Using information-sharing systems to address opportunistic behaviour between tomato farmers and brokers in Zambia

June 2018
By Eustensia Munsaka

1 Introduction

The horticultural industry has exhibited great potential for helping to achieve development objectives, given that production and trade is predominantly in high-value crops (McCullough et al. 2008). The continued growth of the global market for horticulture has been fuelled by the increase in the consumption of fruits and vegetables (Gyan Analytics 2014). This has created market opportunities in the horticulture industry. Utilizing these opportunities, however, strongly depends on knowledge and information to understand market dynamics (Brown et al., 2005). Small-scale farmers involved in horticulture in most parts of the world have been unable to take advantage of these opportunities, partly due to constraints resulting from opportunistic behaviour by other market players. This opportunistic behaviour mainly stems from the inadequacy of market information (creating information asymmetry) and poor communication among market actors involved in agricultural production and marketing chains, especially in developing countries (GTA Team 2005; Brown et al. 2005). According to Brown et al., Sub-Saharan Africa (SSA) is one of the regions experiencing the greatest challenges in linking producers of agricultural commodities to market information.

In Zambia, the horticulture sub-sector is faced with these challenges. Finding effective and efficient markets for high-value crops such as horticultural ones is a major problem for small-scale farmers (Tschirley et al 2011). It has been shown that information asymmetry in horticultural supply chains limits the potential to achieve  financial gains that farmers might obtain from marketing fresh produce (Tschirley & Hichaambwa 2010; Emongor & Kirsten 2009). Brokers who act as the link between buyers and sellers of fresh produce have been accused of exhibiting uncompetitive behaviour (Tschirley & Hichaambwa 2010).

A key piece of background to this study is a 2010 study by Tschirley and Hichaambwa. They found that brokers who then operated on the Soweto market charged a hidden commission of about 9–10% over and above the transparent commission of about 10%. This hidden commission is obtained by inflating commodity prices on the market without the farmer’s consent. Tschirley and Hichaambwa described this as misconduct ‘opportunistic behaviour’. Indeed, opportunistic behaviour emerges in this transaction because one party to the transaction deceitfully obtains economic benefits at the expense of the other party (Williamson, 1975). Tschirley and Hichaambwa attributed this opportunistic behaviour to asymmetric price information between farmers and broker. This arose because farmers (in remote areas, with limited access to market information) are often unaware of the prevailing prices of commodities on the Soweto market in Lusaka, while brokers (as the major players on the market) always have this information.

The opportunistic behaviour of brokers results in slow sales, and farmers often incur losses or obtain very little or no profit from such transactions. This has a devastating effect on small-scale farmers’ incomes and livelihoods, as they often depend on income from such activities. This directly affects the household resource allocation decisions on food and crop production for these farm households and consequently affects the sustainability of horticultural production in Zambia.

The situation described above is likely to impede the development of an otherwise viable horticultural industry. As stated by Williamson (1975), opportunistic behaviour acts as a barrier to successful market transactions between partners. In an effort to address market information challenges in Zambia, an information-sharing system that enables farmers to access price information for agricultural commodities was introduced in Zambia’s largest horticultural wholesale markets in 2014. Existing literature (for example Wathne and Heide 2000; Myhr and Nordström, 2006; Bhavnani et al., 2008) indicates that farmers’ access to price information through various systems or channels, including mobile phones, has been found to manage opportunistic behaviour and to benefit farmers in India, Uganda and Tanzania. The current study aims to offer additional evidence of the positive impact of the use of information-sharing systems which provide price information in agricultural output markets.

Based on this background, this study determines the extent to which broker opportunism (using the hidden commission charged by brokers as a proxy for opportunistic behaviour) in the tomato supply chain in Zambia is reduced by farmers’ access to price information through an information system. This has been done by addressing the following specific objectives: (i) to determine whether the use of the mobile phone information system reduced the hidden commission charged by Zambian tomato brokers since the last study in 2010; (ii) to determine if there were information spillovers of the mobile phone information-sharing system from the users to the non-users of the system; and (iii) to determine the perceptions of the users and non-users of the information-sharing system’s effect on the tomato brokerage system and broker behaviour.

Addressing these issues may ultimately help to strengthen the farmer-broker relationship by managing broker opportunism and encouraging farmer participation in horticultural markets. The study furthermore aims to contribute to the information required for policy and programmatic decisions regarding appropriate interventions to improve the performance of the domestic horticultural supply chain in Zambia. This is expected to have a significant impact in enhancing growth in Zambia's agricultural sector through increased participation of farmers in profitable agricultural markets and the effective functioning of agricultural markets.

The study is presented as follows: Section 2 provides background information about the transactions between tomato farmers and brokers, and a brief description of the information-sharing system. Section 3 describes the methods used for analysis, and the data sources. Section 4 gives results, and conclusions are drawn and recommendations made in section 5. Read more

Download SA-TIED Working Paper 18/2018