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FACET Brief: Using ICT to Provide Agriculture Market Price Information in Africa

FACET Brief: Using ICT to Provide Agriculture Market Price Information in Africa

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Published by Jason Wolfe
Under the FIELD-Support LWA, the Fostering Agriculture Competitiveness Employing Information Communication Technologies (FACET) project has created a series of Briefing Papers designed to help USAID missions and their implementing partners in sub-Saharan Africa use information and communications technology (ICT), through sustainable and scalable approaches, more successfully. This Briefing Paper discusses innovative ICT applications that can help provide market price information (including commodity prices by crop, market, and wholesale or retail prices) to actors within an agriculture value chain.
Under the FIELD-Support LWA, the Fostering Agriculture Competitiveness Employing Information Communication Technologies (FACET) project has created a series of Briefing Papers designed to help USAID missions and their implementing partners in sub-Saharan Africa use information and communications technology (ICT), through sustainable and scalable approaches, more successfully. This Briefing Paper discusses innovative ICT applications that can help provide market price information (including commodity prices by crop, market, and wholesale or retail prices) to actors within an agriculture value chain.

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Published by: Jason Wolfe on Jan 17, 2011
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 Using ICT to Provide Agriculture Market Price Information in Africa Last updated November 20101
BRIEFING PAPER
 
USING ICT TO PROVIDE AGRICULTURE MARKETPRICE INFORMATION IN AFRICA
INTRODUCTION
This briefing paper on ICT applicationsthat provide market price information tothose within agriculture value chains isone of a series of papers to help USAIDmissions and their implementing partnersin sub-Saharan Africa use ICT more suc-cessfully to improve the impact of theiragriculture development projects.
1
 Market price information, also known asMIS, (including commodity prices bycrop, by market, as well as wholesale andretail prices) helps actors in agriculturevalue chains make informed decisionsthat promote efficient production andtrade. It is especially valuable for pro-ducers that sell in local and regionalmarkets. Such crucial information helpsthese producers to negotiate with trad-ers, determine what markets to sell to,store their crops until prices increase, oreven plan future crops.Companies interested in providing mar-ket price information services face chal-lenges—upfront investment costs can behigh and on-going expenses can be signif-icant to keep information updated bytrusted enumerators for timely and ac-curate commercial prices. A companythat depends on individual subscriptionsor transaction fees may lose money be-cause individual users can easily sharethe information. It is critical for the ser-vice provider to select a business modelto allow it to break even or, ideally,make a profit so the service can sustainitself and be scaled to 1,000s if not100,000s of farmers. Governments may
1
ICT means information and communicationstechnologies including cell phone and Internetservices, radio, and a wide range of digitaldevices and related tools including cameras,GIS, and a wide range of hand-held computingdevices.
choose to subsidize the service—or thebasic service for certain users—and oth-er services may be offered on a fee basis.Development organizations can and dowork with companies to share the risksand development costs of such servicesand adapt their business models to makethem sustainable and scalable.
USING CELL PHONESALONE
Before focusing on ICT applications thatcan make market price information easi-er to obtain, it is important to under-stand the potential of cell phone com-munication by itself as an effective meansfor producers and traders to learn mar-ket prices. Although some subscription-based market information services canbe more efficient, it is important to un-derstand the impact of an “organic” ap-proach for producers, traders, and othermarket actors to receive market infor-mation, especially given how elusive sus-tainable and scalable business models forsubscription services have been in sub-Saharan Africa to date.Several documented examples exist of the impact of traders and farmers simplyusing mobile phone technologies on theirown to exchange price information. InKerala, India, a study found that mobilephone coverage alone led to significantmarket efficiencies: the difference inprices across markets declined, as didwaste; fishermen’s profits increased by 9percent and consumer prices declined by4 percent.
2
 
2
Jensen, Robert T., 
In Niger, a similar 2010study of the effect of mobile phone ser-vice penetration on grain prices found
Quarterly Journal of Economics,
122(3):879-924, (2007)
reduced market price dispersion acrossmarkets by 10 percent
 
.
3
The Japan International CooperationAgency (JICA) conducted a similar studyof the banana market in 2009 and foundthat as mobile phone markets expandedtheir coverage in Uganda, informationflows rose and banana farmers— especially those furthest from markets— began participating more in markets andtheir profits increased by 10 percent.The study alsofound that grain traders began trading inmore markets once they had cell phones,had more market contacts, and theirprofits increased by 29 percent.
4
 
In short, there are several studies show-ing that mobile phone service coveragealone can have significant impacts onmarket efficiencies, a finding to remem-ber as donors consider subsidizing moreformal market information systems.
TYPES OF MARKET IN-FORMATION SERVICES
Examples of market price informationservices are presented in four categories,according to the type of provider: 1)mobile network operators, 2) third-partyservice providers, and 3) buyers provid-ing market and price information to pro-ducers, and 4) MIS services offered bygovernments. See the box on the fol-lowing page for some key prerequisitesacross provider type.
3
CGDWorking Paper 211
(2010)
4
World Development 
(2009)
 
 Using ICT to Provide Agriculture Market Price Information in Africa Last updated November 20102
Some Key Prerequisites
for scal-able and sustainable market priceinformation services include:
 
One or more service providercompanies with a large numberof subscribers in rural areas anda willingness to invest in newproducts and services. It maybe that a partnership with amobile network operator (e.g.,a cell phone service provider)can be helpful given the opera-tor can use this value addedservice to reach new customersor reduce customer “churn”(e.g., customers switching be-tween networks).
 
