining power, lack of clear market information to all actors, entry barrier (need license and
capital requirement to run the business) and high price variation between producers and consumers
which makes potato market imperfect. Therefore, responsible governmental bodies and responsible
stakeholders intervention is required to improve the challenges through dissemination of up-to-date
potato market information, provide credit service, establish market access and improve market
linkage, link producers with potential markets and establishment of producers‟ cooperatives to get
input, information and to deliver their product to the market at reasonable price.

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