4.5 Discussion of results
4.5.1 Role of access to information on price and profits
The results indicate that farmers with access to information sell their produce at higher prices and make higher profits than those who get information from buyers around or simply accept prices from middlemen. This study corroborates with that of Courtois and Subervie (2013) who studied how price information affects the bargain and the balance of power. They estimated the causal effect of a Market Information System (MIS) working through mobile phone networks on Ghanaian farmers’ marketing performances. They noticed that farmers who have benefited from the MIS program received significantly higher prices for maize and groundnuts: about 12.7% more for maize and 9.7% more for groundnuts than what they would have received had they not participated in the MIS program. These results suggest that the theoretical conditions for successful farmer use of MIS may be met in field. They outlined that because of communities’ remoteness and poor communications with marketplaces, farmers’ uncertainty about market prices is usually high. Traders may take advantage of farmers’ ignorance of the market price and extract a rent from them by offering very low prices for their products. This study equally falls in line with the works of Jensen (2007) who studied fisheries in India, where fishermen at sea are unable to observe prices in coastal markets. Fishermen sell their catch almost exclusively in their local market due to high transportation costs and non-existent storage capacity. This induces price gaps across markets more than transportation costs, resulting in an inefficient welfare state since fish supply varies across markets. The author shows that the introduction of mobile phone service between 1997 and 2001 led to a considerable reduction in fish market price dispersion, the complete elimination of waste, and near perfect adherence to the Law of One Price.
This study outlines the important role of farmers’ access to information on market and the increase in prices and profits of farmers. Goyal (2010) showed that the introduction of the kiosks lead to a 1-3% increase in farmer prices and a 33% increase in profit. In this framework, farmers initially sold their soybeans in local wholesale markets to traders who possessed price information across markets, while the farmers did not. This analysis thus highlights the pure market power effect, by which price information simply increases competition without any change in net welfare gain. Svensson and Yanagizawa (2009) address the market power issue more directly by estimating the impact of a radio-based MIS on Ugandan farmers. They show that access to market information strongly improve farmers’ bargaining power at the farm gate. Specially, having access to a radio in districts where the MIS project was launched is associated with a 15 percent higher farm gate price. Fafchamps and Minten (2012) by running a randomized controlled trial to test whether Indian farmers who are MIS users obtain higher prices for their agricultural output, they find a zero impact. However, as the authors underline in their conclusion, larger impacts are possible
in other contexts, in less competitive and more segmented markets where farmers sell a substantial share of their produce.
Recent studies highlights the increase market access with the coming of information and communication technology and the use of mobile phones, our study equally highlights the importance of mobile phones as a tool to facilitate access to information (Muto and Yamano , 2009; Aker and Fafchamps ,2011;). This corroborates with the studies of Svensson and Yanagizawa (2008) who found that having access to regular market information via radio was associated with 15% higher farm gate prices in Uganda. The results from an experiment in Rwanda, on the other hand, found no effect of having a mobile phone on prices received by farmers, although the authors report that the randomization mechanism was problematic and so the results should be interpreted with caution (Futch and McIntosh, 2009). A recent study by Fafchamps and Minten (2011) looks at the effect of SMS-based agricultural information on producer prices in India and finds that access to this information did not significantly increase the prices that they received, whereas Muto and Yamano (2009) found that in Uganda mobile phone coverage had a positive effect on farm-gate prices for bananas. They did not find a significant impact on prices for maize, however. Aker and Fafchamps (2011) also find that the effect of mobile phones varies by crop in Niger. They report that there is no significant effect on average producer prices but there is a reduction in the variability of prices for cow pea.
In addition to the technology used, the source of information can be another important factor that may influence the quantum and the quality of price information flowing to farmers. There is very limited empirical evidence on how different sources influence price information flows. Ouma et al. (2010) examined how different sources of price information affect market participation and found that having neighbours as the principal source of price information reduced the probability of market participation. In this study we consider the role of informant from major cities is a viable source of price information. Agricultural extension officers in rural areas in developing countries can potentially play a major role in linking farmers with markets. However, as a result of under investment and a lack of resources, the evidence on the actual impact of extension agents in developing countries is mixed (Anderson and Feder; 2004).
Our study also shows that information from neighbours or buyers around turn to lead the farmers to sell at very low prices and thus reap low profits from their activities, therefore the source of information and its reliability is extremely important. These views have been raised by other authors such as; Zanello et al, (2012) who attempts to analyse farmers’ expectations in relation to agricultural market prices. Their results show that the different sources of information and the use of ICTs does affect the quantum and quality of markets information flowing to farm producers. They found evidence that the use of mobile phones and radios increases by 30 percent the number of prices obtained by farmers. Sourcing price information from neighbours increases the quantum of price information obtained. However, the reliability of the information obtained is low. Information sourced from neighbours reduces the probability that farmer will realize the expected price. Price information transmitted by extension agents is generally more reliable, but they are likely to be subject to a downward bias. However, they did not find that some technologies provide more reliable price information than others.
