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Increasing Returns and Market Efficiency in Agricultural Trade

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Author Info
Marcel Fafchamps (Centre for the Study of African Economies)
Eleni Gabre-Madhin (International Food Policy Research Institute, Washington D.C.)
Bart Minten (Cornell University)

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Abstract

Using detailed trader surveys in Benin, Madagascar and Malawi this paper investigates the presence of increasing returns in agricultural trade. After analyzing margins, costs, 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 transporter pool quantities from multiple traders. Margin rates show little relationship with transaction size. Personal travel costs are a source of increasing returns, but 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, labour, 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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Paper provided by EconWPA in its series Development and Comp Systems with number 0409020.

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Length: 44 pages
Date of creation: 22 Sep 2004
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Handle: RePEc:wpa:wuwpdc:0409020

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O - Economic Development, Technological Change, and Growth
P - Economic Systems

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gopinath, Munisamy & Mullen, Kathleen & Gulati, Ashok, 2004. "Domestic support to agriculture in the European Union and the United States," MTID discussion papers 75, International Food Policy Research Institute (IFPRI). [Downloadable!]
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  3. Gabre-Madhin, Eleni Z. & Barrett, Christopher B. & Dorosh, Paul A., 2003. "Technological change and price effects in agriculture," MTID discussion papers 62, International Food Policy Research Institute (IFPRI). [Downloadable!]
  4. Takeshima, Hiroyuki, 2008. "Behavior of subsistence producers in response to technological change- The elasticity of cassava production and home consumption in Benin," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6108, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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  6. Peterson, Everett B. & Orden, David, 2004. "Effects of tariffs and sanitary barriers on high- and low-value poultry trade," MTID discussion papers 64, International Food Policy Research Institute (IFPRI). [Downloadable!]
    Other versions:
  7. Sharma, Vijay Paul & Gulati, Ashok, 2003. "Trade liberalization, market reforms and competitiveness of Indian dairy sector," MTID discussion papers 61, International Food Policy Research Institute (IFPRI). [Downloadable!]
  8. Jha, Shikha & Srinivasan, P.V., 2004. "Achieving food security in a cost effective way," MTID discussion papers 67, International Food Policy Research Institute (IFPRI). [Downloadable!]
  9. Moser, Christine & Barrett, Christopher & Minten, Bart, 2005. "Missed opportunities and missing markets: Spatio-temporal arbitrage of rice in Madagascar," 2005 Annual meeting, July 24-27, Providence, RI 19338, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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  14. Rashid, Shahidur & Cummings, Ralph Jr. & Gulati, Ashok, 2005. "Grain marketing parastatals in Asia," MTID discussion papers 80, International Food Policy Research Institute (IFPRI). [Downloadable!]
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    Other versions:
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