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Price Transmission and Trader Entry in Domestic Commodity Markets

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  • Marcel Fafchamps
  • Ruth Vargas Hill

Abstract

Using detailed data from three simultaneous surveys of producers, traders, and exporters, this paper examines the transmission of international coffee prices through the domestic value chain in Uganda. We find that producer price fluctuations are inconsistent with constant transaction costs. We investigate three possible explanations for this finding: storage and contango, marketing costs that increase with price, and trader entry that raises search time. We test and reject the storage and marketing costs explanation, but we find some evidence of trader entry in response to a rise in export price. Our findings suggest that small itinerant traders enter in response to an export price increase, probably taking advantage of farmers’ ignorance of the rise in wholesale price.

Suggested Citation

  • Marcel Fafchamps & Ruth Vargas Hill, 2008. "Price Transmission and Trader Entry in Domestic Commodity Markets," Economic Development and Cultural Change, University of Chicago Press, vol. 56, pages 729-766.
  • Handle: RePEc:ucp:ecdecc:v:56:y:2008:p:729-766
    DOI: 10.1086/588155
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    References listed on IDEAS

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    2. Pranab Bardhan & Dilip Mookherjee & Masatoshi Tsumagari, 2013. "Middlemen Margins and Globalization," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 81-119, November.
    3. Kijima, Yoko & Otsuka, Keijiro & Futakuchi, Koichi, 2013. "The development of agricultural markets in sub-Saharan Africa: the case of rice in Uganda," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 8(4), October.
    4. Minten, Bart & Tamru, Seneshaw & Engida, Ermias & Kuma, Tadesse, 2013. "Using evidence in unraveling food supply chains in Ethiopia: The supply chain of teff from major production areas to Addis Ababa:," ESSP working papers 54, International Food Policy Research Institute (IFPRI).
    5. Jenny Aker & Christopher Ksoll, 2012. "Information Technology and Farm Households in Niger," UNDP Africa Policy Notes 2012-005, United Nations Development Programme, Regional Bureau for Africa.
    6. World Bank, 2011. "Tackling Poverty in Northern Ghana," World Bank Other Operational Studies 2755, The World Bank.
    7. Subervie, Julie, 2011. "Producer price adjustment to commodity price shocks: An application of threshold cointegration," Economic Modelling, Elsevier, vol. 28(5), pages 2239-2246, September.
    8. Minten, Bart & Murshid, K.A.S. & Reardon, Thomas, 2013. "Food Quality Changes and Implications: Evidence from the Rice Value Chain of Bangladesh," World Development, Elsevier, vol. 42(C), pages 100-113.
    9. repec:bla:rdevec:v:21:y:2017:i:4:p:e88-e106 is not listed on IDEAS
    10. Latynskiy, Evgeny & Berger, Thomas, 2012. "An Agent-Based Network Approach For Understanding, Analyzing And Supporting Rural Producer Organizations In Agriculture," 52nd Annual Conference, Stuttgart, Germany, September 26-28, 2012 137383, German Association of Agricultural Economists (GEWISOLA).
    11. Pol Antràs & Arnaud Costinot, 2011. "Intermediated Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1319-1374.
    12. Charles Kunaka, 2011. "Logistics in Lagging Regions : Overcoming Local Barriers to Global Connectivity," World Bank Publications, The World Bank, number 2543.
    13. Abbott, Philip & Wu, Ce & Tarp, Finn, 2014. "Transmission of World Prices to the Vietnamese Economy," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 29, pages 624-656.
    14. Cason, Timothy N. & Gangadharan, Lata, 2011. "Price discovery and intermediation in linked emissions trading markets: A laboratory study," Ecological Economics, Elsevier, vol. 70(7), pages 1424-1433, May.
    15. Raballand, Gael & Macchi, Patricia & Merotto, Dino & Petracco, Carly, 2009. "Revising the roads investment strategy in rural areas : an application for Uganda," Policy Research Working Paper Series 5036, The World Bank.
    16. Bernard, Tanguy & de Janvry, Alain & Mbaye, Samba & Sadoulet, Elisabeth, 2016. "Product Market Reforms and Technology Adoption by Senegalese Onion Producers," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9wj41042, Department of Agricultural & Resource Economics, UC Berkeley.
    17. Mujawamariya, Gaudiose & Burger, Kees & D'Haese, Marijke F.C., 2012. "Behaviour and performance of traders in the gum arabic supply chain in Senegal: Investigating oligopsonistic myths," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126236, International Association of Agricultural Economists.
    18. Minten, Bart J. & Legesse, Ermias & Beyene, Seneshaw & Werako, Tadesse, 2015. "Feeding Africa's cities: The case of the Supply Chain of Teff to Addis Ababa," 2015 Conference, August 9-14, 2015, Milan, Italy 212465, International Association of Agricultural Economists.

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