Agricultural Factor Markets in Sub-Saharan Africa: Market Failures Analysis

Updated research examines land and labor market participation in Ethiopia, Malawi, Niger, Tanzania, and Uganda. Despite active markets, evidence shows widespread market failures across countries. Further investigation is needed to identify failing markets and underlying causes.

• Sub-Saharan Africa
• Market Failures
• Agricultural Factor Markets
• Land Market
• Labor Market

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1. Agricultural Factor Markets in Sub- Saharan Africa: An Updated View with Formal Tests for Market Failure Brian Dillon and Christopher B. Barrett Washington, 15 June 2015 A G R I C U L T U R E I N A F R I C A TELLING FACTS F R O M M Y T H S

2. MOTIVATION Core objectives and findings 1. Provide a summary overview of land and labor market participation in Ethiopia, Malawi, Niger, Tanzania, and Uganda 2. Implement a simple test of market failures in data from five African countries (testing whether the separation hypothesis holds) Main findings: In spite of widespread participation in rural land and labor markets, we strongly reject the null hypothesis of complete and competitive markets in all study countries both input market participation and failure are widespread. Page 2

3. LABOR MARKETS EXIST AND ARE GENERALLY ACTIVE Percent of agricultural households hiring labor Number of households 3091 2666 2666 2605 2605 2605 2339 2339 2339 2339 2630 2630 2630 2630 2630 2109 Percent hiring workers 18.5% 20.9% 30.2% 32.6% 16.0% 42.0% 19.5% 37.4% 18.6% 47.8% 18.5% 18.9% 2.6% 16.0% 30.8% 46.8% Country Activity Ethiopia Cultivation Harvest Overall Non-harvest Harvest Overall Preparation Cultivation Harvest Overall Planting Weeding Fertilizing Harvest Overall Overall Malawi Niger Tanzania Uganda Page 3

4. LAND MARKETS EXIST AND ARE ACTIVE TOO Participation in land rental markets Ethiopia 3094 Malawi 2666 Niger 2339 Tanzania 2630 Uganda 2135 N Household rents land out 6.10% 0.90% 1.20% 3.40% 0.40% Household rents land in 19.50% 13.10% 7.30% 6.20% 18.10% Household rents or borrows land in 30.30% 28.40% 27.70% 23.20% 36.60% Clearly rural SSA markets have sufficient transactors to be competitive. But adequate transactional density is merely a necessary condition for the separation hypothesis to hold. Page 4

5. THERE IS CLEAR EVIDENCE OF MARKET FAILURES IN ALL COUNTRIES AND ACROSS MULTIPLE SPECIFICATIONS Tests for market failure OLS regression results of farm labor use Ethiopia Malawi 0.489*** 0.528*** -0.04 -0.048 0.036 -0.121** -0.051 -0.052 0.379*** 0.399*** -0.055 -0.061 0.33 0.278 2499 2556 Niger 0.343*** -0.026 -0.155 -0.107 0.635*** -0.061 0.301 2183 Tanzania 0.444*** -0.027 -0.077 -0.065 0.399*** -0.043 0.321 2346 Uganda 0.379*** -0.033 0.012 -0.043 0.211*** -0.044 0.312 2047 Log area (acres) Log median wage Log HH size R-squared N But it s not clear which markets are failing (next step), nor why (search, supervision or transactions costs?). That s the next phase of research Page 5

6. Thank you for your time, interest and insights Page 6