 

if;
161
.

. (1
. .1 .J;
. .

..

a. .: 1...};
.1 f. :1};
.114 1. > . z

3.1...
u . . . Z Y.

 

s
‘ .7: v:
z. a a a (I.
1:5) a!
4r
v (I)? :.
ff.

.3:
:4 . .a . 1..
)ri.r;3.r.

3 1.1.;
5.15).» . .:

 

. 5 . a
.: . . 4.121..
77.1% .3

      

‘ .3: , £55“
x.$‘$ALJ,J$£$5.
3...?! . . . . ..

 

 

If: .0):
0.- :,zl.rly.|vri.n
.1 T3.» ; v ..

 

 

 

 

 

 

 

E UNIVERSITY LIBRARIES

IIIIIIIIIIIIIIIIIII lllll lllll I
31293 0

0 791 4538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ll

 

LIBRARY
Michigan State
Unlverslty

 

 

 

This is to certify that the
thesis entitled
TRANSFER COSTS OF CEREALS MARKETING
IN MALI
presented by

Elani Zaude Gabre—Madhin

has been accepted towards fulfillment
of the requirements for

Masters Science

degree in

”/4
ohn M. Staatz
K/

Major professor

  
 

Date March 16, 1992

0—7539 MSUis an Ammnr-‘w ‘ ' 1 W ', Institution

 

PLACE IN RETURN BOX to remove this checkout from your record.
TO AVOID FINES return on or before date due.

‘ DATE DUE DATE DUE DATE DUE
awe 1995‘ ll ‘

Jiml 3 “(MI
I l

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MSU Is An Affirmative Action/E quel Opportunity Institution
. c:\cIrc\d¢edue.pm3-p.'

TRANSFER COSTS OF CEREALS MARKETING IN MALI
Implications for Mali’s Regional Trade in West Africa

by

Eleni Zaude Gabre-Madhin

A MASTERS THESIS

Submitted to
Michigan State University
in partial fulﬁllment of the requirements for
the degree of
MASTER OF SCIENCE
Department of Agricultural Economics

1991

ABSTRACT

TRANSFER COSTS OF CEREALS MARKETING IN MALI
Implications for Mali’s Regional Trade in West Africa

By

Eleni Zaude Gabre-Madhin

This study explores the links between marketing and trade policy and the
performance of cereals markets in Mali, with the view that Mali’s competitiveness in external
markets is inﬂuenced by. domestic market integration. The study’s objectives are to measure
and analyze transfer costs of marketing; to assess market integration; and to draw
implications of market integration for regional trade ﬂows.

The methodology used applies a Situatibn-Structure-Performance paradigm to
describe markets; decomposes and compares transfer costs to spatial margins; and models
market integration by linking spatial margins, costs, and flows. _-.—

The descriptive analysis revealed that two circuits out of eight exhibited non-
equilibrium conditions. In the cost analysis, transport represented 72% of total costs for both
vehicle owners and non-owners, while market coordination costs represented 23% of total
costs for vehicle owners. The share of fixed costs for the sample was less than 30%.

The simultaneous modelling of margins, costs, and ﬂows indicated that margins and
ﬂows are positively related; costs have an important impact on margins and are subject to
signiﬁcant economies of distance; and, margins are subject to seasonal trends,

The extension of these results for Mali’s trade patterns are that Mali’s regional
exports link interior production to border zones; major trade ﬂows occured along circuits
with very low net margins; the discrepancy between ofﬁcially registered exports and observed
informal ﬂows to Mauritania lead to questions why these clandestine operations persist

despite export liberalization policy at the national level.

To

Bizuwork Bekele,
my mother
whose great love sustains

and

Zaude Gabre-Madhin,
my father
whose vision of Africa inspires

ACKNOWLEDGEMENTS

In Ethiopia, it is said that a single piece of wood cannot make a ﬁre. In the
same way, this study would not “burn" without the joint efforts of a great number of
individuals as well as several institutions.

This research was made possible by the cooperation of three institutions:
International Food Policy Research Institute (Washington,DC), Systeme d’Information
des Marches of the Office des Produits Agricoles du Mali (Bamako, Mali), and Michigan
State University (East Lansing, Michigan).

I would like to thank foremost Dr. Christopher L. Delgado, Research Fellow and
Co-coordinator of African research at IFPRI for his vision and willingness to engage in a
first time cooperation of this nature. While this study owes its existence to the ﬁnancial
and institutional support provided by IFPRI, I am personally indebted to Chris Delgado
for his belief in my capacities, for lessons learned in commitment to research excellence,
and for his unwavering guidance.

It is difﬁcult to express the admiration and gratitude I have for Dr. John Staatz,
my major professor and thesis supervisor at Michigan State University. Since the time I
ﬁrst arrived at MSU, John Staatz has inspired me with his keen sensitivity to African
agricultural economics, his respect for humanity, his great capacity to dissect issues, and
his ability to get yet another draft from me.

I also extend my appreciation to Dr. A. Allan Schmid for his incisive comments
on drafts of this thesis, as well as Dr. Carl Liedholm, both members of my thesis
committee. I also thank Dr. Carl Eicher for his insightful advice over the course of my
degree program and my thesis research.

The third and most vital link in this joint research effort was that provided by the
Systeme d’Information des Marches (SIM) within the Office des Produits Agricoles du
Mali (OPAM). I sincerely thank the President Director General of OPAM, Dr.
Abdoulaye Sall, for his enthusiasm in this research project and his logistical support for
the ﬁeld surveys by enabling ready access to SIM vehicles as well as other OPAM
facilities. My colleagues at SIM deserve much credit for the outcome of this research
and I am very indebted to Salifou Diarra and Aguissa Maiga, chef de division SIM and
chef adjoint, respectively, whose dynamism and commitment to Malian cereals marketing
research translated into the timely and successful completion of our joint research. I
thank them, as well as Francis Keita, Ely Diarra, Abou Diarra, Abdramane Traore, and
Kader Sanankoua for their help as well as the many lessons in Malian culture and
history.

I would also like to sincerely thank Dr. Josue Dione and Niama Nango Dembelé,
both experts of Malian cereals economy, for their advice and friendship throughout my .
stay in Mali. I also thank Philip Steffen and Victoire d’Agostino for sharing lessons
learned in Mali.

iv

Some of the many friends and colleagues who contributed to my work in Mali
and whom I would like to recognize are:

Mme. Konare of the Direction Nationale des Affaires Economiques; Tracy Atwood,
David Atwood, and Reid Whitlock of USAID / Mali; Marcel Monette, Many Camara, and
Sidi G. Diallo of ACDI / Mali; Marcus Matthews; Dietrich Wohlers; Andreas Kempas, for
whose computer wizardry and long hours of help I am very grateful; as well as my good
friends Aissata Sylla, Awa Sylla, and Fatou Touré.