A network of trusted marketprice enumerators to provideaccurate and up-to-date com-mercial prices for the most im-portant commodities in keymarkets. This calls for an on-going system to spot check thevalidity of the prices by inde-pendent sources.
 
A way to regularly validate thatusers are actually finding theservice
valuable
to help themincrease their incomes or re-duce costs (or whatever otherimpact metric is chosen). Mea-suring value will help serviceproviders hone the service tothe most important markets,commodities, and price types(e.g., wholesale, retail).
 
A business model that enableservices to sustain themselvesand grow either through cus-tomer fees or on-going subsi-dies from government or frombusinesses (e.g., in exchange foradvertising).
 
A subsidy from governmentmay also be helpful for startupcosts, on-going operations orfor a specific level of service(e.g., SMS queries) or for a setof target users (e.g., in a specificarea or for specific commodi-ties). Higher end services (e.g.,“pushing” prices for certainmarkets or commodities tosubscribers based on profiles)could be on a fee basis.
1. Mobile network operators(MNOs).
Given MIS is provided via cellphone, MNO’s are always involvedsomehow in provision of MIS (and arelikely partners to any service provider),but sometimes they are the primary ser-vice providers themselves. With strongcompetition for market share, MNOs insub-Saharan Africa seek a variety of val-ue-added services to attract customers;increase the minutes they buy; and re-duce market “churn” (customers chang-ing MNOs). Some MNOs offer servicesthat allow farmers, traders, and otherusers to receive price alerts, weatherand crop information. This information isaccessed on a mobile phone in the formof interactive voice recognition (IVR),short message service (SMS), wirelessapplication protocol (WAP) browsing,and Web-based Internet browsing. Userspay a fee for service to their mobilephone provider. Internet browsing is on-ly available on higher end mobile handsets and more advanced networks (andoften not in rural areas) making SMS-based services the most accessible andpopular today.CellBazaar is an example of an MNOthat offers market information servicesin Bangladesh. It provides a mobilephone-based “virtual marketplace” thatallows Grameenphone users to buy andsell any number of goods (including agri-cultural products) and access marketprice information through IVR, SMS,WAP, and the Web. The company gene-rates direct revenues through its SMS,WAP browsing and IVR fees, and indi-rect revenues from phone calls made tocomplete transactions. One of CellBa-zaar’s key challenges is to teach their ru-ral customers to use mobile phones. Todo this the company has partnered withKatalyst, a local market developmentproject, to assist with the growth of mo-bile phone telephony for small and me-dium enterprises.
5
 
5
Quadir, Kamal and Naeem Mohaiemen,
 Other examples of MNO services in-clude instances where MNOs have part-nered with their governments or otherorganizations to provide the service, in-cluding:
 MIT Innovations Case Study 
( 2009)
 
A partnership among Vodacom, theGovernment of Tanzania and the In-ternational Fund for Agriculture De-velopment (IFAD) for farmers andtraders to access the latest com-modity prices via SMS
6
 
 
A similar collaboration among mo-bile phone company Celtel (nowZain), the Zambia National FarmersUnion, and IFAD to provide com-modity prices to farmers via SMS
7
 It is not yet clear if these examples willbe sustainable without ongoing donorsupport.
2. Third-party providers of marketinformation services.
Some compa-nies are taking advantage of increasingmobile phone penetration in developingcountries to develop ICT solutions tar-geted at customers working in agricul-ture value chains. These companies work through mobile phone networks and In-ternet service providers to offer an arrayof services that allow producers, traders,and others to get up-to-date price in-formation, weather alerts, and other in-formation. The information they providecan be accessed via mobile phone tele-phony (voice, SMS, WAP) and Internetportals.Although there are several examples of third party market information servicesin sub-Saharan Africa, perhaps the twomost prominent are Esoko and Manobi,which both have affiliations with USAID-funded programs and are still working todevelop viable business models..Esoko (formerly TradeNet) began in2005 with funding from USAID/WestAfrica’s MISTOWA project.
8
 
6
 
A for-profitprivate company with private investors(as well as the IFC), Esoko has substan-tially enhanced its technical platform,services offered, and business model and
Inventory of Innovative Farmer AdvisoryServices Using ICT,” Forum for AgriculturalResearch in Africa (February 2009)
7
 Trading Commodities via SMS,IFAD Ru- ral Poverty Portal.
8
 AllBusiness
(May 1, 2009)
 
