Does social network capital buy higher agricultural prices? A case of coffee in Masaka district, Uganda

Abstract

Purpose – The purpose of this paper is to investigate how social network capital may facilitate agricultural household market access in Uganda. Specifically, the paper investigates if social network capital has significant positive effects on the ability of households to receive higher prices for coffee. Design/methodology/approach – In this paper, social network capital is modeled using a household utility maximisation problem that is dependent on consumption and social interactions. The authors assume that social network capital mediates economic benefits through its effect on information flow, market intelligence and collective bargaining. The paper uses two-stage least square econometric methods to investigate whether group involvement at the household level helps farmers to access markets with higher prices. Findings – The findings indicate that social network capital, measured in form of density of participation and attendance score, and multiplicative and additive indices of these, have significant positive effects on the ability to receive higher prices for coffee. Research limitations/implications – The authors realise that several weaknesses in the approach could compromise the validity of the findings. These weaknesses include: the cross-sectional nature of the data, the omitted variable bias, the endogeneity concerns of social capital, sample size and the dimensions that the paper choses to capture social network capital. Future research should explore the factors that can help households to engage more in group activities. Practical implications – The findings have important implications for government policy especially in areas of agricultural development and poverty reduction. Specifically, governments should pay close attention to various social groups as they can serve as important channels to achieve better market outcomes, as is the for coffee prices in rural Uganda. Social implications – Many governments in Sub Saharan Africa are constrained to provide basic public goods to the people. This is due to a combination of limited budgets and lack of good leadership. In such circumstances, the people have to rely on their collective/social effort to take advantage of markets opportunities. Such opportunities can be accessed using the existing social structures whose norms and the trust between members permit cooperation. Originality/value – The study contributes to a small but growing empirical literature on social groups and how they can mediate social economic outcomes especially for rural households. The empirical estimations take into consideration the endogeinety concerns associated with social network capital. The paper will be useful for policy makers and researchers who may have a keen interest in the roles that group activities play in agricultural development and poverty reduction.