Farmers in sub-Saharan Africa face a host of problems related to marketing, key among which is a lack of information about prevailing market prices. This affects farmers’ ability to decide where and when to sell, compromises farmers’ bargaining position with traders, and can even lead to sub-optimal investment and production decisions.

The rapid increase in mobile phone coverage and ownership in Africa is making it easier to provide farmers with accurate, near-time information on wholesale and retail prices to help make optimal marketing decisions. Can such market information help farmers get higher prices for their production, and if so, what are the mechanisms through which this information is beneficial?

To help answer these questions, Professor Yaw Nyarko and PhD students Nicole Hildebrandt, Giorgia Romagnoli and Emilia Soldani have partnered with Esoko, a technology company based in Accra, Ghana, to conduct a two-year randomized evaluation of Esoko’s SMS-based market information system (MIS) service.

 

THE EVALUATION

The study is taking place in the Krachi West, Krachi East, Nkwanta North, and Nkwanta South districts of the Volta region of Ghana. Farmers in this region – located about 300 km from Accra – predominantly grow yam, maize, cassava, and groundnut, and mainly sell their production to traders that come to the farm gate or local markets. Farmers’ knowledge of market prices is quite low in the study area: at the time of the baseline survey (in July 2011), only 30% of farmers claimed to be well informed about urban market prices. Nearly 20% were not even well informed about local market prices.

To evaluate the impact of the Esoko MIS service, the study is following approximately 1,000 farmers spread across 100 villages in the region. Farmers in half of the villages were randomly chosen to be in the treatment group. Since October 2011, farmers in the treatment group have been receiving twice-weekly text messages containing market prices for their two main commodities for several different markets in Ghana, both local and urban. The treatment group was also invited to attend trainings led by Esoko. These training sessions covered basic mobile phone usage and discussed the content of the price alerts, in order to ensure that information was being accessed and understood. The trainings were a critical component of the intervention, given that only about 20% of farmers had ever sent or received a text message prior to the start of the study.

 

THE INTERVENTION:

• Text messages from Esoko with market prices for two commodities, twice per week 
• Market prices provided for 8 markets, local and urban, in Ghana 
• Trainings in how to send and receive SMS messages, interpret alerts 

SOME PRELIMINARY RESULTS

Data collected in the first year of the study (through July 2012) indicate that the price alerts have increased the level of market information available to most farmers, particularly for urban markets. In the Year 1 follow-up survey, farmers in the treatment group were 13% more likely to say they had a way to verify information on market prices provided by traders during negotiations (see chart below). Treatment group farmers were also far more likely to know prices in key urban markets.

Price alerts have also led to significant increases in the prices received for yam. On average, farmers in the treatment group realized 7% higher prices for yam in the first year of the study, or about 10-11 Ghana Cedis (GHS) per 100 tubers. For a farmer selling 1,200 tubers in a year, the median value of yam sales in our sample, this translates into 120-132 GHS in additional revenue (US$62–US$69), or about 6% of annual household revenue from crop marketing. (Median household revenue from crop sales is about 2,140 GHS among farmers in the study that sell yam.)

The figure cited above is the average treatment effect among all farmers in the treatment group, regardless of whether or not they are receiving and understanding the alerts. Looking only at the sub-group of farmers that are receiving the alerts and understanding the content of the messages, the treatment effect increases to about 20 GHS per 100 tubers, a price increase of about 11%.

In comparison to yam, the Year 1 data show no treatment effect for other crops, such as maize, cassava, and gari. Why such a large effect for yam but not other crops? This is a question that the CTED team will continue to explore in the second year of study. One likely explanation lies in the fact that bargaining is a more crucial element of yam marketing than of marketing of other crops. Economic models of bargaining under asymmetric information often predict that the less informed party is generally at a disadvantage in the bargaining process. Price alerts correct for this information asymmetry, and thus help farmers to secure a larger share of the gains from trade.

Turning to mechanisms, the Year 1 evidence indicates that price alerts have led to price increases for yam primarily by helping farmers in their negotiations with traders. In the Year 1 follow-up survey, more than two-thirds of treatment group farmers reported using the Esoko price alerts in their negotiations with traders. Other responses, such as using the alerts to decide when or where to sell, were much less common. The data also show no significant differences between treatment and control group in terms of place of sale or the timing of sales, providing further evidence that changes to the bargaining process is what is driving the results.

NEXT STEPS

The CTED team will continue to monitor farmers through fall 2013, in order to study the longer-term effects of providing price information to farmers. It is possible that, for many farmers, it could take time to truly understand and make use of the price alerts, so results in Year 2 may be quite different than in Year 1. Data from the Year 1 follow-up survey support this hypothesis: when asked whether the price alerts were useful for crop marketing, nearly 20% of treatment group farmers said they needed more time to decide.

Mechanisms may also change over time. For instance, more experience with the price alerts may encourage farmers to use the information to help decide where or when to sell. With time, price alerts may even lead to changes in what types of crops are planted.

ABOUT CTED:

The Center for Technology and Economic Development (CTED) is a research center based at New York University Abu Dhabi (NYUAD). The center focuses on the development and evaluation of innovative and cutting edge technologies that can significantly impact economic development, with a specific focus on problems faced in under-developed areas around the world. For more information, visit http://nyuad.nyu.edu/cted/.

On my mind today, perhaps because I am doing some proposal writing, is something that has been nagging me for years, and perhaps explains a lot of the economics I study. Is there a separate economic theory for the poor, different from the rich?  Is there a separate economic theory for Africans, different from that of Europeans and Americans?

Of course there have been many who have said that economics is different for different people.  I just finished reading the many volume book by Gibbons “The History of the Decline and Fall of the Roman Empire,” the classic written in 1776 – great but extremely belittling of people of darker skin. I remember when I was at the University of Ghana doing my undergraduate work in Economics, I would browse through our Economics library, which had mainly very old books, and which seemed to suggest that economics is different for Africans.  Because of the heat of the sun, I recall reading, elasticities of supply of labor for Africans are lower than that of other people – wages simply do not get Africans off their hammocks (which is interesting as I did not see many Africans in hammocks – that is in a different continent).  It was suggested that Africans simply do not respond to incentives the way others do.

Interestingly, I often hear these arguments among African colleagues today.  The expression is usually that of the “Mango Economy.”  This taken to mean that life is relatively easy going in Africa – and that one can always find wild mangoes to eat so there is no real incentive to hustle for “real” jobs in the industrial sector which are hard to do.

Then there is the “subsistence economy” argument I often hear.  This states that people in the villages are still in a subsistence economy mentality.  They produce only for their own production.  Even if the price of food is high, they will not produce more for the market.  Trying to bring modern market economies into such societies, it is argued, is doomed to failure as these are simply not rational maximizing individuals.  I hear this often from people in the cities of Africa talking about the people in the villages.  This subsistence economy argument has permeated a lot of economics because of various interpretations of the reserve army of labor arguments in the work of Arthur Lewis (the only Nobel Prize Laureate of African descent – he is from Saint Lucia).

Anyway, needless to say, I believe all these interpretations are incorrect and miss the subtleties of the economic activities in Africa.  There is an interesting dynamism in the rural economies and quite a bit of responsiveness to prices and other economic incentives.  My proof of that?  Well, that what my research is working on now.  Stay tuned.