Market Linkages, Trade Costs and Technology Adoption in the Agricultural Sector

University Of California-Santa Cruz, Santa Cruz CA

Investigators

Abstract

Project Abstract Poor transportation infrastructure limits access to markets for small scale farmers and enterprises which together employ over 1.5 billion people world-wide. Crop-buying intermediaries and retailers inputs are unlikely to enter geographically isolated areas with high transportation costs, and rural farmers are unlikely to access markets to sell their product due to prohibitive transport costs. This project seeks to evaluate the role of supply networks in developing countries by examining how the density and quality of roads affect the prices of inputs and output. The project focuses on inorganic fertilizer and maize, a staple crop in the country of study (Tanzania). The project contributes to our understanding of poverty in rural, agrarian economies, and the barriers that block pathways out of poverty. Policy makers have devoted considerable resources to promote widespread adoption of fertilizer use in Africa but this has not been successful. This study will evaluate a potential explanation: poor roads increase input prices and decrease output prices in rural markets, making fertilizer unprofitable even if it increases yields. Our study provides additional guidance regarding where to spend resources to help move millions of poor, rural people out of poverty. The results of this study also have applications for small scale industry policy in the U.S. in showing how transportation cost affect the productivity and competitiveness of similar small-scale businesses. This project aims to answer three fundamental questions related to the functioning of rural markets. How much do: (1) transportation costs contribute to spatial price dispersion, and how much do they increase input prices, and decrease farmers' prices? (2)transportation costs affect entry of intermediaries in input and output markets and how does selection of markets by intermediaries affect input and output prices? (3) transportation costs affect technology adoption? Specifically, how does it affect investment in chemical fertilizer? To answer these questions, we will collect survey and price data in a representative sample of markets in two administrative zones in Tanzania using five main surveys. We will use this data to make some contributions to our understanding of rural markets function, and pathways out of poverty. First, this project will shed empirical light on the importance of transport infrastructure in rural markets. Second, the study is unique in its focus on intermediaries---an understudied aspect of rural economies. Third, there is little data on prices in developing regions like Sub-Saharan Africa, especially in rural areas such as the ones we study. Fourth, the surveys are novel and will provide new information on the functioning of rural markets, particularly, the interactions between input and output intermediaries and farmers.