Worth a Hill of Soyabeans: How the Internet Can Make Agricultural Markets More Efficient

Wednesday, January 13, 2010

WHEN the internet took off in the mid-1990s, it was often claimed that it would improve price transparency, cut out middlemen and make markets more efficient. There is plenty of anecdotal evidence for this, just as there is for similar claims about mobile phones. Empirical data on the impact of these new technologies increasingly support the thesis.

Macroeconomic studies suggest that the internet and mobile phones boost growth. The effect is bigger in developing countries than developed ones, due to the paucity of existing communications infrastructure. The effect also seems to be bigger for the internet than for mobile phones. In a study published in 2009, Christine Zhen-Wei Qiang of the World Bank found that an increase of ten percentage points in mobile-phone adoption increased growth in GDP per person by 0.8 percentage points in a developing country, and by 0.6 percentage points in a developed one. For dial-up internet access, the figures were 1.1 percentage points and 0.75 percentage points respectively; for broadband internet, 1.4 percentage points and 1.2 percentage points…

In a forthcoming paper*, Aparajita Goyal of the World Bank has carried out a corresponding study for the internet by examining how the gradual introduction of internet kiosks providing price information affected the market for soyabeans in the central Indian state of Madhya Pradesh. Farmers in the region sell their soyabeans to intermediaries in open auctions at government-regulated wholesale markets called mandis, a system that was set up in order to protect farmers from unscrupulous buyers. The intermediaries then sell on the produce to food-processing companies. The problem with this approach for the farmers is that the traders have a far better idea about the prices prevailing in different markets and being offered by processing companies. With only a few traders at each mandi, they can easily collude to ensure that they pay less than the fair market price; they can then boost their profits by selling on the beans at a higher price.

Source: The Economist (link opens in a new window)