At first glance, African smallholder farmers might seem unproductive, as their crops yield much less than potential and are often of variable quality. A new PIM-supported book “African Farmers, Value Chains, and Agricultural Development” argues that in fact they are largely producing following rational economic decisions, and that this situation is a consequence of the economic and institutional environment in which they produce. The authors Alan de Brauw and Erwin Bulte discuss ways that different types of transaction costs limit their market opportunities in general, including transport costs but also costs related to different sources of risks, trust, market power, liquidity, and even storage. The presence of high transaction costs limits the ability of farmers to market their surplus, hence reducing their incentives to produce. The authors discuss several types of costs in detail, including problems related to input and output markets, certification of quality products, and issues with storage. They then critique several “solutions” that are often discussed to help lower transaction costs, before offering some of their own recommendations, noting that the application of any recommendations must take local context into account.
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