This research project seeks to understand how improved markets for commodities can transform the agricultural value chain from farmers and farming systems to firms and purchasing and planning systems. Firms operating in environments with erratic supplies of agricultural commodities face high implicit transaction costs in operations. Firms that use commodities as inputs also benefit from having sustained and assured supply.
In smallholder agriculture in Ghana and much of sub-Saharan Africa, produce is exchanged via bilateral trades with large search costs. Farmers often wait at their farm gate for traders to find them. Traders enter an area not knowing fully who has what crops in what amounts. A trade requires a match between a farmer with goods to sell, and a trader looking for those goods.
The anticipated growth of the nascent Ghana Commodities Exchange (GCX), which began in 2018, provides an opportunity to examine the effects of the formalisation and commodification of agricultural trade on a national scale. The commodity exchange changes the market process from one of bilateral trades with costly search to a centralised market with transparent prices where all can trade with minimal costs. We will refer to this hypothesised post-intervention market structure as one where their markets are more “sustained.”
Our research will measure the importance of having sustained output markets, and it will measure impact by randomising the introduction of GCX operations at the community level in a nationwide sample of farmers. This will be complemented by pilot interventions at the farmer and trader level to examine specific dimensions of contracting and information flow.