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  5. Post-Harvest Value Chains and the Structural Transformation of Developing Economies
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Post-Harvest Value Chains and the Structural Transformation of Developing Economies

Paper Session

Saturday, Jan. 7, 2023 10:15 AM - 12:15 PM (CST)

Hilton Riverside, Grand Salon B Sec 9
Hosted By: American Economic Association
  • Chair: Christopher B. Barrett, Cornell University

Relationship Building in Ethiopia’s Floriculture Industry

Ameet Morjaria
,
Northwestern University
Nemanja Antić
,
Northwestern University
Miguel Talamas
,
Northwestern University

Abstract

Firms exporting differentiated products need to form relationships with buyers. Hence it is important to understand how organizational capabilities can be developed to form relationships. We study Ethiopia’s floriculture industry, where producers can sell their products directly to international buyers through relationships or in an auction. We document that there is added value in selling directly through relationships: the average stem price is higher, and there is a lower probability of receiving a price below the average monthly price. Although relationships have an advantage over selling in auctions, only foreign firms exploit this. Foreign firms sell close to 80% of their production through direct relationships, while domestic firms sell 80% of their output through auctions. Domestic firms might be less likely to build relationships because they attempt less or fail more. We find that domestic firms are as likely to have at least one monthly attempt to create a new relationship as foreign firms. However, domestic firms are more likely to fail in these attempts. Mapping to a framework of relational contracts, domestic firms might be less successful in building and maintaining relationships because of clarity or credibility. Clarity issues arise when the action taken by the seller does not satisfy the buyer. Credibility issues arise from the standard grim-trigger in repeated interactions, where the agent will shirk if the outside value is higher than the present value of continuing the relationship. Credibility issues are present throughout the relationship, but clarity issues are more likely in the early stages. We find evidence consistent with clarity being the driver of domestic firms’ failed relationships. While the probability of survival of a relationship is very similar for foreign and domestic firms after the second shipment, the likelihood of the relationship ending just after the first shipment is significantly larger for domestic firms.

Search Costs, Intermediation, and Trade: Experimental Evidence from Ugandan Agricultural Markets

Lauren Bergquist
,
University of Michigan
Craig McIntosh
,
University of California-San Diego
Meredith Startz
,
Dartmouth College

Abstract

Search costs may be a barrier to market integration in developing countries, harming both producers and consumers. We present evidence from the large-scale experimental rollout of a mobile phone-based marketplace intended to reduce search costs for agricultural commodities in Uganda. We find that market integration improves substantially: trade increases and excess price dispersion falls by 20% between treated markets. This reflects price convergence across relative surplus and deficit markets, with no change on average. Interpreting the experimental variation through the lens of a model with fixed costs of search, we estimate that the marketplace caused a 5% reduction in total trade costs between treated markets. Contrary to the stated goals of the marketplace, but consistent with the existence of economies of scale in search or other trade costs, almost all activity on the platform is among larger traders, with very little use by smallholder farmers. Nevertheless, the benefits of improved arbitrage by traders appears to pass through to farmers in the form of higher revenues in surplus markets, as trader entry increases and measured trader profits decrease in response to falling search costs.

Mark-UPS and Entry in the Food Markets of a Large African City

Joachim De Weerdt
,
International Food Policy Research Institute
Brian Dillon
,
Cornell University
Todd Gerarden
,
Cornell University
Benjamin T. Leyden
,
Cornell University
Ben Norton
,
Cornell University

Abstract

As African countries rapidly urbanize, the share of households that grow their own food is falling, and the share that rely on food retail markets is rising. Prior work shows that in both rural and urban areas of Tanzania, food retailers charge large mark-ups on small quantities of consumption items, with substantial implications for consumer welfare. We develop a model of second-degree price discrimination when consumers are heterogeneous in their demand for small quantities. We estimate the model using data from demand surveys with Tanzanian consumers, and novel data collected by the authors on the universe of retail sales points (the full price-quantity-location distribution) for 4-5 staple food items in a major African city. Our analysis of price dispersion across both locations and quantities reveals how distortions can arise when consumer preferences for small-quantity purchasing are correlated with other factors that determine residential sorting and commuting paths.

Contract Farming in Mozambique: Selection and Spillover

Molly Ingram
,
Cornell University

Abstract

Contract farming participation can provide farmers with lower transaction costs, better price distributions, and other benefits. However, participation is endogenous due to choices made by the organization offering a contract and the farmer individual or group considering a contract. This paper presents a model of this multi-stage selection problem that is consistent with empirical regularities observed in the literature. The model highlights how information asymmetries reduce the size of a contract farming scheme, how contracting organizations may leverage groups to overcome these information asymmetries and other risks, and identifies a new channel for spillovers to farmers who do not participate in contract farming but live in villages with other farmers that participate in contract farming. I take the model implications for farming households to data collected before and after the expansion of maize contract farming scheme in Mozambique. I find that both contracted farmers and non-contracted farmers living in villages with contracted farmers earn approximately 11% more in price per kilogram of maize than farmers in areas where no one contracts. The price increase leads to contracted and non-contracted farmers within the contracting region earning more from maize sales. Contracted households see approximately 20% increase in maize income and non-contracted household residing within the contracting region see a 15% increase in maize income.

Discussant(s)
Ameet Morjaria
,
Northwestern University
Lauren Bergquist
,
University of Michigan
Brian Dillon
,
Cornell University
Molly Ingram
,
Cornell University
JEL Classifications
  • O1 - Economic Development
  • L1 - Market Structure, Firm Strategy, and Market Performance