At IFPRI, I would also like to thank Nancy Waltzak, Andy Orlin, Matt de Vol,
and Josie Cabahug for their logistical support. Others at IFPRI whose encouragement
and friendship I am grateful for are Uday Mohan, Cynthia Donovan, Suman Rustagi,
Rajul Pandya-Lorch, Yisgedullish Amde, Harold Alderman, and Peter Tatian.

At Michigan State University, I would also like to thank Calea Coscarelli, Sherri
Rich, and Janet Munn for their logistical support, as well as Kim Aldridge, Larry Rubey,
Lisa Schwartz, Martha Sullins, and Mulugeta Mekuria for their warm support. I am
also deeply grateful to Woizero Almaz Zewde, Makda Fisseha, Haeran Fisseha, and
Yonas F isseha for their love and support in this period. Tewodros Aklilu, Wuleta
Betemariam, and Daniel Teshome have been with me throughout my entire program and
I will never forget what their friendship means.

Finally, there are two people whose presence in my life, whose belief in my
dreams, and whose contribution to my goals have certainly gone beyond the call of family
duty or friendship. I thank my sister, Seble Z. Gabre-Madhin and my friend, Andenet T.
Ras-Work, from the bottom of my heart. You made the difference.

TABLE OF CONTENTS
LIST OF TABLES ...................................................
LIST OF FIGURES ..................................................

I INTRODUCTION ..................................................
1.1 Problem Setting ............................................

1.1.1 ObjectivesofStudy ..............

1.1.2 General Hypotheses ..................................

1.2 The Malian Cereals Economy ..................................

1.3 Marketing and Trade Policy ...................................

11 REGIONAL TRADE, MARKET INTEGRATION, AND TRANSACTIONS
COSTS .....................................................
2.1 Trade: The Engine of Growth ................................
2.2 Regional Economic Integration ................................
2.3 Regional Economic Integration in West Africa ....................

2.3.2 Determinants of Regional Trade in West Africa ............
2.3.3 Measures of Regional Trade in West Africa ...............
2.3.4 Summary of West African Case ........................
2.4 Marketing Theory ..........................................
2.4.1 Determinants of Marketing Efﬁciency ...................
2.4.2 Tests of Marketing Efﬁciency ..........................
2.4.3 Institutional Approaches ..............................
2.4.4 Transfer Costs Analysis and Market Efficiency .............
2.5 Domestic Marketing in Africa .................................
2.5.1 Criteria for Market Performance .......................
2.5.2 Measures of Market Performance in Mali ................
2.6 A Conceptual Framework of Analysis ...........................

III SURVEY METHODOLOGY AND DATA COLLECTION ................
3.1 Identiﬁcation of ”Axes Céréaliers" ..............................
3.1.1 The Components of the Market Axis ....................

3.1.2 Typology of Cereals Markets ..........................

3.1.3 Description of Cereals Marketing Axes ...................

3.2 Market Prices .............................................
3.2.1 Survey Methodology and Sample .......................

3.3 Transfer Costs .............................................
' 3.3.1 Survey Methodology .................................
3.3.2 The Questionnaire ..................................

3.3.3 The Sample ........................................

IV SITUATION, STRUCTURE, AND PERFORMANCE OF CEREALS
MARKETING ................................................
4.1 Methodology of Analysis: The Subsector Approach .................
4.2 Situation By Administrative Circle .............................
4.2.1 Kita Circle ........................................

15
16
18
21
22
24
26
26
28
31
33
34
34

37

39
39
39
42
43
45
45
46
46
47
48

49
49
54
54

N.
am:- innit

 

4.2.2 Kayes Circle ....................................... 56

4.2.3 Nara Circle ........................................ 57

4.2.5 Kolokani Circle ..................................... 59

4.2.6 Koutiala Circle ..................................... 60

4.2.7 Comparative View of Three Axes ....................... 61

4.3 Market Structure ........................................... 62
4.3.1 Badinko .......................................... 62

4.3.2 Kita ............................................. 63

4.3.3 Kayes ............................................ 64

4.3.4 Kolokani .......................................... 64

4.3.6 Koutiala .......................................... 67

4.3.7 Bamako .......................................... 68

4.3.8 Comparative View of Three Axes ....................... 69

4.4 Market Performance ........................................ 69
4.4.1 Market Volumes .............. . ...................... 69

4.4.2 Storage Capacity .................................... 73

4.4.3 Means of Transport ................................. 74

4.4.4 Price Trends ....................................... 76

4.4.4.1 Producer Prices ............................. 76

4.4.4.2 Wholesale Prices ............................. 76

4.4.5 Transfer costs ...................................... 80

4.4.5.1 Variable Costs .............................. 81

4.4.5.2 Fixed Costs ................................. 84

4.4.5.3 The Opportunity Cost of Capital ................ 85

4.5 Comparison of Market Performance by Axis ...................... 87
V SPATIAL MARKETING MARGINS AND TRANSFER COSTS ............ 89
5.1 Spatial Margins by Circuit .................................... 92
5.2 Transfer Costs ............................................. 97
5.2.1 Transfer Costs by Circuit ............................. 99

5.2.2 Fixed vs. Variable Costs .............................. 101

5.2.3 Transfer Costs by Vehicle Ownership .................... 101

5.2.4 Composition of Transfer Costs ......................... 102

5.3 Comparison between Spatial Margins and Transfer Costs by Circuit . . . . 106

VI AN ANALYSIS OF FACTORS INFLUENCING GROSS SPATIAL

MARGINS .................................................. 111
6.1 The Model ............................................... 114
6.1.1 The Data ......................................... 115

6.1.2 Estimation Techniques ............................... 116

6.1.3 Choice of Instrumental Variables ....................... 117

6.2 Summary and Interpretation of Results .......................... 119
6.2.1 Summary of Results ................................. 119

6.2.2 Direct and Indirect Impacts on Margins .................. 125

VII IMPLICATIONS OF MARGIN ANALYSIS FOR REGIONAL TRADE ..... 130
7.1 Mali’s Present Trade Patterns ................................. 130
7.1.1 Officially Registered vs. Informal Exports ................. 131

vii

 

7.1.2 Comparison of Recorded and Informal Exports to

Mauritania ....................................... 134

7.1.3 Domestic Marketing and Regional Exports ................ 135

7.2 A Comparison of Net Margins by Axis .......................... 137

7.3 Does Policy Matter? ........................................ 138

7.4 Lessons and Issues for Further Research ........................ 143
BIBLIOGRAPPHY .................................................. 149

viii

LIST OF TABLES

TABLE 1.1. Comparison of Mali’s Food Production and Instability with CEAO

Member Countries .............................................. 6
TABLE 3.1. Number of Respondents by Market ........................... 48
TABLE 4.1. Cereals Production in 1989-90 by Circle (tons) ................... 57
TABLE 4.2. Cereals Surplus in 1989-90 by Circle (tons) ..................... 57
TABLE 4.3. Non-Cereal Crop Production in 1989-90 (tons) .................. 60
TABLE 4.4. Cereals Purchases by Village Associations in 1989-90 by Circle

