18 February 2008

Impact of Cell Phones on Grain Markets in Niger

"The Impact of Cell Phones on Grain Markets in Africa's Niger" (via Textually)

When researching the impact of technology on other aspects our lives, it's important to remember that the majority of the human race lives close to the subsistence level. About a fifth the human race lives without regular access to clean water.1 A gigantic portion of mankind still farms with few or no motorized tools: no tractors, no agrichemicals, no pumps, and sometimes not even access to lorries. A lot of UN attention is directed at ways of helping people who live in these areas, where food security is a major concern.

Niger (map) is pretty much ground zero for development headaches.2 It's near the very bottom in development, food insecurity, and quality of life. In 2006, however, cell phones became widespread in Niger. Specifically,
76 percent of grain markets had cell phone coverage by 2006, with 29 percent of traders surveyed using cell phones for their commercial operations. In 2006, 89 percent of grain traders reported that they depended upon their personal and professional contacts to obtain relevant market information, primarily by traveling to markets or using telecommunications systems.
Aker, Does Digital Divide or Provide? (Feb 2008), p.3
During this period Niger experienced a food crisis, and in fact is experiencing one now (more on this below). Jenny C. Aker conducted a study of the impact of cell phones on the range of prices for two primary food staples in Niger, sorghum and millet. The idea was that, as cell phones become widespread, grain traders could take advantage of comparatively high prices in a particular area , and sell high there. This would raise prices somewhat in areas where they were comparatively low. An advantage would be that farmers would enjoy greater price stability (since a larger market would provide relief from gluts and low prices) while consumers could get relief from high prices caused by local crop failures.

A practical limit to the benefits of cell phones would be imposed by the cost of transporting grain long distances. Another limit would be imposed by the nature of grain cultivation in Niger: it's mostly rain-fed, and irrigation is nil (CIA-WFB). So there will naturally be a great abundance during harvest and a dearth at other times. A third potential limitation is that cell phones permit collusion between traders. So far this last problem has not been significant.3

Akers describes a model of estimating the effect of search costs on merchant activity (pp.7-12). A collateral advantage of Aker's paper is that it demonstrates how to use general equilibrium analysis and probability to estimate optimization strategies for actors (in this case, grain merchants). She uses data from market surveys of grain merchants during the study period to estimate price conditions in 35 markets across Niger; and detailed mathematical modeling of the spatial impact of cell phone towers (with its effect, or lack thereof, on transport costs between markets thereby connected by cell phone; pp.22-26).

Some important inferences were that cell phone towers (and therefore ready usage of cell phones) was inversely related to food crisis (p.38), although naturally this could mean towers were installed in areas which already had strongly deepened markets anyway. Merchants experienced an increase in income, but there was no statistically significant evidence that actual volumes of food in the surveyed areas increased as a result of the introduction of cell phones.

Closing Thoughts

The paper visits a number of topics that are fairly "hot" for students of economics: general equilibrium analysis, welfare analysis, information economics, and so on. In the period since the one that the paper studies, food crisis has returned to West Africa, and there is reason to suspect that the current crisis, being driven by warfare in the Sahel, may be even more sensitive to civilian access to information:
Normally in January and February cereal and grain prices in West Africa are driven down as harvests from the year before start hitting the markets. But production of cereals was low across the region in 2007 because of a late start and early end to the rainy season, which affected production of millet, sorghum and maize. Analysts say traders are seeking to maximise profit by hoarding stocks, because they know the low production will yield higher prices.

“Traders are still buying in as much as possible to hold onto it until the price has doubled or more,” said Salif Sow, regional representative of the Famine Early Warning Systems Network (FEWS NET) food monitoring group. FEWS NET has recorded rising prices at important markets in northern Nigeria, Ghana, Togo and Benin.

The last time FEWS NET compiled regional information, in November 2007, prices compared to the same month in 2006 were 60 percent higher for millet, 51 percent higher for maize, and 43 percent for sorghum.
IRIN: Food prices still climbing, crisis feared (18 Jan 2008)
Generally speaking, when markets are integrated (i.e., goods and data on prices flow freely over larger areas), it's difficult to make money through hoarding. This is because the hoarding merchants face the increased risk of outsiders arriving with cheap food and destroying their profits.

Still, the measured effect was that most of the benefits of cell phone use flowed to the merchants themselves. Akers could not find evidence of increased output, but only reduced price differential. This may be interpreted as an historical fluke, since the time period under measurement was so short and turbulent.
1 "Beyond scarcity: Power, poverty and the global water crisis," United Nations Development Programme (UNDP) Report 2006 (page links to PDF). See page 33 of PDF report: 1.2 billion people worldwide have no access to an improved water source; 2.6 billion have no access to improved sanitation.
“Not having access to clean water” is a euphemism for profound deprivation. It means that people live more than 1 kilometre from the nearest safe water source and that they collect water from drains, ditches or streams that might be infected with pathogens and bacteria that can cause severe illness and death. In rural Sub-Saharan Africa millions of people share their domestic water sources with animals or rely on unprotected wells that are breeding grounds for pathogens.
Obviously, "water security" is of paramount importance to well-being.

2 Population Reference Bureau, Niger; Human Development Data for Niger (UNDP); see also "Country Programme: Niger" , United Nations World Food Program (Aug 2008):
The Joint Survey on Household Vulnerability to Food Insecurity, conducted in November 2006, found 30 percent of the population (3.5 million people) affected by food insecurity. Around half of children under 5 showed signs of stunting and the rate of acute malnutrition was over 11 percent. The gross school enrollment rate in 2005/06 was 54 percent overall and only 44 percent for girls.
3 Jenny C. Aker, Does Digital Divide or Provide? Department of Agricultural and Resource Economics, University of California, Berkeley (Feb 2008). Regarding annual variations in price:
Retailers sell directly to both urban and rural consumers. As there is only one growing season per year (October-November), traders begin importing grains from neighboring countries (Benin, Burkina Faso, Mali and Nigeria) in April, once the local supply is depleted.
See also this 1969 map of economic activity and population distribution in Niger (Perry-Casteneda map library, University of Texas, Austin).

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