DETERMINANTS OF MILK AND MILK PRODUCTS IMPORT IN ETHIOPIA

Abstract

This study was designed to analyze socio-economic, trend and policy factors affecting milk and milk products import in Ethiopia using data obtained from different sources and looking into import demand and supply response functions. Due to unavailability of the required data in the country as a whole and in international organizations, the research was done for the years 1993 through 2017. There has been very few publications relevant to milk and milk products import into Ethiopia. Although import influenced by many different variables, this study is concerned with only few determining variables such as milk consumption and milk supply. The study analyzed the import data in relation to the international price, milk production, real gross domestic product per capita and human population numbers. To estimate the general regression equations of the related variables in the study, STATA 14 software was used. The data were checked for its homoscedasticity and found heteroskedastic. To remove the heteroskedastic effect the data were computed by adding and dropping different variables. Variance Inflation Factor (VIF) was used at every steps of adding and dropping variables. The process of adding and dropping variables terminated once the VIF point attained to below 10. Finally Breusch-Pagan test was used to check the heteroscedasticity and the data found to be homoscedastic. The optimum lag length was selected. After lag selection ADF and Johansen Cointegration tests were employed. Since all study variables cointegrated at first difference VECM model was employed in order to investigate the long run and short run associations. Robustness of the model was checked. For every percent increase in milk and milk products price, the quantity of milk and milk products imported decreased to 1.28 percent. A one percent increase of per capita income reduced milk and milk product import by 0.34 percent. The analysis revealed that import price have significant effect in reducing milk and milk products import than population, local milk production and per capita income. Granger causality test used to identify the direction of associations. The Granger causality test confirming unidirectional cause coming from the milk and milk product import to the local milk production and jointly all variables also affect the local milk production. The Granger causality test concluded that the milk and milk products import highly affected milk producers though the magnitude is not known and beyond the scope of this research which needs further investigation. Milk and milk products import negatively affected milk producers that demanded policy makers to take an action to uplift producers from the prevailing problem.