(tons) ....................................................... 61
TABLE 4.5. The Economic Actors by Market ............................. 65
TABLE 4.6. Selected Indicators of Performance by Market ................... 71
TABLE 4.7. Vehicle Rental Rates by Circuit (FCFA/ kg) .................... 81
TABLE 4.8. Variable Transfer Costs by Trader (FCFA/ kg (CV)) .............. 83
TABLE 4.9. Fixed Transfer Costs by Trader ( ’000 F CPA/year (CV )) .......... 85
TABLE 4.10. The Opportunity Cost of Capital in 1989-90 (FCFA/KG) .......... 86
TABLE 5.1. Stability of Spatial Gross Margins ............................. 92
TABLE 5.2. Transfer Costs Per Kilometer ................................ 100
TABLE 6.1. Two Stage Least Squares Regression Equation 1 ................. 120
TABLE 6.2. Two Stage Least Squares Regression Equation 2 ................. 121
TABLE 6.3. Two Stage Least Squares Equation 3 .......................... 122
TABLE 7.1. Officially Registered Export Intentions March 1989 - July 1990 ...... 131
TABLE 7.2. Comparison of Registered and Informal Exports to Mauritania ...... 134
TABLE 7.3. Average Net Spatial Margins by Axis (FCFA/KG) ................ 139

ix

LIST OF FIGURES

Figure 2.1 Conceptual Framework of Regional Trade, Domestic Marketing, and
Transfer Costs ................................................ 14
Figure 3.1 Map of Mali .............................................. 41
. Figure 3.2 Typology of Cereals Markets in 1989-90 ......................... 42
Figure 3.3 Cereal Marketing Axes ...................................... 43
Figure 4.1 Situation - Structure ~ Performance ............................. 53
Figure 4.2 Producer Prices for Millet and Sorghum: Badinko and Zangasso . . . .. . . 77
Figure 4.3 Wholesale Prices for Millet and Sorghum: Badinko, Kayes, Kita ...... 78
Figure 4.4 Wholesale Prices for Millet and Sorghum: Kolokani, Koutiala, Nara . . . 79
Figure 5.1 Price Trends for Millet: Kolokani, Nara, and Bamako .............. 90
Figure 5.2 Price Trends for Sorghum: Kolokani, Nara, and Bamako ............ 90
Figure 5.3 Price Trends for Millet: Badinko, Kita, Kayes, Bamako ............. 91
Figure 5.4 Price Trends for Sorghum: Badinko, Kita, Kayes, Bamako ........... 91
Figure 5.5 Price Trends for Millet: Koutiala, Zangasso, and Bamako ........... 93
Figure 5.6 Price Trends for Sorghum, Koutiala, Zangasso, and Bamako .......... 93
Figure 5.7 Spatial Margins - Millet/Sorghum by Axis ........................ 94
Figure 5.8 Transfer Costs Per Kg by Axis ................................. 102
Figure 5.9 Fixed and Variable Transactions Costs .......................... 103
Figure 5.10 Composition of Transfer Costs - Vehicle Non-Owners ............. 105
Figure 5.11 Composition of Transfer Costs - Vehicle Owners ................. 106
Figure 5.12 Comparison - Margins and Costs by Axis ....................... 107

CHAPTER I
INTRODUCTION
1.1 Problem Setting

The past decade has been marked by a slowly emerging consensus among
Sahelian policymakers and researchers that, beyond individual market reforms, a regional
approach vis-a-vis the long-term competitiveness of Sahelian agriculture must be deﬁned.
Various regional conferences have debated the potential for stimulating production and
enhancing food security through concerted efforts to integrate Sahelian and coastal
economies, to harmonize marketing and trade policies, and to invest in regional
cooperation schemes.

The concern for a long-term perspective of a regional cereals policy in the Sahel
is motivated by the past two decades in which this region has experienced chronic and
severe food insecurity, as well as by often-stated objectives of African governments to
promote regional cooperation and trade (Lagos Plan of Action, 1981). Moreover, policy
debates have recently focussed on the issues of the underlying competitiveness of
Sahelian agriculture (Gentil and Ledoux, 1989; Shapiro and Berg, 1989), the performance
of domestic markets in the wake of reform (Staatz, Dione, and Dembélé, 1989), the
controversial questions of an across-the-board devaluation of the CFA franc, and the
potential for a protected cereals "space” in West Africa (Egg, 1989; Coste, 1989).

Within this context, this study is an attempt to explore the linkages between these
macro-level policy issues and the micro-level performance of cereals marketing in a
particular Sahelian country, Mali. Speciﬁcally, the study investigates the impact of

transfer costs in cereals marketing on domestic market integration, at a national level,

'iﬁ'ﬁi‘lﬁ’i'
n A..- -

2
and the implications of domestic market integration on Mali’s actual and potential trade
ﬂows, at a regional level.

This analysis contributes to the above policy discussion by adopting the approach
that the underlying determinants of Mali’s competitiveness in external markets are in
fact linked to the factors which inﬂuence cereals marketing within Mali. The markets
chosen for this analysis are those directly relevant or implicated in Mali’s trade in the
region.

The institutional context of this study involves the International Food Policy
Research Institute, the Office des Produits Agricoles du Mali, and Michigan State
University. In particular, the study draws on primary data on transfer costs and market
characteristics collected between May and July 1990, data on market prices collected by
the Systeme d’Information des Marches (SIM), and extensive marketing research carried
out by Michigan State University, in collaboration with the Malian Food Strategy
Commission (CESA), in Mali since 1985.

1.1.1 Objectives of Study

The speciﬁc objectives of this study are:

(a) to measure and decompose the transfer costs of marketing cereah
between key trading points in Mali. Transfer costs are deﬁned within two

categories. One subset are costs attributed to the physical transfer aspect
of marketing, and are thus determined by the physical or technological
relationships in the marketing process. These costs comprise transport,
assembly, handling, storage, and physical losses. The second subset of
transfer costs are those related to existing "exchange" or ”coordination”
relationships within the market structure. These costs include regulation,
information, barriers to entry and exit, among others.

(b) to evaluate market integration along certain marketing channels, which
are chosen with regard to their importance both in the domestic as well as

the regional market. This is particularly important in that the "integration
of markets is a necessary condition for a valid aggregation of demand and
supply schedules commonly used in price policy analysis" (Ahmed and
Rustagi,1985). The evaluation of integration involves the measurement of

(C)

(d)

3

spatial and temporal price differentials, which are perceived as reﬂections
of market structure and efﬁciency (Ahmed and Rustagi,1985).

to link measured transfer costs with market integzation. The structure
and level of transfer costs have an important impact on the

competitiveness of markets. From a national perspective, transport costs
help determine a country’s comparative advantage, especially for bulky
staples with low production costs and high transport costs per unit
(Koester, 1986).

to assess the impact of domestic market integgation on regional trade,

where domestic markets are evaluated through the joint analysis of spatial
equilibria and levels of transfer costs.

1.1.2 General Hypotheses

Within the context of the above objectives, the analysis will focus 'on three

testable hypotheses, drawn from the extensive literature on marketing, transfer costs, and

trade theory.