 Using ICT to Provide Agriculture Market Price Information in Africa Last updated November 20103
is providing services based on a tieredfranchise/subscriber model to severalcountries in sub-Saharan Africa andworks with several USAID projects in-cluding projects in Ghana, Burkina Faso,Cote d’Ivoire, Malawi. The company of-fers three tiers of services: 1) pricealerts via SMS, 2) the ability for users(e.g., a livestock association) to relay in-formation on prices, transport, inputavailability and more via SMS, and 3) theability of users to develop managementinformation systems for their operations.Esoko also offers trade-related Web siteoptions for customers. It has also justbegun offering an inventory managementservice and a service to buyers to helpthem manage their suppliers. This mixof related services for traders and pro-ducers as well as large buyers may pro-vide Esoko with a solid business modelto reach the scale it is targeting. Esokoemploys both system developers for thetechnology platform and field agents whotrack and submit prices and recruit sub-scribers. Esoko estimates that it re-quires 10,000 subscribers overall and2,000 subscribers in any given country tobe profitable. Though the long-termcommercial viability of Esoko’s businessmodel is not yet proven, it is showingpromise.Although there have been no widespreadstudies of the value and impact of Eso-ko’s service, it has done some targetedsurveys of farmer users who have re-ported being able to negotiate moreconfidently their selling prices and sellingtheir harvests in more distant markets—  just the outcomes development agenciesusually seek.Like Esoko, Manobi is a private for-profitcompany that has evolved its services,software platform, and business modelover several years in an attempt to find asustainable, scalable, and hence, profita-ble approach.
9
 
9
It has had funding fromvarious donor projects as well. Manobiprovides basic SMS-based market infor-mation systems for farmers for free. It isalso targeting large buyers, has workedon partnerships with a cell phone pro-
 African Economic Outlook
(2009)
vider (Sonatel), and has developed ascheme for cards for farmers with theirplots measured by GPS, as well as tra-ceability services to meet internationalrequirements.Reuters Market Light is another serviceprovided by a private sector company,Reuters Group, in India. It allows far-mers to access commodity prices, crop,and weather information via mobilephones. Farmers pay approximately $5per quarter for a subscription to theservice. There are currently more than75,000 subscribers. Since the launch of this service in 2007 there have beenmore than 250,000 cumulative subscrib-ers.
Reuters employs several hundredcontent professionals who provide dataon crops, markets, and weather informa-tion. Reuters expects that that it maytake a few more years before the com-pany breaks even with this service.
Google launched a third party marketinformation service model in Uganda in2009. Google Trader, in which Googlehas partnered with telecom companyMTN (with initial support from theGrameen Foundation), is an internetplatform and SMS service that helpsUgandan farmers and traders to buy andsell goods. 
Although the cost of anormal SMS message is 110 shillings($0.05), it costs 220 shillings to send andreceive messages using Google Trader.
 
10
Case Study: 
It is not yet clear if Google Trader willbe sustainable without ongoing donorsupport. It is not a price information ser-vice per se, but does aim to offer a far-mer more information about marketsand more opportunities to sell products.
Business in the Community 
(July2010)
11
Watblog 
(Nov. 18,2009)
 Microfinance Focus
(July 2,2009)
13
The Economist (Sept 24,2009)
 
3. Buyers that provide market andprice information to producers.
Anumber of private buyers and exportersof agricultural products have begun in-vesting in Internet applications that allowfarmers to access market informationusing their cell phones and from villageWeb kiosks. This information includescommodity prices being offered by thecompany, weather, recommended farm-ing techniques, as well inputs and othergoods that are available for sale. Buyershave found that directly providing thisinformation to producers can help them:1) buy needed commodities, 2) achievebetter quality production, and 3) en-hance a market for products and servic-es they might offer.This category of market information ser-vice is the most likely to be sustainableand scalable because buyers are fundingit themselves and have the built-in busi-ness discipline of providing only thoseservices that accrue benefits to them andtheir suppliers. However, given thatthese services are provided by one largebuyer in each case, they do not usuallyoffer a wide array of market price infor-mation for farmers.e-Choupal in India is perhaps the oldestexample of a buyer providing ICT-enabled market information service, inthis case by ITC, an international agribu-siness company.
 
14
World Resources Institute, 
ITC began this servicein 2000 to provide transparent price in-formation to farmers and to educatefarmers regarding better seeds and in-puts (which it then sells to them). Thesystem is a network of simple Internetkiosks in thousands of Indian villages(currently 6,500 across 10 states). ITCis steadily expanding its services and us-ing its “channel” to farmers to sell re-lated services, such as selling weatherinsurance. The service provides pricesfrom two sources: ITC itself and theclosest one or two government-mandated “mandis” or marketplaces.ITC finds it worthwhile to provide thisinformation because it benefits fromlower net cost of procurement and high-er quality products (because better in-puts are used). Farmers benefit becausethey increase productivity and receive

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