Abstract
Agricultural price distortion which is the discrepancy between world market price of agricultural produce and price received by farmers as a result of market interventions by governments, either through subsidies or taxes or even trade protection systems, has received rare attention in the cocoa and coffee sub-sectors. This study examines the contribution of mobile phone technology in reducing price distortions in cocoa and coffee production. In addition, we tested stylized facts such as the development paradox, resource abundance, and group-size effect in agricultural price distortions literature. The findings suggest that access to mobile phones reduces the extent of price distortions. The effect of mobile phone usage on the extent of price distortion, the nominal rate of assistance, and relative price margin is conditional on internet connectivity. Whereas our results support the development paradox and group-size effect hypotheses, the resource abundance hypothesis is not supported. Based on our results, policies that seek to reduce the cost of telecommunication, increase competition in the telecommunication industry, and increase economic growth would go a long way to reduce price distortion in the cocoa and coffee industries.
Highlights
The aim of this study is to analyze the determinants of agricultural price distortions with a particular focus on the role of mobile phone usage, using cocoa- and coffee-producing countries as the case study
We initially identify the driving forces of coffee and cocoa price distortions in producing countries based on price depression indices: nominal rate of assistance (NRA) and relative price margin (RPM)
Even though mobile phone usage has no significant effect on the relative price margin, the Conclusions The main purpose of this study has been to examine the effect of mobile phone usage on the extent of price distortion in the cocoa and coffee industries
Summary
The aim of this study is to analyze the determinants of agricultural price distortions with a particular focus on the role of mobile phone usage, using cocoa- and coffee-producing countries as the case study. According to Anderson (2013), agricultural price distortions are the discrepancies between world market prices of agricultural produce and prices received by farmers as a result of market interventions by governments, either through subsidies or taxes or even trade protection systems. Agricultural revenue in developing and emerging countries has been severely distorted by exogenous shocks, countries’ tax, and subsidy policies (Anderson 2013). The state of institutional quality in these countries, in addition to natural factors such as climate change and vagaries of pests and diseases, can constitute to price distortion in the agricultural sector. Small farmers in developing countries have little resilience to weather shocks making them vulnerable (Niles and Salerno 2018)
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