Molony (2008) argues that the ability of producers to use price information may be limited by the fact that they are tied in to relationships with particular middlemen and are dependent on them for credit. Since they do not have an option to trade with someone else if they are unhappy with the price they receive, being informed about the market price does not help them. These results give some support to the idea that the benefit of information to farmers will vary depending on what options are available to them. The perishability of the crop will be an important element of this, and so we would expect to see the results varying by crop.
4.5.2 Role of middlemen on prices and profits
This study shows that middlemen have a pivotal role to play as far as market access, prices and profits of farmers are concerned. Our results indicate that there is a significant price gap between prices at which middlemen sell and farm gate prices while there is equally a significant profit gap between middlemen and farmers. As far as Irish potatoes is concerned there is a significant price gap but not a significant profit gap, this means that the extra price gap is simply due to the extra cost. This result goes in line with the works of Gumataw et al, (2016) who analyzed the factors affecting the farmers’ decision to trade through middlemen and the impact of this choice on income and commercialization. We conceptualize middlemen both as an economic institution and as a social network structure. Based on data from 345 farmers in Ethiopia several socioeconomic variables particularly age, education, farm size, wealth and location; social network variables notably ethnic and religious ties have an influence on farmers’ choice of sales arrangement. Regarding income effects, gross profit was 225% higher for farmers without intermediation. This could be explained by the latter farmers having access to better quality inputs, better contract specifications and receiving higher prices for their products. Nonetheless, most farmers continue trading via middlemen.
They suggest three explanations for this outcome. First, wholesalers seem to prefer to work with middlemen to guarantee minimum quantity and quality, and to reduce the cost of measuring quality. Second, personalized relationships might lock-in smallholders into trading through middlemen regardless of income losses. Third, trading via middlemen can enhance smallholder commercialization by linking low resource endowed farmers to traders and final markets. However, direct trading with wholesalers seemed beneficial for relatively better-resource endowed farmers.
In a related study Mitra et al, (2013) study middleman margins, trading mechanisms and the role of asymmetric information on prices between potato farmers and local trade intermediaries, in West Bengal, India. Farmers in randomly chosen villages were provided daily information on prices in neighboring wholesale markets where the traders re-sell the potatoes. They estimated a lower bound on average trader margins (net of transport and storage costs) in 2008 ranging from 34 to 89% of farmgate prices. Information provision did not change average margins, but caused traded quantities to shrink (resp. expand) significantly for farmers facing low (resp. high) wholesale prices. The evidence is inconsistent with ex ante contracts between farmers and traders. It is consistent with a model of ex post bargaining, in which lack of direct access to wholesale markets depresses farmers’ outside options and prevents informational interventions from benefitting them.
Researchers who say middlemen are non-exploitative in nature will match with middlemen who deal in the buying and selling Irish potatoes in the Menka village of Pinyin clan where no significant difference was seen between the profits of middlemen and farmers dealing in Irish potatoes. Pokhrel and Thapa (2007) shares this point of view when they failed to find any support for middlemen exploiting producers. This has also been the conclusion of several geographically diverse studies of agricultural markets (Scott, 1985; Enete, 2009; Hayami et al., 1999). In a report on Bolivian potato farming Jones (1984) instead found that the role of middlemen had an overall positive impact on producers and should be taken into consideration when policy for rural development was made. If middlemen are indeed not exploiting producers they can be argued to provide valuable services such as transportation of goods and market access that other actors are either unable or unwilling to provide.
In general, studies confirm the exploitative character of middlemen dealing in vegetables in our study, other authors such as Pokhrel and Thapa (2007) also refer to several studies that describe how middlemen cheat producers through monopolistic behaviour and by using information asymmetries regarding prices to their advantage etc. Middleman monopsony power is suggested to come partly from the better access to credit and information regarding prices and partly due to the distances, and thus transportation costs, faced by many small producers (Flores et al. 1980, quoted in Scott, 1985). As noted by Osborne (2005) imperfect competition among traders in Ethiopia led to excessive profit margins for traders and lower prices paid to the producers. It is thus difficult to generalize on the role of middlemen; evidence in some instances points to them providing valuable services for rural communities without exploiting the producers whereas in other instances do take advantage of their position. Granted, variations exist among the producers and markets that might help explain the different results from various studies.