Transformation of Smallholder Agriculture: the role of infrastructure <br />Maximo Torero<br />International Food Policy R...
Challenges in Market Access<br /><ul><li>More than 75% of the extreme poor live in rural areas where agriculture is 50­90%...
Smallholders face Inefficient markets lower farm-gate prices & increase cost of inputs, reducing input use, market access,...
Challenges in Market Access<br /><ul><li>Connecting poor farmers to markets has become more important over time because:
agricultural markets have been liberalized
international trade has been liberalized
income growth and urbanization within developing countries, is promoting a shift in consumer demand
supermarkets and processors are playing an increasingly important role
Rising demand for quality & food safety </li></ul>Page 3<br />
How good is the current market access for Africa relative to the rest of the world? <br />21 countries with better access ...
Example: Marginalization of Africa in world trade – The snapshot view <br />Authors:Antoine Bouët, Devesh Roy and Santosh ...
Paradox of smallholders<br />Efficiency argument<br />Lipton (1993) points that there is extensive empirical literature th...
inefficiency and high transaction costs<br />Market failure focus<br />Goal: making commodities markets function for the p...
Information asymmetry
Missing input markets
Policy induced barriers
Non economic barriers</li></li></ul><li>Results: Post harvest losses in fruits and Vegetables<br />Source: Adel Kader, UC ...
Broken links because of luck of appropriate infrastructure<br />Page 9<br />
Page 10<br />What is the situation of infrastructure in SSA?<br />
Infrastructure coverage is low in SSA<br /> Lowest infrastructure coverage in SSA<br /><ul><li> Important rural-urban dis...
 Electricity = lowest coverage of all infrastructures</li></ul>Source: Data from Estache and Goicoechea (2005)<br />Page 1...
Unequal access to infrastructures in Africa<br />Source: Data from Diallo and Wodon (2004), computed in Estache (2006)<br ...
 Electricity is the most unequal</li></ul>Page 12<br />
Source: The Economist         August 2007<br />Page 13<br />
High Transportation costs<br />Notes: The extent of agriculture includes areas with at least 10 percent irrigated, cultiva...
Page 15<br />Access to roads<br />
Page 16<br />Access to roads<br />
GSM Coverage, 1999<br />Source: GSM Association<br />
GSM Coverage, 2008<br />Source: GSM Association<br />
477 million people covered by mobile<br />This represents 477 million people<br />This represents 11.2 million square kilo...
Mobile Coverage, 2008<br />Source:  GSMA 2009<br />
On irrigation<br />Page 21<br />
Page 22<br />On Ports<br />Location constraint for the sustainability of certain ports<br />Port capacity usually results ...
Africa’s infrastructure services several times more expensive than elsewhere<br />
Infrastructure will require an additional US$31 billion a year and huge efficiency gains<br />Spending needs $93<br />100%...
Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0...
Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0...
Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0...
Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0...
Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0...
Spending needs $93<br />100%<br />80%<br />Funding gap $31<br />60%<br />Efficiency gap $17<br />40%<br />Existing spendin...
Page 31<br />Is just an issue of building new infrastructure?<br />
Example of the role of transportation value chain<br />
Improvement<br />Original <br />Improved<br />Cost of<br />improvement($)<br />hours<br />road<br />road <br />(km)<br />(...
What we know on infrastructure<br />
Bangladesh, 2000-2004<br />60%<br />60%<br />50%<br />50%<br />40%<br />40%<br />% change of PC HH Exp<br />% change of PC...
There exists complementarities in the provision of different types of infrastructure </li></ul>Source: Escobal and Torero,...
Page 36<br />3+ infrastr<br />15<br />4<br />2 infrastr<br />10<br />3.5<br />1 infrastr<br />5<br />3<br />2.5<br />0<br ...
16<br />Treatment: 2 infrastructures<br />16<br />Treatment: 1 infrastructure<br />Diff = <br />Diff = <br />14<br />Contr...
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Transformation of Smallholder Agriculture: the Role of Infrastructure

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Maximo Torero, Director Markets, Trade and Institutions Division (MTID)
International Food Policy Research Institute

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  • Before spreading more widely into the landlocked countries in the Sahel and Central Africa.