Hypothesis 1: The structure of transfer costs varies by circuit and affects market
integration along these circuits.

Hypothesis 2: Road infrastructure has a major impact on transfer costs and the
performance of circuits.

Hypothesis 3: Weak integration in domestic markets inﬂuences export
performance to neighboring countries.

t $ *

This chapter will proceed to describe the context in which the study takes place,

beginning from a general background of the Malian cereal economy in comparison with

its West African trading partners, to a more speciﬁc overview of Mali’s marketing policy,

physical and institutional environment.

In the following chapter, a conceptual framework for the analysis will draw from

and tie together the wealth of existing literature on trade, economic integration,

marketing efficiency, and transfer costs.

 

4

From there, the following three chapters will outline the methodology employed
in data collection and analysis, the paradigm of situation, structure, and performance
used to describe the markets, and a descriptive analysis of marketing margins and
transfer costs.

These chapters will serve as background for the following chapter, which develops
a model of price formation and market integration, using the speciﬁcation of transfer
costs. Finally, the results of both the descriptive as well the econometric analysis will be
linked to the implications of domestic marketing performance for Mali’s regional trade.

* t t

1.2 The Malian Cereals Economy
ﬂoductipp Characteristics

Malian agriculture is highly vulnerable to a semi-arid climate, poor soils, stagnant
technology and a limited range of production alternatives (Humphreys, 1986). The
agricultural sector, which includes coarse grains, paddy rice, cotton, groundnuts, and
livestock, accounted for 57% of GDP and 86% of employment in 1985. Livestock alone
accounted for 18% of GDP (Stryker et al., 1987).

The cereals sector is characterized by recurrent drought, subsidized rice
production in the Ofﬁce du Niger, and instability in grain prices due to annual supply
ﬂuctuations. Cereals production within the past 5 years has varied from 0.7 million tons
in 1984/85 to 2.4 million tons in 1987/88 to 2.2 million tons in 1989/90. Using 1970 as a
base year, the index of cereal production varied between 87 (1960), 126 (1979), and 98
(1970) (Stryker et al., 1987).

Another measure of food production instability is a trend-corrected coefficient of

variation for the 1963-83 period, which is used as an indicator of production instability.

 

5

For Mali, the coefficient of variation of national production around its trend is 16%.
The same calculation for the member countries of the Communaute Economique de
l’Afrique Occidentale (CEAO) as a whole resulted in 13% production instability,
indicating a slightly higher degree of stability for the region than for Mali over the
period (Badiane, 1988).

Correlation coefﬁcients between Mali’s food production coefficient of variation
with those for other countries within the CEAO region, indicated in Table 1.1, do not
exceed 63%, revealing that the economies in the region are not subject to identical
production patterns, as commonly assumed.

Table 1.1 also indicates an index of the similarity of Malian production in 1981-83
with CEAO member countries, demonstrating that Mali’s production varies signiﬁcantly
from that of C6te d’Ivoire and Sénégal, while resembling more closely the production
structures of Burkina Faso and Niger.

The food production similarity index, SQab, in Table 1.1 is based on comparing
shares of a given product in total agricultural production between two countries.
Computations for the index are based on 20 products, using FAO production data. The
index is based on the formula:

SO.» = 100 2i (Minm. Yrs»
where yia and yib are the shares of product i in total agricultural production of countries

aand b.

 

 

 

6

TABLE 1.1. Comparison of Mali’s Food Production and Instability with CEAO Member
Countries

 

 

 

CEAO Member Country Food Production Correlation of Food
compared to Mali Similarity Index Instability
1981-83 1963-83
Burkina Faso 70% 31%
COte d’Ivoire 26% 63%
Niger 76% 58%
Sénégal 49% 46%
Mauritania 58% -54%

 

 

 

Source: Badiane, 1988

On the demand side, recent research comparing Mali’s regional urban centers
shows that while major differences exist among the seven regions of Mali, overall, 70-
80% of consumed calories come from cereals, of which coarse grains provide 85%
(Rogers and Lowdermilk, 1987). A survey of the nutrition literature covering the four
years between 1984/85 and 1987/88 indicates that the percentage of cereals needs (188
kg/person/year) met by consumers varied between 65% in 1984/85 and 99% in 1986/87
(Sundberg, 1988).
gag :lfrade Structure

Prior to the banning of rice imports in 1988, cereals accounted for 97% of food
imports, of which rice represented a large share. In the period before the import ban,
food imports varied between 2 and 64% of export earnings, with a mean level of 15%.
This instability of food imports, reﬂecting the instability of domestic production, is
confirmed by a trend-corrected coefﬁcient of variation of 73% (Badiane, 1988).

In 1981-83, Mali’s export shares within the CEAO region were 47% for cattle,
36% for cotton, 12% for sheep and goats, and 1% for seed cotton. An index of Mali’s

export similarity, based on 29 products in 1981-83, reveals the following: Burkina Faso

 

 

7
(73%), Cbte d’Ivoire (6%), Mauritania (59%), Niger (59%), and Sénégal (6%). This

index is analogous to the production similarity index above, with
SE“, = 100 2, (Min(x,,, 1%))
where xia and xib are the shares of product i in total exports of countries a and b.

These ﬁgures conﬁrm the diversity within the region, indicated by the index of
production similarity, thus revealing the scope for increased regional trade. What they
do not indicate, however, is the potential for increased trade in cereals, which presently
do not occupy a significant share of Mali’s exports to the region.

Moreover, a note of caution regarding the above ﬁgures is that they are based on
ofﬁcial trade statistics, which appear to be largely distorted and misrepresentative of
actual trade ﬂows, as demonstrated by Egg et al. (1989).

1.3 Marketing and Trade Policy
et e ' the 980’s

The national marketing board, the Ofﬁce des Produits Agricoles du oMali
(OPAM), was instituted in 1964 during the ﬁrst post-independence government of
Modibo Keita. From its beginning, OPAM was granted a legal monopoly in grain
marketing, which it continued to maintain with a slight interruption in 1969, when the
government changed hands, until the initiation of gradual market reform in 1981 / 82.
However, the ofﬁcial monopoly of the OPAM has been described as "ﬁctional”, handling
only an estimated 20-40% of total volumes marketed and 3-4% of total production
(Humphreys, 1986).

The impetus for the market reforms essentially dates to the 1973-74 drought, as a
result of which Mali imported large amounts of grain which OPAM sold at concessional

prices. The resulting accumulation in budget deficits in the late 1970’s led to signiﬁcant

 

 

 

8

donor pressure for a restructuring of the market, and the government of Mali agreed to
a comprehensive and gradual cereal policy reform package in 1981. The objectives of
this reform package were to raise ofﬁcial producer and consumer prices, abolish the
monopoly of the OPAM and improve its operational efficiency (Staatz, Dione, and
Dembélé, 1989).

