Barriers to market access for smallholder farmers

In the face of growing food demands from a burgeoning population, East African grain markets are plagued by poor integration.  The symptoms of shallow markets can be seen across space (leading to highly variable prices that do not follow the Law of One Price) as well as across time (leading to prices that tend to be low when farmers are selling and high when they are buying).  Given the inability of markets to efficiently move food from surplus to deficit regions, poor integration has a major effect on both farmer incomes and on food security.

While poor roads and infrastructure frequently get much of the blame for the isolation of African food markets, price data from the region suggest that price dispersion regularly exceeds estimates of transport costs.  As a result, we must turn to alternative explanations to fully understand limited market integration. The most likely culprits are imperfect information and contractual uncertainty, which lead to high search costs and large information rents for intermediaries.  Solving these problem, however, has proven challenging. Several studies have provided only price information to farmers (Fafchamps & Minten, Mitra et al.).  However, lacking the means to provide their own transportation to alternative markets, farmers appear unable to take advantage of this information and so these interventions do not offer farmers any truly improved outside option.  Without changing the structure of market intermediation, these interventions appear to be ineffective at improving farmer incomes.  Improving farmer welfare and stimulating greater market integration, then, appears to require strategies that fundamentally shift the nature of intermediary relationships and the degree of contractual uncertainty.

We propose a multi‐pronged intervention that aims to address these research questions and build sustainable, private‐sector solutions to some of the intermediation issues that have plagued African food markets.  The three prongs of our study work to simultaneously alter intermediaries, information, and contracting options available in food markets. First, we are working with AgriNet, the major private‐sector supply chain company in Uganda to implement a randomised expansion of their Commission Agents model to 220 new communities across 15 districts of the country. Second, we will work with IPA to implement a high‐frequency market price survey using innovative SMS‐based tools developed specifically for the project, capturing biweekly prices for the three major food crops (maize, beans, and rice) in 260 markets across the study area and then feeding these prices back to traders and farmers in treatment areas via an SMS subscription service.  Third, we will collaborate with Kudu, a digital food trading platform developed by computer scientists at Makerere University that allows farmer groups to contract directly with major buyers, using a distance‐ and price‐based matching algorithm to provide Pareto‐optimal market contracts to both sides of the market. With this multifaceted approach we hope to protect the food security of consumers (who face expensive or unavailable grain supplies during the lean season), as well as to promote more integrated markets, with smoother food supply across seasons and improved livelihoods for smallholder farmers.