  • Location constraint for the sustainability of certain ports (The location of many of the long established ports such as Lagos-Apapa within the urban area makes them difficult for their sustainability in the future)Port capacity usually results from inadequate maintenance (Abidjan (3 cranes), Lagos-Apapa, Tema, Dakar and Douala, (2 cranes) are equipped with gantry cranes in container terminals. In general, equipment maintenance in West African ports has been inadequate over the past years).Port capacity could become a serious challenge in the futureImpact of port efficiency on port productivity and costs (dwell time may vary between a reported average of 7 days in Abidjan and 17 days in Douala)Importance of a legal setting: the institutional framework of a port in WCA has depended primarily on its inheritance of either the French or the British models.Cumbersome procedures and poor links to the hinterland reduce port efficiencyIn addition, there are the traditional “non-infrastructure” and “non-official” barriers at the ports and at border crossings that slow trade movement and increase their costs without adding economic value
  • hThat’sthe theory. Now, we know that theory is fine, but what about reality? An emerging body of empirical literature suggests that mobile phones are affecting markets in this way. While a variety of papers exist, the economic literature in this area exhaustive (in both Asia and Africa) has focused on two categories: First, those in agro-food markets; and second, those in labor markets. Fisheries in India (Jensen 2007)Grain markets in Niger (Aker 2008)Farmer participation in Uganda (Muto 2009)Internet kiosks and soybean prices in India (Goyal 2009)Labor markets in South Africa (Klonner and Nolen 2009Also, Donner, J. 2005. The Use of Mobile Phones by Microentrepreneurs in Kigali, Rwanda: Changes to Social and Business NetworksInformation Technology and International Development, Winter 2005, Volume 3, Number 2“Mobiles are enabling people to invest in and draw on social capital”Goodman, J. 2005.The mobile intervention raised the price by even more(Rs 0.64 per kg), significant at 10%. Column 2 adds controls for landownership:somewhat surprisingly, the coefficient of this variable is negative, indicating thatlarger landowners received a lower net price. However this size effect is statisticallyinsignificant. Including this in the regressions leaves the estimated treatmenteffects unaffected. Column 3 then adds an interaction between the treatment andlandowned. The treatment effects are greater for those owning less land, as mightbe expected. This raises the VI effect for a landless household to Rs 0.76, which isnow significant at 10%, and the mean MI effect to Rs. 0.86, significant at 5%. Theseare quantitatively large impacts — against an average net price of approximately Rs4.00 a kg, these amount to a 20% impact.Linking Mobile Phone Ownership and Use to Social Capital in Rural South Africa and TanzaniaFeatured in Vodafone Policy Paper Series, Number 2, March 2005.
  • Comparing cell phone and non-cell phone regions in India, Jensen finds that cell phone coverage is associated with a strong reductionin price dispersion across markets, as these graphs show. If we look at the second graph, we see that prices across fish markets in the region vary widely before the introduction of cell phones. Once cell phones are introduced, as is seen by the red line, dispersion across these markets goes down – they are harmonized.
  • Tanzania Boy -   © 1994 Chris Sattlberger/PANOS TANZANIA NgaraRwandan refugee boy with a mud mobile telephone, emulating the aid workers.
  • Transformation of Smallholder Agriculture: the Role of Infrastructure

    1. 1. Transformation of Smallholder Agriculture: the role of infrastructure <br />Maximo Torero<br />International Food Policy Research Institute (IFPRI)<br />Brasilia, June 2nd , 2010<br />
    2. 2. Challenges in Market Access<br /><ul><li>More than 75% of the extreme poor live in rural areas where agriculture is 50­90% of household income.