In absence of detailed empirical knowledge about cereals production and
marketing, the ﬁrst phase of the Programme de Restructuration du Marché Céréalier (or
PRMC 1), between 1981 and 1986, was based on the following assumptions: Mali would
continue to have cereals deﬁcits; ofﬁcial producer prices mattered in terms of producer
incentives; most farmers were net sellers; private traders could respond quickly to
market signals; and the role of OPAM vis-a-vis the provisions to the Army was
important. These assumptions have since been proven largely incorrect, except in the
case of continuing rice deﬁcits and the importance of the Army (Staatz, Dione, and
Dembélé, 1989).

Contrary to the underlying assumptions of PRMC I, two consecutive good
harvests for coarse grains in 1985/86 and 1986/87 led to a collapse of producer prices
for coarse grains, which OPAM was unable to sustain budgetarily. The responsiveness of
farmers to price incentives was shown to be constrained by the lack of purchased inputs
and improved technology. Similarly, the increase in prices adversely affected the large
proportion of producers (43%) found to. be net grain m; and, the liquidity
constraints and risk faced by private traders limited their capacity and timeliness in
responding to market opportunities.

Given the limited successes of PRMC I in achieving its objectives, the donor-

funded market reform entered into a second phase, PRMC II, from 1988 to 1990. This

 

 

9

second phase abandoned the setting and maintenance of producer and consumer prices
(except for producer paddy rice prices). With the liberalization of pricing policy, an
additional role of the public sector was identiﬁed as that of supplying market
information, especially prices, to the private sector. This phase has also focussed on
opening credit lines to the various market participants, traders and village associations
(Vega, 1990).

The results of this second phase are mixed, in view of the poor utilization of
credit lines by traders. This poor credit performance is linked to the inability of traders
to dispose of stocks due to surplus harvest years in both 1988/89 and 1989/90. Thus, in
1988 / 89, repayment rates for the wholesaler and serni-wholesaler credit lines were 31%
and 9% consecutively. This performance led to a severe restriction in disbursement of
credit funds in the following year, reducing the number of traders in the credit program
from 19 to 2. 1. The funds disbursed were reduced by 92%, from 1138.5 million FCFA
in 1988-89 to 96 million FCFA in the following year (Office de Stabilisation et
Regulation des Prix, April 1990).

On the other hand, the objective of providing market information to participants
resulted in the establishment of a public market information system, the Systeme
d’Information des Marches (SIM) in 1989, which has successfully disseminated largely
good quality price information in a timely manner.

In late 1990, the government of Mali and the donor group established the third
phase of the market reform, PRMC III, which is committed to continuing to enhance

private participation in the cereals market, to focus on issues of cereals processing and

 

1 communication with USAID/Mali staff, July 1990

 

10

quality control, to promote exports of cereals within the region, and encourage the

coordination of the private sector by diffusing timely information.2

WM

The importance of production for home consumption and non-market
transactions implies a secondary or ”residual” nature of gain marketing in Mali. In turn,
this characteristic affects all cereals policy in Mali (D’Agostino and Staatz, 1989). The
effects of this market ”thinness" are volatility of prices, and in the case of traders, limited
competition and limited holding of stocks due to the accompanying risk. Recent
research reveals that while Malian market liberalization has not solved the problem of
market thinness, it has resulted in increased specialization and entry of new ﬁrms.
However, the shift toward geater dependence on the market for consumption needs is
found to vary seasonally and regionally (Mehta, 1989).

Another issue in the discussion of marketing policy is the distributional effect of
policies, i.e., who gains and who loses (Humphreys, 1986). In particular, policy changes
that result in price increases have adverse impacts on net buyers, who may represent a
sigiiﬁcant proportion of producers (Dione, 1989; D’Agostino and Staatz, 1989).

Recent Evolution in Trade Poligz

In response to and conditioned by the overall reform of cereals marketing in Mali
as well as changes in production patterns, both import and export policies were
characterized by a state of constant ﬂux during the late 19803. In 1988, the government
announced a complete ban on rice imports in order to protect domestic rice producers,

in particular the government-supported Office du Niger. Later in the same year, this

 

2 Ministere de Finance, "Declaration d’Intention au Gouvemement de la Republique du
Mali de Certains Bailleurs de Fonds pour une Prolongation du Programme de Restructuration
du Marche Cerealier”, Bamako, 1990.

 

 

11

policy was changed to a policy of "jumelage,’ whereby rice imports were conditional upon
equivalent purchases of domestic rice. In 1989, rice imports were again banned,
continuing until late 1990, when pressure from rising rice prices led to permission for a
few limited imports (Dembélé, 1990).

In the wake of two successive good harvests, the government announced in mid-
1989 a liberalization of cereals exports, with an accompanying removal of export taxation
in the following months. Further encouragement for the liquidation of stocks to
neighboring markets was attempted by the donor community (PRMC), with a subsidy on
transport to external markets.

It appears, however, that both trade policies have had limited success. The
restrictions on imports of rice, still debated within policymaking circles, have resulted in
price increases, adversely affecting net buyers of rice, particularly in the urban areas,
where rice represents more than 50% of the cereals basket. This raises questions
whether the Ofﬁce du Niger, the state-subsidized domestic rice operation can supply the
population’s needs at competitive prices.

The export liberalization policies, motivated by estimated surpluses of coarse
grains, are also contested within national policymaking fora for reasons related to
domestic food security. This is due to arguments that surpluses may be over-estirnated
or that local deﬁcits in border areas occur at the same time as exports to neighboring
countries. In fact, discussions with policymakers at both national and local levels
revealed that local food security objectives are perceived to conﬂict with those expressed
at the national level.

At another level, the question of who actually beneﬁts from these policies, and

particularly subsidies, must be addressed given the importance of "illegal” or unregistered

 

12

trade that is outside the scope of ofﬁcial policy. This issue will be discussed at length in

other sections of this study.

 

 

CHAPTER 11

REGIONAL TRADE, MARKET INTEGRATION, AND TRANSACTIONS COSTS:

Toward A Conceptual Framework

This chapter attempts to construct a conceptual framework of analysis linking
regional trade, domestic market integ'ation and the importance of transactions costs.
This is done through an overview of both theoretical and empirical aspects of the
extensive literature on these subjects, in order to draw out and link salient points
relevant for this study.

The approach taken in this review is to progress from a very general perspective
of the importance of trade to a focus on regional trade, to a more speciﬁc focus on
domestic marketing, an underlying determinant of a country’s competitiveness in the
region, eventually to a discussion of transactions costs, a speciﬁc factor inﬂuencing
marketing performance.

In the same way that the theoretical discussion evolves from the general to the
speciﬁc, the review of the empirical literature also progresses from a general world view
to the case of West African cereals trade to that of cereals marketing performance in
Mali.

The deductive approach described above is presented schematically in the Figure

2.1.

13

 

14

 

\_

 

WHY TRADE '2
.'
1

WHY REGIONAL TRADE :7
I

|
WHAT INFLUENCES REGIONAL TRADE ?

/ \
/ \

DOMESTIC PRODUCTION DOMESTIC MARKETING

|
WHAT INFLUENCES DOMESTIC MARKETING?

