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Liquid milk: Cash constraints and day-to-day intertemporal choice in financial diaries

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  • Geng, Xin
  • Janssens, Wendy
  • Kramer, Berber N.

Abstract

This paper analyzes implications of cash constraints for collective marketing, using the case of the Kenyan dairy sector. Collective marketing, for instance through cooperatives, can improve smallholder farmer income but relies on informal, nonenforceable agreements to sell outputs collectively. Side selling of output in the local market occurs frequently and is typically attributed to price differences between the market and cooperative. This paper provides an alternative explanation, namely that farmers sell in the local market when they are cash constrained because cooperatives defer payments while buyers in local markets pay cash immediately. Building on semiparametric estimation techniques for panel data, we find robust evidence of this theory. High-frequency, high-detail panel data show that farmers sell more in the local market, in particular to buyers who pay cash immediately, in weeks when they have low cash on hand. Moreover, households cope with health shocks by selling more milk in the local market and less to the cooperative, but only in weeks when they are not covered by health insurance. Increased flexibility in payment and the provision of insurance through agricultural cooperatives can potentially reduce side selling and improve the performance of collective marketing arrangements.

Suggested Citation

  • Geng, Xin & Janssens, Wendy & Kramer, Berber N., 2017. "Liquid milk: Cash constraints and day-to-day intertemporal choice in financial diaries," IFPRI discussion papers 1602, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:ifprid:1602
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    References listed on IDEAS

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    1. Jack, William & Kremer, Michael & Laat, Joost de & Suri, Tavneet, 2016. "Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya," CEPR Discussion Papers 11523, C.E.P.R. Discussion Papers.
    2. Janssens, Wendy & Kramer, Berber & Swart, Lisette, 2017. "Be patient when measuring hyperbolic discounting: Stationarity, time consistency and time invariance in a field experiment," Journal of Development Economics, Elsevier, vol. 126(C), pages 77-90.
    3. Su, Liangjun & Ullah, Aman, 2006. "Profile likelihood estimation of partially linear panel data models with fixed effects," Economics Letters, Elsevier, vol. 92(1), pages 75-81, July.
    4. Zimmerman, Frederick J. & Carter, Michael R., 2003. "Asset smoothing, consumption smoothing and the reproduction of inequality under risk and subsistence constraints," Journal of Development Economics, Elsevier, vol. 71(2), pages 233-260, August.
    5. Mark Dean & Anja Sautmann, 2014. "Credit Constraints and the Measurement of Time Preferences," Working Papers 2014-1, Brown University, Department of Economics.
    6. William Jack & Michael Kremer & Joost de Laat & Tavneet Suri, 2016. "Borrowing Requirements, Credit Access, and Adverse Selection: Evidence from Kenya," NBER Working Papers 22686, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Kramer, Berber & Kunst, David, 2017. "Intertemporal choice and income regularity: Non-fungibility in a lab-in-the-field experiment," IFPRI discussion papers 1646, International Food Policy Research Institute (IFPRI).
    2. Casaburi, Lorenzo & Macchiavello, Rocco, 2019. "Demand and supply of infrequent payments as a commitment device: evidence from Kenya," LSE Research Online Documents on Economics 100180, London School of Economics and Political Science, LSE Library.
    3. Casaburi, Lorenzo & Macchiavello, Rocco, 2018. "Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry," CAGE Online Working Paper Series 367, Competitive Advantage in the Global Economy (CAGE).
    4. Geng, Xin & Ide, Vera & Janssens, Wendy & Kramer, Berber & van der List, Marijn, 2017. "Health insurance, a friend in need? Evidence from financial and health diaries in Kenya," IFPRI discussion papers 1664, International Food Policy Research Institute (IFPRI).

    More about this item

    Keywords

    finance; dairy industry; dairy cooperatives; agricultural cooperatives; smallholders; marketing; households; economic development;

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