    3. 3. Smallholders face Inefficient markets lower farm-gate prices & increase cost of inputs, reducing input use, market access, and income</li></ul>Page 2<br />
    4. 4. Challenges in Market Access<br /><ul><li>Connecting poor farmers to markets has become more important over time because:
    5. 5. agricultural markets have been liberalized
    6. 6. international trade has been liberalized
    7. 7. income growth and urbanization within developing countries, is promoting a shift in consumer demand
    8. 8. supermarkets and processors are playing an increasingly important role
    9. 9. Rising demand for quality & food safety </li></ul>Page 3<br />
    10. 10. How good is the current market access for Africa relative to the rest of the world? <br />21 countries with better access than world average, 11 countries with duties to exports less than 2%, 32 countries with worst market access and 13 countries facing average duties greater than 10% <br />Page 4<br />
    11. 11. Example: Marginalization of Africa in world trade – The snapshot view <br />Authors:Antoine Bouët, Devesh Roy and Santosh Mishra<br />1970<br />1971<br />2005<br />8%<br />1972<br />2004<br />1973<br />2003<br />1974<br />2002<br />6%<br />1975<br />2001<br />1976<br />2000<br />4%<br />1977<br />1999<br />2%<br />1978<br />1998<br />0%<br />1979<br />1997<br />1980<br />1996<br />1981<br />1995<br />1982<br />1994<br />1983<br />1993<br />1984<br />1992<br />1985<br />1991<br />1986<br />1990<br />1987<br />1989<br />1988<br />Page 5<br />
    12. 12. Paradox of smallholders<br />Efficiency argument<br />Lipton (1993) points that there is extensive empirical literature that point to the ‘inverse relationship’ between farm size and production per unit of land<br />Lipton (2005) says economies of scale are weak<br />Dyer (1991, 1996): Small farmers more efficient use of labor<br />Poulton (2005) says scale of farm operations affects transactions costs for different activities in different ways<br />Cornia (1985), Heltberg (1998) show small farmers employ more labor than large farmers (labor markets are imperfect)<br />Problems faced by small farmers<br />Changes in production methods are not scale neutral as were with the Green revolution<br />Economies of scale in agriculture may apply in input supply, processing of harvests and in transport<br />Modern food value chain impose new restrictions for smallholders as a result they are not linked to dynamic markets (e.g. auditing and certification costs, Raynolds 2004, and many papers of Reardon)<br />Market imperfections imply higher transactions costs<br />Page 6<br />
    13. 13. inefficiency and high transaction costs<br />Market failure focus<br />Goal: making commodities markets function for the poor at local, regional, and international markets by:<br />Releasing constraints to participation <br />Enhancing benefits from participation<br />Major Market Failures:<br />Externalities (+/-)<br />Merit and demerit goods<br />Public goods<br />Information asymmetry<br />Monopoly (monopsony) power<br />Government failure<br />Major Outcomes of Market Failures:<br /><ul><li>High transportation costs
    14. 14. Information asymmetry
    15. 15. Missing input markets
    16. 16. Policy induced barriers
    17. 17. Non economic barriers</li></li></ul><li>Results: Post harvest losses in fruits and Vegetables<br />Source: Adel Kader, UC Davis; (2009)<br />Source: Kader, A. A. (2005). Increasing food availability by reducing postharvest losses of fresh produce. Proceedings of the 5thInternational Postharvest Symposium, Mencarelli, F. (Eds.) and Tonutti P. Acta Horticulturae, ISHS.<br />
    18. 18. Broken links because of luck of appropriate infrastructure<br />Page 9<br />
    19. 19. Page 10<br />What is the situation of infrastructure in SSA?<br />
    20. 20. Infrastructure coverage is low in SSA<br /> Lowest infrastructure coverage in SSA<br /><ul><li> Important rural-urban disparities
    21. 21. Electricity = lowest coverage of all infrastructures</li></ul>Source: Data from Estache and Goicoechea (2005)<br />Page 11<br />
    22. 22. Unequal access to infrastructures in Africa<br />Source: Data from Diallo and Wodon (2004), computed in Estache (2006)<br /><ul><li> Very large access disparities across income categories
    23. 23. Electricity is the most unequal</li></ul>Page 12<br />
    24. 24. Source: The Economist August 2007<br />Page 13<br />
    25. 25. High Transportation costs<br />Notes: The extent of agriculture includes areas with at least 10 percent irrigated, cultivated or grazing lands, net of areas with a growing season of zero days.<br />Source: Nelson (2006) and Sebastian (2007b).<br />Page 14<br />
    26. 26. Page 15<br />Access to roads<br />
    27. 27. Page 16<br />Access to roads<br />