/ \
/ \
MARKETING MARGINS MARKETING cosrs’
/ \
/ \
PHYSICAL COORDINATION

cosrs ' cosrs

 

Figure 2.1 Conceptual Framework of Regional Trade, Domestic Marketing, and

Transfer Costs

15
2.1 Trade: The Engine of Growth

In reviewing the economic literature on the linkages between trade and
development, it is useful to start with Alfred Marshall’s ( 1920) statement that "the causes
which determine the economic progress of nations belong to the study of international
trade” and later, the much quoted phrase by DH. Robertson (1940) that trade is above
all ”an engine of growth.” These statements are supported by the fact that trade from
the late nineteenth century has not only accompanied industrial growth, but has
increased at a faster pace than world production.

Basic theories of trade driven by comparative advantage presuppose that
differences in either technology (Ricardo) or resource endowments (Heckscher-Ohlin-
Samuelson) will motivate trade patterns. These models are based on assumptions of
perfect competition, constant returns to scale, complete factor mobility between sectors,
and full employment of resources. Under these conditions, the economy after trade
adjusts costlessly and automatically to new equilibria.

When these rigid assumptions are partly relaxed, trade theory under imperfect
competition adds important considerations of transport costs (Brander) and increasing
returns to scale (Krugnan; Lancaster) as factors determining the ensuing trade patterns.

However, with regard to the experience of the developing countries, a wealth of
literature has accumulated in the past forty years disclairning the virtues of "free” trade
as a means of enhancing economic progress for these countries. In this viewpoint, not
only has the engine of growth become very slow (Nurkse, 1961) but it seems that
development has become the "engine of trade" (Prebisch, 1949) as seen by largely

outward-oriented development strategies. Thus, the theory of unequal exchange was

16
advanced by Myrdal (1956) as well as neo-Marxists such as Emmanuel (1972), Rodney

(1972), and Amin (1976), among others.

The structuralist school of thought, stimulated by the work of Raul Prebisch
(1950) and others such as Furtado, Sunkel, and Cardoso at the Economic Commission
for Latin America, developed the theory of the center-periphery in international trade.
Supplemented by independently theorized work by Hans Singer (1949), what has come to
be known as the Singer-Prebisch thesis states that: (i) there is a structural imbalance and
asymmetry in the international economic system, and, (ii) this' asymmetry leads
progessively and inevitably toward a deterioration in the terms of trade of the
developing countries.

2.2 Regional Economic Integration

Concomitant with the recommendations of the Latin American school to promote
industrialization through establishing linkages among developing countries, similar
attempts - but for different reasons -- were being made in Europe. Thus, Jacob Viner
(1950) pioneered the classical or orthodox approach to evaluating the process of
economic integation in his often-cited theory of the customs union.

The important contribution of this theory was the concept of trade creation and
trade diversion. Within an essentially static general equilibrium framework, gains from
the specialization in production of certain goods by individual countries are determined
by comparative advantage. Trade creation occurs where a less efﬁcient producer in the
region imports the good from a lower-cost producer at preferential or zero tariffs. Trade
diversion occurs where a good previously imported relatively cheaply from outside the

region must, after integation, be imported at higher cost from a regional producer.

17

According to this theory, the desirability of integration rests on the net balance of
welfare gains and losses from trade creating and diverting effects.

This theory was expanded by neo-classical economists to include effects of scale
economies, regional terms of trade versus the rest of the world, and factor-price
equalization within the region.

The orthodox and Vinerian approach of statically viewing comparative advantage
is seen as inadequate by the structuralist perspective, which perceives integration among
developing countries as a means of trade expansion per se, regardless of its possible
”diverting” effects or inefﬁciency. .This viewpoint is based on the inclusion of dynamic
gains from regional integration, which cover both economic and non-economic
considerations. These gains include economies of scale over time, "learning by doing,"
shifts in factor prices and levels, as well non-quantiﬁable gains of , regional cooperation
over time (Robson, 1983).

Regional economic integ'ation has long been a central component of the
development strategies of both developing and industrialized countries, with varying
degees of success.

In the context of the developing countries, in the period since the forming of the
European Economic Community in 1957, numerous attempts to form regional groupings
resulted in a period which has been labelled the age of integration (Machlup, 1977) and
disintegration (Hazlewood, 1975).

In a survey of what he considers the ”crisis" in regional economic cooperation
among developing countries, Vaitsos (1978) suggests that regional integration should not
be viewed as an end in itself, but rather a means of attaining speciﬁc goals. He notes

the sigiiﬁcance of the non-market component of regional integration in determining its

18

successful outcome, as well as the need to consider issues of potentially conﬂicting
national objectives and the distribution of the gains from regional trade. Another
important consideration is the need to focus on areas in which sigiiﬁcant gains in
production are possible.

The latter point has also been forcefully argued by Lipton (1988) in a study of
regional trade in southern Africa, where he concludes that both rising food productivity,
on the supply side, and rural incomes or entitlements, on the demand side, are ”essential
preconditions” to the expansion of regional trade ﬂows. In policy terms, this translates
into a focus on production-enhancing measures, prior to instituting pricing and marketing
changes.

While this argument would appear to conﬂict with the ”engine of growth"
perspective noted above, perhaps the argument can be made that a dual interaction
exists between regional trade ﬂows and production, in which rural producers are
responsive, although constrained, to changes in the market and opportunities for trade.

Thus, from a theoretical as well as an empirical perspective, the issues of supply
responsiveness and the structure of production underlie the question of regional trade in
a fundamental way.

23 Regional Economic Integration in West Africa

In West Africa, regional trade--and the broader issue of regional economic
integation--have long been perceived by policymakers as a vital link in addressing the
economic problems of the region. This is evidenced by the numerous regional
arrangements, varying by degree of integation and membership, that have been put into

effect in the past three decades such as ECOWAS, UMOA, CEAO, etc.

l9

Alongside these formal efforts" to achieve integation, or in spite of them,
historical studies reveal that informal regional trade has ﬂourished actively throughout
West Africa since long before European colonial trade, in which traditional trader
networks have been maintained despite the legal boundaries and protectionist policies of
the individual states after independence (Lambert, 1989). Historically, this "de facto
integation” is perceived to be based in longstanding regional complementarities between
the savannah and the forested zones, or between the coastal and interior countries of
West Africa (Egg, 1989).

The following discussion will consider both aspects of the regional trade issue in
the West African context, namely, (a) the importance and desirability of promoting
regional trade through policy measures, and (b) understanding the existence and the
motivations underlying a sigiiﬁcant level of trade already in place, which exists largely
outside the direct inﬂuence of policy.

2.3.1 The Importance of Regional Trade in West Africa

Recent research has proposed that regional trade in agricultural goods, namely
cereals, has the potential to enhance regional food security (Badiane,1988). Through
comparisons of ﬂuctuations in annual food production at the national level with that of
the region for the countries in the Communauté Economique de l’Afrique de l’Ouest
(CEAO), Badiane suggests that regional grain production is sigiiﬁcantly more stable
than domestic production for up to two-thirds of the member countries.

