First World technology enables Third World development
In Hungry Niger, Cell Phones Bring Down Food Prices
Markets work better not only within economic justice but also when participants are better informed. We trim this 2008 article from Center for Global Development and circulated by OneWorld on October 30. The author is a post-doctoral fellow at the Center for Global Development.
By Jenny AkerCell phones are quickly transforming markets in low-income countries. The effect is particularly dramatic in rural areas of sub-Saharan Africa, where cell phones often represent the first development in telecommunications infrastructure. The twelve million residents of Niger, a landlocked country in West Africa, had 20,000 landlines-an estimated 2 landlines per 1,000 people when mobile phones were first introduced in 2001. Now Niger has almost 400,000 cell phone subscribers. Although the country still has the lowest rate of cell phone adoption in sub-Saharan Africa, cell phone coverage has had important implications for grain markets and hence welfare in the country.
With an estimated 85 percent of its population living on less than two dollars a day, Niger is one of the poorest countries in the world. The majority of Nigeriens are rural subsistence farmers, who depend upon rainfed agriculture as their main source of income. Grains (primarily millet) are dietary staples, accounting for over 75 percent of rural households' caloric 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 markets to obtain market information. This not only requires the cost of travel, but also the opportunity costs of traders' time. Between 2001 and 2006, however, cell phone service was phased in throughout the country, providing an alternative and cheaper search technology to grain traders, farmers, and consumers. In theory, then, cell phones should have reduced traders' search costs, thereby allowing them to search over a larger number of markets and to search more quickly.
This fact is supported by reports of the grain traders themselves. A grain trader in Magaria, Niger, stated, "[With a cell phone], in record time, I have all sorts of information from markets near and far." Another grain trader in Zinder, Niger, explained, "[Now] I know the price for two dollars, rather than traveling [to the market], which costs $20."
The introduction of cell phone towers in Niger has reduced differences in grain prices across markets by 20 percent and the intra-annual variation of grain prices by 12 percent. Cell phones have had a greater impact on price dispersion for markets that are farther away, and for those that are linked by poor-quality roads. This effect has also intensified over time: the reduction in inter-market price dispersion has increased as a higher percentage of markets have cell phone coverage.
Why would cell phones lead to a reduction in price differences across markets? Since cell phones reduced traders' search costs by 50 percent, they were able to change their marketing behavior. By 2006, grain traders operating in cell phone markets searched over a greater number of markets, had more market contacts , and did business in more markets as compared to their counterparts without cell phones. This suggests that traders in cell phone markets were better able to respond to surpluses and shortages, thereby allocating grains more efficiently across markets and dampening the price differences.
Did cell phones only help the traders? Not necessarily. Between 2001 and 2006, cell phones were associated with a 3.5 percent reduction in average consumer grain prices, as well as an increase in traders' profits. Holding all else equal, this would have enabled rural households to purchase an additional five to ten days' worth of grain per year. In 2005 -- the year that Niger experienced a severe food crisis -- cell phone markets in food crisis regions had relatively lower consumer grain prices. This suggests that the presence of cell phone towers could have averted a worse food crisis. Since a majority of rural households in Niger are net consumers, lower consumer prices suggest that people were better off.
Robert Jensen found that the introduction of cell phones in 1997 increased fishermen's profits by 8 percent and decreased consumer prices by 4 percent in Kerala, India.
It's the "I"-not just the "IT." Access to information is crucial for ensuring that farmers, traders and consumers can engage in optimal arbitrage - in other words, buying and selling goods when and where it's needed most. This, in turn, improves market performance, which increases welfare.
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