16 Feb 2008
A new research study by Jenny Aker, an independent PhD candidate at the University of California-Berkeley has looked at the impact of mobile phones on the prices of farm produce in the African country of Niger - which faced serious food shortages in 2005. In theory, the increasing use of mobile phones should have improved distribution efficiency and hence lower the variations in prices around the country. The study set out to see if that was the case.
With an estimated 85 percent of the population living on less than US$2 per day, Niger is the lowest-ranked country according to the United Nations' Human Development Index. The majority of the population consists of rural subsistence farmers, who depend upon rainfed agriculture as their main source of income. Grains (primarily millet and sorghum) are dietary staples, accounting for over 75 percent of food consumption. These commodities are transported from farmers to consumers through an extensive system of markets that run the length of the country, which is roughly three times the size of California.
As grain markets occur only once per week, traders have historically traveled long distances to potential sales markets to obtain information on supply, demand and prices. Between 2001 and 2006 though, cell phone service was phased in throughout Niger, providing an alternative and cheaper search technology to grain traders and other market actors.
To test the predictions of the theoretical model, the researchers use a unique market and trader dataset from Niger that combines data on prices, transport costs, rainfall and grain production with cell phone access and trader behavior. They first exploited the quasi-experimental nature of cell phone coverage to estimate the impact of the staggered introduction of information technology on market performance.
The results provide evidence that cell phones reduce grain price dispersion across markets by a minimum of 6.4 percent and reduce intra-annual price variation by 10 percent. Cell phones have a greater impact on price dispersion for market pairs that are farther away, and for those with lower road quality.
It is worth noting how important this is - as during the 2005 food crisis, areas where food was plentiful had prices some 20% lower than in famine areas, which in such a poor country had a serious impact on the ability of people in famine struck areas to afford to buy staple foods. At the time of the food crisis, only 24 percent of the markets in famine regions had cellphone coverage, as compared to 83 percent of markets in plentiful regions.
As a grain trader operating in Zinder noted, "(With a cell phone), I know the price for US$2, rather than traveling (to the market), which costs US$20."
A factor which should be noted that improved distribution results in fewer surpluses in some regions and shortages in others - which flattens the price difference between markets. So in surplus areas the price rises, and in famine areas - the price falls. This obviously benefits those in dire need in the short term, but there is also a long term economic benefit for the country as a whole as there is more price stability and that makes it easier for families and traders to plan ahead for their financial budgets.
The primary mechanism by which cell phones affect market-level outcomes appears to be a reduction in search costs, as grain traders operating in markets with cell phone coverage search over a greater number of markets and sell in more markets.
The results suggest that cell phones improved consumer and trader welfare in Niger, perhaps averting an even worse outcome during the 2005 food crisis.