Similarly, Lambert and Egg (1989) propose that regional trade will beneﬁt
individual countries by expanding domestic markets and facilitating the supply of food in
uncertain weather conditions. In addition, trade is beneﬁcial in generating domestic

savings through increased trading activity and the allocation of resources according to

20

comparative advantage at the regional level, such that complementary agricultural sectors
will be supported.

Delgado (1989) notes the negative impacts of events over the past decade in
world markets for livestock, cotton, and vegetable oils on long-term Sahelian gowth. He
points to the need to recapture regional markets, in particular between the Sahelian and
the coastal countries. However, the regional alternative to world markets needs to be
examined in terms of whether a "genuine” and dynamic comparative advantage, based on
changing technolog', exists.

With regard to this last point, for cereals, Shapiro and Berg (1988) conclude that
the physical and technological perspectives for raising cereals yields are weak, with only
the very costly possibility of increased irrigated rice production. They note that given
weak supply responsiveness to economic incentives, as well as a relatively price-inelastic
demand structure in favor of imported rice and wheat, protection on a regional level
would have, in fact, quite negative impacts on economic agents.

On the other hand, Gentil and Ledoux (1989) strongly question the above
arguments by noting examples in which technology adoption has sigiiﬁcantly improved
coarse gain yields, particularly in the cotton zones of Burkina Faso and Mali. By
distinguishing between real prices and ofﬁcial prices, they ﬁnd examples where
production has proved quite responsive to real market prices in Mauritania, Sénégal, and
southern Mali. In addition, they point out that cereal demand rigidity is linked to the
level of product transformation and thus is neither irreversible nor necessarily
permanent.

Gentil (1989) goes further in suggesting that agicultural production in the Sahel

must be distinguished in terms of production zones (irrigated, cotton, cereals with

 

21
goundnuts or cowpeas, and cereals alone); m (regular cereal surplus, break

even, and structural deﬁcit); and the determinants of mm (factor availability,
economic and social objectives). By this classiﬁcation, it appears that the potential for
increased cereal production varies widely and seems complementary with cotton
production. He concludes that a stable and remunerative market at the regional level,
accompanied by soil improvement, seed, and processing technology, is a decisive factor in
increasing cereals production.

2.3.2 Determinants of Regional Trade in West Africa

In addition to, and surpassing in magiitude, the above-mentioned regional trade
ﬂows that are based on ecological and resource differences, namely between the
Sahelian, forest, and Sudano-guinean zones, Egg (1989) notes the impact of policy
disparities among the individual countries in determining cereals trade. There are two
types of policy disparities that inﬂuence trade, namely, economic policy and monetary
policy. Economic policy includes pricing, subsidies, and customs duties. These policies,
in his analysis, largely inﬂuence trade in re-exported gains (initially imported from world
markets).

Egg suggests that monetary policy differences account for major ﬂows between
the CFA franc and non-CFA zone. This is explained in that, while the non-franc
countries have a wide range of manufactured goods (either re-exported or locally
produced in the case of Nigeria) to exchange for cereals, they also are constrained by a
foreigi exchange deﬁcit. Moreover, recent currency devaluations or parallel market
operations in the non-franc countries make their products relatively cheap to franc-zone

consumers.

22
An analogous argument may also be proposed from the ﬁnding by Shapiro and

Berg (1988) for countries within the franc-zone that the real effective exchange rate, the
nominal rate adjusted for changes in relative price levels, varies across countries.

Another dimension of trade based on policy differences is that this market is
characterized by instability due to both the effect of frequent policy changes as well as of
world market ﬂuctuations that inﬂuence mainly re-exports. Lambert and Egg (1989)
argue that, while traders gain from this market, re-exports of relatively cheap gains has
a signiﬁcantly negative impact on domestic cereals production.

2.3.3 Measures of Regional Trade in West Africa

Recent empirical investigation of the cereals trade ﬂows in West Africa is based
on existing aggegate statistics from UNCTAD, individual ports, and national and
customs data, in addition to ﬁeld surveys of major traders and periodic border markets
and the study of national commercial strategies (Coste, 1989). Given the limited
reliability of the aggegate data, results obtained are indicative of trends rather than
levels, and require further study.

The main features of national border markets are the use of several currencies
with parallel market rates, inefﬁciency and / or complicity of border customs, and the
importance of ethnicity over national identity (Igué, 1989). The structure of border
trade is that of peg'pdic markets with twin markets on either side of the border, that vary
in terms of area served. Secondly, horde; warehouses function as storage, sales outlets,
and collection and distribution centers, within or near border tms, which also have twin
towns across the border.

In evaluating the nature of products traded, Egg (1989) distinguishes between

trade based on resource complementarity, on production and marketing policy

23
differences, and on pricing policy differences. Within the ﬁrst category, he ﬁnds that

major ﬂows along traditional trader networks (such as the dioula-manda traders) exist
between Sahelian and coastal countries in livestock, kola, ﬁsh, and cowpeas, as well as
border trade in onions, vegetables, tubers, fruits, dried ﬁsh, and local cereals. However,
this type of trade accounts for only one-third of ﬂows within the region.

Egg ﬁnds that trade ﬂows due to production and marketing policy differences are
largely ﬂows of re-exports from the relatively open economies of Mauritania, Guinea, the
Gambia, and Cameroun to protectionist economies such as Mali, Sénégal, and Nigeria.
These re-exports are mainly rice and wheat ﬂour, as well as sugar, tomato paste, maggi
cubes, and condensed milk.

Pricing policy differences, namely for export crops such as cocoa (COte d’Ivoire
and Togo) and goundnuts, also result in trade ﬂows.

Egg attributes cereals ﬂows to re-exports due to policy disparities, to projects
(large schemes) with inconsistent price support policies, and to currency differences.
However, he notes that, in almost all cases of regional trade, agicultural and livestock
products are exchanged for local or imported manufactured goods, such that it is difficult
to isolate agicultural trade.

Focussing on the magiitude of cereals regional trade, preliminary estimates by
Coste (1989) reveal for the overall West African region (18 countries) in 1987 that total
cereal transactions were 4 million tons imported from world markets (rice, wheat, and
wheat ﬂour) while 3 million tons came from domestic production; thus 43% of total
transactions were in regionally produced cereals. Within regional trade, 850 thousand

tons of cereals were in the form of re-exports and 400 thousand tons were local gains;

24

thus, roughly two-thirds of regional cereals traded were re-exports. Finally, he concludes
that regional trade constituted 20% of all the cereals transacted in the region.

For local cereals alone, a similar breakdown between total transactions and
regional trade reveals that 15% of marketed millet and sorghum, 12% of maize, and
4.5% of marketed paddy rice are traded regionally.

In addition, it is important to note that Coste ﬁnds that 83% of cereals available
came from regional production, by comparing 20 million tons produced versus 4 million
tons of imports from world markets in 1987. Of the 4 million tons imported, roughly
10% of both rice and wheat were for transit ﬂows (officially distributed to interior
country), while 26-32% of rice and 22% of wheat were re-exported to mainly Nigeria,
Sénégal, and Mali. The estimation of re-exports is through the residual method in which
domestic utilization (consumption) is subtracted from resources (national production,
stocks, and imports).

