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Increasing returns and market efficiency in agricultural trade

  • Fafchamps, Marcel
  • Gabre-Madhin, Eleni Z.
  • Minten, Bart

"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 transporters 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, labor, and network capital cannot be projected. 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." Authors' Abstract

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Paper provided by International Food Policy Research Institute (IFPRI) in its series MTID discussion papers with number 60.

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Date of creation: 2003
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Handle: RePEc:fpr:mtiddp:60
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  1. Jacoby, Hanan C, 2000. "Access to Markets and the Benefits of Rural Roads," Economic Journal, Royal Economic Society, vol. 110(465), pages 713-37, July.
  2. Shuttleworth, Graham, 1989. "Policies in transition: Lessons from Madagascar," World Development, Elsevier, vol. 17(3), pages 397-408, March.
  3. Rola, Agnes & Rola, Walfredo & Tiongco, Marites & Delgado, Christopher L., 2003. "Livestock intensification and smallholders," MTID discussion papers 59, International Food Policy Research Institute (IFPRI).
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  5. 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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  7. Gersovitz, Mark, 1992. "Transportation Policy and Panterritorial Pricing in Africa," World Bank Economic Review, World Bank Group, vol. 6(2), pages 213-31, May.
  8. Berg, Elliot, 1989. "The liberalization of rice marketing in Madagascar," World Development, Elsevier, vol. 17(5), pages 719-728, May.
  9. 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.
  10. Barrett, Christopher B., 1997. "Liberalization and food price distributions: ARCH-M evidence from Madagascar," Food Policy, Elsevier, vol. 22(2), pages 155-173, April.
  11. Donald S. Siegel & Catherine J. Morrison Paul, 1999. "Scale Economies and Industry Agglomeration Externalities: A Dynamic Cost Function Approach," American Economic Review, American Economic Association, vol. 89(1), pages 272-290, March.
  12. 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.
  13. Marcel Fafchamps & Bart Minten, 2000. "Returns to Social Network Capital among Traders," Development Working Papers 145, Centro Studi Luca d\'Agliano, University of Milano.
  14. Fafchamps, Marcel & Minten, Bart, 1998. "Relationships and traders in Madagascar," MTID discussion papers 24, International Food Policy Research Institute (IFPRI).
  15. Badiane, Ousmane & Shively, Gerald E., 1998. "Spatial integration, transport costs, and the response of local prices to policy changes in Ghana," Journal of Development Economics, Elsevier, vol. 56(2), pages 411-431, August.
  16. Gersovitz, Mark, 1989. "Transportation, State Marketing, and the Taxation of the Agricultural Hinterland," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1113-37, October.
  17. Christopher B. Barrett & Paul A. Dorosh, 1996. "Farmers' Welfare and Changing Food Prices: Nonparametric Evidence from Rice in Madagascar," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 656-669.
  18. Gabre-Madhin, Eleni Z., 2001. "The role of intermediaries in enhancing market efficiency in the Ethiopian grain market," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 25(2-3), September.
  19. Jayne, T. S. & Jones, Stephen, 1997. "Food marketing and pricing policy in Eastern and Southern Africa: A survey," World Development, Elsevier, vol. 25(9), pages 1505-1527, September.
  20. James Tybout, 1999. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Development and Comp Systems 9906001, EconWPA, revised 10 Jun 1999.
  21. Binswanger, Hans P. & Khandker, Shahidur R & Rosenzweig, Mark R., 1989. "How infrastructure and financial institutions affect agricultural output and investment in India," Policy Research Working Paper Series 163, The World Bank.
  22. Steven Were Omamo, 1998. "Transport Costs and Smallholder Cropping Choices: An Application to Siaya District, Kenya," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 116-123.
  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.
  24. Staatz, John M. & Dione, Josue & Dembele, N. Nango, 1989. "Cereals market liberalization in Mali," World Development, Elsevier, vol. 17(5), pages 703-718, May.
  25. 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.
  26. Seppala, P, 1997. "Food Marketing Reconsidered. An Assessment of the Liberalization of Food Marketing in Sub-Saharan Africa," Research Paper 34, World Institute for Development Economics Research.
  27. 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.
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