Market participation of smallholders and the role of the upstream segment: evidence from Guinea

Despite theoretical advances in analyses on smallholder participation, little attention is paid to the marketing of staple food grains and the role of factor market (upstream). In this study, we argue that participation does not depend only on a well-functioning output market (downstream), but also on efficient and low-costs production factors. In this context, transaction costs in output market are part of total costs including those in factors markets. Therefore, the decision (ex-ante) whether to participate or not in output market, is based on the effective margin associated to participation. The rational behavior is that market price of food grains must sufficiently overweight unit production costs to motivate smallholders to be market-oriented, otherwise they would prefer to meet their own consumption needs. Using national survey data of Guinea and focusing on the cereal sub-sector, results indicate that the expected margin is one of the main variable influencing positively the decision of being sellers. This is in line with the view that when the price of staple food is not favorable, then smallholders would consume their own production. Access to transportation equipment, adoption of technology and adherence to farmers’ organizations are determinant when promoting market participation. While this research, like previous studies, supports policies enhancing transportation infrastructures in rural areas, it also supports actions stressing on factor market (upstream) that (i) facilitate access to production shifters like fertilizers and improved seeds at lower costs; (ii) organize (formalize) rural labor market through the establishment of an institutional framework which promotes the creation of formal enforceable contracts including wages based on workers’ productivity.