    28. 28. GSM Coverage, 1999<br />Source: GSM Association<br />
    29. 29. GSM Coverage, 2008<br />Source: GSM Association<br />
    30. 30. 477 million people covered by mobile<br />This represents 477 million people<br />This represents 11.2 million square kilometres<br />Source: GSMA 2009<br />
    31. 31. Mobile Coverage, 2008<br />Source: GSMA 2009<br />
    32. 32. On irrigation<br />Page 21<br />
    33. 33. Page 22<br />On Ports<br />Location constraint for the sustainability of certain ports<br />Port capacity usually results from inadequate maintenance<br />Impact of port efficiency on port productivity and costs (dwell time may vary between a reported average of 7 days in Abidjan and 17 days in Douala)<br />Importance of a legal setting: the institutional framework of a port in WCA has depended primarily on its inheritance of either the French or the British models.<br />Cumbersome procedures and poor links to the hinterland reduce port efficiency<br />In addition, there are the traditional “non-infrastructure” and “non-official” barriers<br />
    34. 34. Africa’s infrastructure services several times more expensive than elsewhere<br />
    35. 35. Infrastructure will require an additional US$31 billion a year and huge efficiency gains<br />Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0%<br />All figures in US$ billion a year<br />
    36. 36. Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0%<br />All figures in US$ billion a year<br />
    37. 37. Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0%<br />Improving operational<br />efficiency $7.5<br />All figures in US$ billion a year<br />
    38. 38. Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0%<br />Increasing<br />cost recovery $4.7<br />Improving operational<br />efficiency $7.5<br />All figures in US$ billion a year<br />
    39. 39. Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0%<br />Increasing<br />cost recovery $4.7<br />Improving operational<br />efficiency $7.5<br />Prioritizing<br />public spending $3.3<br />All figures in US$ billion a year<br />
    40. 40. Spending needs $93<br />100%<br />80%<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0%<br />Increasing<br />cost recovery $4.7<br />Improving operational<br />efficiency $7.5<br />Prioritizing<br />public spending $3.3<br />Spending budgeted<br />All figures in US$ billion a year<br />resources $1.9<br />
    41. 41. Spending needs $93<br />100%<br />80%<br />Funding gap $31<br />60%<br />Efficiency gap $17<br />40%<br />Existing spending $45<br />20%<br />0%<br />Increasing<br />cost recovery $4.7<br />Improving operational<br />efficiency $7.5<br />Prioritizing<br />public spending $3.3<br />Spending budgeted<br />resources $1.9<br />All figures in US$ billion a year<br />
    42. 42. Page 31<br />Is just an issue of building new infrastructure?<br />
    43. 43. Example of the role of transportation value chain<br />
    44. 44. Improvement<br />Original <br />Improved<br />Cost of<br />improvement($)<br />hours<br />road<br />road <br />(km)<br />(km)<br />Ayauca<br />4.34<br />308.32<br />204.45<br />$6,137,455.71<br />Satipo<br />0.73<br />464.14<br />504.53<br />$17,728,322.39<br />Example of the role of transportation value chain<br />
    45. 45. What we know on infrastructure<br />
    46. 46. Bangladesh, 2000-2004<br />60%<br />60%<br />50%<br />50%<br />40%<br />40%<br />% change of PC HH Exp<br />% change of PC HH Income<br />30%<br />30%<br />20%<br />20%<br />Pipeline water<br />Water +<br />Water + elect +<br />Water + elect +<br />10%<br />10%<br />electricity<br />phone<br />phone + road<br />0%<br />Source: Chowdhury and Torero, 2006<br />0%<br />Electricity<br />Elec + phone<br />Elec + road<br />Elec + road +<br />phone<br />Complementarities of infrastructure<br />Peru, 2002<br /><ul><li>Infrastructure does seem to have an impact on household’s welfare
    47. 47. There exists complementarities in the provision of different types of infrastructure </li></ul>Source: Escobal and Torero, 2004.<br />Page 35<br />
    48. 48. Page 36<br />3+ infrastr<br />15<br />4<br />2 infrastr<br />10<br />3.5<br />1 infrastr<br />5<br />3<br />2.5<br />0<br />2<br />additional weekly hours of work<br />% change in time allocation<br />-5<br />1.5<br />-10<br />1<br />-15<br />Ag salaried<br />Non-ag salaried<br />0.5<br />-20<br />Ag self-empl<br />Non-ag self empl<br />0<br />-25<br />2 infrastruct<br />3+infrastruct<br />1infrastruct<br />How does infrastructure affect welfare?<br />PERU, 2002<br />PSM (kernel); control group: HH with no assets<br />A) Households work more hours<br />B) Households increase non-agricultural hours of work <br />Source: Escobal and Torero, 2004.<br />
