Doctoral thesis on small farmers and global players

Monday. 08. August 2022 (Natalie Schalk)
Melkamu Taye is now writing his doctoral thesis on agricultural commodity markets. Foto: Natalie Schalk / University of Applied Sciences Coburg

After studying financial management at Coburg University of Applied Sciences, Melkamu Taye is now writing his doctoral thesis on how to develop efficient agricultural markets in poor countries.

All economies have their origins in agriculture. "Agricultural products were produced first", says Melkamu Taye. "Next question was how to distribute and sell them. That's how markets began to be built and, for example, why the railways have been built in the USA." Countries that started trading early developed quickly. Today they are highly technologised - including in the agricultural sector. "How did some countries become rich? Why did other countries become poor?" These are questions whose scientific perspective Taye is considering. And most important these: How can a balance be restored?

Taye graduated from Coburg University of Applied Sciences in the international MBA programme Financial Management and is doing his doctorate here on the development of agricultural commodity markets in poor countries. "I am studying one of the most important markets in the world. The big challenge is to reach a level of production in Africa that avoids hunger and poverty. Then," Taye reflects briefly, shrugging his shoulders, "it's actually quite simple: if people stop starving, they can take care of other problems step by step." Wheat, maize, rice, soy and sugar, palm oil, dairy products: If this were produced in Africa in roughly the quantity required, it would be ideal for sustainable development. It would conserve resources and energy, have a positive impact on the climate crisis and on political stability on the continent. Not so many people would be forced to choose the dangerous path of flight out of great need. The problem is: Africa's small farms are up against global companies in the agricultural market.

Five big players

Agricultural products are mostly sold as food, animal feed, renewable materials for energy, but they also include, for example, things like cotton. Five agricultural corporations dominate the world trade: Archer Daniels Midland, Bunge and Cargill are based in the USA, Louis Dreyfus in the Netherlands, Cofco in China. They have enormous bargaining power. And their financial experts analyse weather data and crop forecasts, price and exchange rate fluctuations and political changes in all growing regions of the world.

Futures markets in Africa

Because they have up-to-date market data, the large corporations profit from the extreme price fluctuations on the global agricultural markets. Grain, for example, is bought at low prices, stashed in silos and sold when the price is high. "Information is extremely important when speculating in commodity markets." Taye opens his laptop. He is sitting in Coburg university's new International Common Room, which is shared by the international master programmes AIMS and Financial Management. Here the Bloomberg Lab is located: students can use it to gain practical experience in the world of finance and markets; PhD student Taye works here often. He connects his computer to one of the large monitors on the wall and opens the charts of the Bloomberg Terminal: among other things, it offers real-time prices, fundamental data, financial mathematical analysis tools and statistics for commodity and foreign exchange markets. "Knowing what supply and demand will look like in the future would also allow local farmers to make rational decisions about what and how much to produce and then at what price to sell it." So-called futures markets allow contracts to be made today that will be fulfilled later. The price is agreed before farmers produce. Taye talks about developing such futures markets in Africa. Regional trade is crucial for economic development and efficient markets save resources. "If there is a central market in the country, farmers can collect their produce and sell it there." Between 70 and 80 per cent of the world's food is produced by smallholder farmers. But the market is controlled by others. "That is the reason why some countries are developed and others are not."

From Addis Abeba to Coburg

Melkamu Taye was born in Ethiopia in 1990. His mother gave him a name that means "very good wishes" in the local language Amharish. "When you say 'happy birthday' or merry christmas' in Amharish, it starts with the word 'Melkamu'." The finance manager smiles. For him, the good wishes have come true. But he had no easy start. His parents died when he was young. Melkamu grew up in a SOS children's village. He went to an English-language school in Ghana, graduated from high school, got a scholarship and initially studied biotechnology in Bremen for his Bachelor's degree.

"For my Master's degree, Financial Management in Coburg was perfect," he explains. "I find it ideal to combine knowledge from both fields: Economics and Engineering." Today he keeps in touch with the people he grew up with in Addis Abeba by phone and internet. "My life could have been really different. I am very grateful that I had the chance to study. The knowledge and experience I gained in the Financial Management programme at Coburg University is the basis of my research. And now I am in a position to help others as well."

Looking for a balance in the world’s commodity markets

Taye hopes that his doctoral thesis will also resonate with policymakers. "In Africa, it's about achieving sustainable development of commodity markets in order to come to a balance with the industrialised countries." Purely financial support does not move poor countries forward. In addition, industrialised countries with high-tech agribusinesses have overproduction. Then, for example, milk powder is offered cheaply in developing countries. So cheap that it ruins the local farmers - and thus the livelihood of the whole region. Taye reports that many people in Africa now view European aid with scepticism. They believe that in the end Europe will profit from it. Taye's approach is different. "We need to focus more on self-sufficiency in a way that markets can develop naturally, information can be distributed and some level of efficiency can be achieved." The financial scientist is investigating the extent to which this can work with future markets for agricultural commodities.

Statistics and economic theory

To do this, he uses econometrics, which combines economic theory, mathematical methods and statistical data. Taye studies the efficiency of markets for certain commodities in different regions and collects factors that are important for the development of these markets. Using statistical methods, he analyses and interprets the differences in numbers and data between different markets. "I check if it is possible to have these factors in developing countries. I try to build a framework with the different factors and variables and then apply them in developing countries to understand whether it works or not."

Taye's cooperative doctorate is based at the Friedrich Alexander University of Erlangen-Nuremberg and is supervised there by Prof. Dr. Jürgen Kähler, while at Coburg University of Applied Sciences it is supervised by Prof. Dr. Victor Randall. Randall researches and teaches in the field of finance at Coburg University of Applied Sciences, he heads the international master's programme in Financial Management and is convinced: „In a changing environment of global agricultural commodity markets, the development of further futures markets in Africa and emerging markets in general is likely to play an increasingly important role." PhD student Taye explains that Financial Management covers a very wide spectrum. „It can be used in a very traditional way to increase a company's profits. But it can also be used to increase the profits of small farms in developing countries.“