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Increasing Returns and Market Efficiency in Agricultural Trade

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  • Marcel Fafchamps
  • Eleni Gabre-Madhin
  • Bart Minten

Abstract

Using detailed trader surveys in Benin, Madagascar, and Malawi, this paper investigates the presence of increasing returns in agricultural trade. After analyzing margins, cost, and value added, we find little evidence of returns to scale. Motorized transport is found more cost effective for large loads on longer distances. But transporters pool quantities from multiple traders. Margin rates show little relationship with transaction size. Personal travel costs are a source of increasing returns, nut the effect is small. Consequently, total marketing costs are nearly proportional to transaction size. Working and network capital are key determinants of value added. Constant returns to scale in all accumulable factors - working capital, labor, and network capital - cannot be rejected. This implies that policies to restrict entry into agricultural trade are neither necessary nor useful. Governments should focus instead on technological and institutional innovations to upgrade agricultural markets.

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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2002-18.

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Date of creation: 2002
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Handle: RePEc:csa:wpaper:2002-18

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  8. Marcel Fafchamps & Bart Minten, 2001. "Social Capital and Agricultural Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 680-685.
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  11. Minten, Bart & Kyle, Steven, 1999. "The effect of distance and road quality on food collection, marketing margins, and traders' wages: evidence from the former Zaire," Journal of Development Economics, Elsevier, vol. 60(2), pages 467-495, December.
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  14. Bob Baulch, 1997. "Transfer Costs, Spatial Arbitrage, and Testing for Food Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 477-487.
  15. Fafchamps, Marcel & Minten, Bart, 1998. "Relationships and traders in Madagascar," MTID discussion papers 24, International Food Policy Research Institute (IFPRI).
  16. Marcel Fafchamps & Bart Minten, 2000. "Returns to Social Network Capital among Traders," Development Working Papers 145, Centro Studi Luca d\'Agliano, University of Milano.
  17. Barrett, Christopher B., 1997. "Liberalization and food price distributions: ARCH-M evidence from Madagascar," Food Policy, Elsevier, vol. 22(2), pages 155-173, April.
  18. Beynon, Jonathan & Jones, Stephen & Yao, Shujie, 1992. "Market reform and private trade in Eastern and Southern Africa," Food Policy, Elsevier, vol. 17(6), pages 399-408, December.
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  20. Rola, Agnes & Rola, Walfredo & Tiongco, Marites & Delgado, Christopher L., 2003. "Livestock intensification and smallholders," MTID discussion papers 59, International Food Policy Research Institute (IFPRI).
  21. Barrett, Christopher B., 1997. "Food marketing liberalization and trader entry: Evidence from Madagascar," World Development, Elsevier, vol. 25(5), pages 763-777, May.
  22. Fafchamps, Marcel & Gabre-Madhin, Eleni, 2001. "Agricultural markets in Benin and Malawi : the operation and performance of traders," Policy Research Working Paper Series 2734, The World Bank.
  23. Gabre-Madhin, Eleni Z., 2001. "The role of intermediaries in enhancing market efficiency in the Ethiopian grain market," Agricultural Economics, Blackwell, vol. 25(2-3), pages 311-320, September.
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