    49. 49. 16<br />Treatment: 2 infrastructures<br />16<br />Treatment: 1 infrastructure<br />Diff = <br />Diff = <br />14<br />Control: No infrastructure<br />14<br />Control: No infrastructure<br />0.04<br />0.02<br />12<br />12<br />10<br />10<br />8<br />density<br />8<br />Male<br />density<br />Male <br />6<br />Female<br />6<br />Female<br />4<br />4<br />2<br />2<br />0<br />0<br />-0.2<br />-0.1<br />0<br />0.1<br />0.2<br />0.3<br />0.4<br />0.5<br />-0.1<br />0<br />0.1<br />0.2<br />0.3<br />0.4<br />ATT<br />ATT<br />Treatment: 3 infrastructures<br />6<br />Control: No infrastructure<br />Diff = <br />5<br />-0.08<br />4<br />3<br />density<br />Male<br />2<br />Female<br />1<br />0<br />-0.4<br />-0.2<br />0<br />0.2<br />0.4<br />0.6<br />0.8<br />-1<br />ATT<br />Infrastructure seems to have different impacts on men and women<br />Bangladesh, 2004: ATT effects of infrastructure among men and women<br />(PSM among men and women)<br />Page 37<br />
    50. 50. Empirical Research on the Impact of Mobile Phones<br />Fisheries in India (Abraham 2007, Jensen 2007)<br />Grain markets in Niger (Aker 2008, 2010) => sell<br />Farmer participation in Uganda (Muto 2009)<br />Internet kiosks and soybean prices in India (Goyal 2009)<br />Labor markets in South Africa (Klonner and Nolen 2009)<br />Market Information Availability and Potato Producer Prices in West Bengal (Mitra, Mookherjee, Torero and Visaria 2010)<br />
    51. 51. Mobile Phones and Fish Price Dispersion (Jensen 2007)<br />
    52. 52. Trader-Level Outcomes (Aker 2008)<br />Search in .91 more markets<br />Sell in one more market<br />
    53. 53. Page 41<br />Final comments<br />
    54. 54. Page 42<br />1. Regional coordination to boost supply capacities- corridor concept<br />Africa’s economic geography is a serious challenge infrastructure is inherently regional<br />20+ countries with populations of <5 million<br />20+ countries with economies of <US$5 billion<br />60 international river basins<br />15 landlocked countries<br />Need of evaluation and prioritization based on ERR and PRR (result of wealth creation)<br />Prioritized infrastructure corridors with Economic development corridors (potentially use a typology of development domains).<br />Need to learn from existing information by systematizing it and developing concrete plans to implement it.<br />
    55. 55. Page 43<br />
    56. 56. Page 44<br />2. Economic crisis is a challenge and an opportunity<br />Economic crisis will generate excess capacity (see fall in industrial production in 2009)<br />This imply that infrastructure building could be cheaper<br />Investment returns in countries which significant bottlenecks on infrastructure like Africa could be crucial<br />Learn from what China did and not from what Japan did during the crisis<br />
    57. 57. 3. Financing<br />Multilaterals HAVE to play a crucial role but they need to think regionally – Need to change their way of operation<br />Public – Private partnership for infrastructure development <br />Innovations to broaden and deepen markets including niche and preferential markets<br />Page 45<br />
    58. 58. 4. Complementarities<br />Significant evidence of importance of complementarities<br />Need to think on a value chain approach<br />Need to learn from experience with compacts on infrastructure<br />In Africa roads and electricity are extremely costly for users<br />One of the major restrictions to trade underachievement is infrastructure<br />Page 46<br />
    59. 59. 5. On regulation<br />Recommend regulatory changes to enable the market to work better<br /><ul><li>increased competition
    60. 60. open to new technologies
    61. 61. open to new business models</li></ul>Outline an approach to subsidies to extend services beyond the market<br /><ul><li>using market forces
    62. 62. minimal regulation</li></ul>Page 47<br />
    63. 63. 5. On regulation (cont)<br />Distinguish two types of service shortfalls:<br /><ul><li>market efficiency gap
    64. 64. real access gap</li></ul>For the market efficiency gap:<br /><ul><li>identify current regulatory problems and issues that regulatory agency can address (example EU remedies for regulation)
    65. 65. examine new technologies that could help to reduce costs</li></ul>For the real access gap:<br /><ul><li>draw on best practices developed in rural areas
    66. 66. complement and extend these for application in rural and peri-urban areas.</li></ul>Page 48<br />
    67. 67. 6. Leapfrogging<br />Not need to repeat what happen in the past and what was done in developed countries – clear example is the cellular industry<br />Use best technologies<br />Use green infrastructure – this could be an advantage in SSA<br />Page 49<br />
    68. 68. Page 50<br />Thanks!<br />

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