2.3.4 Summary of West African Case

Having reviewed the current policy debate regarding regional cereals trade in
West Africa, as well the existing empirical evidence of the determinants, structure,
direction, and magiitude of regional trade ﬂows, several salient points emerge.

First, in light of the earlier discussion of regional economic integation in which
countries attempt to harmonize their policies in order to promote trade, it would appear
that West African de-facto "integation" has occurred in spite of, and, in large measure

due to its ”disintegation" in the sense of widely diverging national policies!

 

Focussing on cereals, this leads to the important consideration of the effect of
potential measures to reconcile or "integate" cereals policies at the regional level in view

of existing or de facto market integation.

25

Within this consideration, there are two vital distinctions to be made:

(a) trade in local cereals versus trade in imported cereals, and (b) trade due to regional
complementarities versus trade due to policy disparities. While it is often the case that
trade in local cereals is also trade due to regional complementarities, the empirical
results show that this is not necessarily true, as in the case of Mauritanian local paddy.
rice exports across the river to Sénégal (Coste, 1989).

Finally, in a long-term perspective, it appears that the potential for trade
expansion fundamentally lies in the type of trade that is motivated by regional
complementarities and that is in locally produced cereals. Moreover, this type of trade,
as seen in the empirical ﬁndings, is not clearly distinct from trade in non-cereal
agicultural and even manufactured goods.

In contrast, trade induced by policy differences is not only highly unstable due to
changing policies and international conditions as well as distortive to domestic
agiculture, but also seems unsustainable as a trade promotion strategy because it is not
based on the economy's actual comparative advantage in a productive sense.

In taking the longer-term perspective mentioned above, it becomes important to
determine what underlies the regional complementarities that are perceived to motivate
3391;. Given conclusions reached by researchers that historical patterns of trade are
rooted in these complementarities, this analysis must distinguish the static (or
unchanged) factors such as the geo-climate, soil type, and other resource endowments
and characteristics from dynamic (or transformable) factors which relate to the structure
of production as well as of marketing.

In order to determine the regional complementarities among countries, individual

analysis of the factors that underscore or motivate each country’s trade ﬂows must be

26

carried out. This process involves a close examination of the domestic factors in each
country’s structure of production and marketing, as well as of each country’s set of
domestic policy interactions with the region. '

While this type of analysis is often carried out for a country’s mm
mtg, i.e., determining costs of production and supply responsiveness to certain
policy or market incentives, it is important that a country’s marketing structure also be
investigated in terms of the costs of marketing and the responsiveness of marketing
agents to market changes. A given country’s competitiveness, or basis for
complementarity, in the region is comprised of both competitiveness in production as
well as in marketing.

Therefore, the following discussion will focus on the determinants and measures
of domestic competitiveness in marketing.

2.4 Marketing Theory

2.4.1 Determinants of Marketing Efficiency

Theoretically, at equilibrium, it is assumed that buyers and sellers are located at a
single point and that a single equilibrium price is determined by aggegate demand and
supply conditions (Tomek and Robinson, 1981).

Marketing margin theory extends the above by deﬁning a set of equilibrium
prices at different levels of the market, namely, at the producer and retail level. The
difference between these two equilibrium prices is the marketing margm' , which itself is
determined in equilibrium by the demand and supply relations of marketing services.

With the assumption that markets are competitive, marketing margin changes are
reﬂected through the system in an analogous way, and price has the role of integating

the different market levels.

27

However, given that markets are observed to be less than perfectly competitive,
marketing research has developed the concept of W (Hayenga, 1979).
Market thinness is a concept used to describe markets with low trading volumes and low
liquidity (Marion, 1986). Thin markets are caused by the following: a limited number of
buyers or sellers (either naturally or artiﬁcially), scale economies, discontinuities or ﬁxed
costs, high costs of arbitrarge over space and time, structural elements limiting entry into
the market, poor product quality, and / or poor information.

These market conditions can affect market performance through creating large
ﬂuctuations or instability of market prices or through the incidence of excessive
marketing margins (Hayenga). Both of these results adversely affect consumers.

When the product that is marketed is assumed to be homogenous at both levels
(no transformation) within a competitive market, a slightly different approach to
marketing margin theory is that of spatial egum 'brium (Judge and Takayama). In spatial
equilibrium theory, the price difference between the two trading points for a product that
is moved from one to the other is just equal to the cost of transferring the product,
assuming that there are no barriers to trade and perfect knowledge. Similarly, the price
difference between non-trading regions is less than or equal to the transfer cost.

Faminow and Benson (1990) extend this model by adding the dimension that not
only do prices differ between regions due to the distance between buyers in one region
and sellers in the second region, but also prices differ m regions due to an analogous
dispersion of buyers and sellers. This condition creates a situation of spatial oliggpolistig
minim which alters the conclusions reached with the spatial equilibrium model. In
this model, a high degee of market integation between prices is in fact a result of price

collusion, which occurs as a result of a ”linked oligopoly" with prices at one site set equal

28

to another site’s base price plus the transport costs. This, quite contrary to expected, is
indicative of marketing inefﬁciency.

2.4.2 Tests of Marketing Efﬁciency

Based on the theory of marketing marg'ns that was described earlier, marketing
efﬁciency can be evaluated by observing the incidence and nature of changes in the
margin over time. Since "changes in factor prices, efficiency, and services embodied in
farm products change marketing margins,” the size of the margin as well as its stability
can be analyzed in terms of how efﬁciently prices are passed along the marketing chain,
and the extent to which the demand and supply of marketing services change (Tomek
and Robinson, 1981).

Marketing efficiency is very often tested through price analysis, commonly used
to measure the degee of market integation, namely, how related prices are between
markets.

One approach to testing market integation is to measure the simple bivariate
correlation of prices in pairs of markets (Jones, Stigler).

This type of analysis, however, has been criticized by researchers such as Harriss,
Delgado, and Ravallion on statistical gounds. They point out that (a) common external
factors such as price seasonality and inﬂation may bias the correlation upward; (b) the
variance of price is not ﬁxed but may change over the year, a condition which causes
heteroskedasticity and violates the basis of least squares estimation; and (c) spurious
correlations such as ofﬁcial price setting may cause illusion of integation.

A possible modiﬁcation of bivariate correlation analysis is to I test
heteroskedasticity by comparing price regessions broken down by season with those over

the entire data series (year). Additionally, spurious correlation may be corrected by

 

29

removing the seasonal and inﬂation effects by de-seasonalizing and de-trending the data
series (Loveridge, 1988).

In the case of seasonality, this process is carried out by computing a seasonal
index, based on moving averages, and dividing the data series by the seasonal index
(Goetz, 1986). '

Another approach to testing marketing efﬁciency is to determine whether a goup
of markets exhibit the same seasonal behavior, assuming a geogaphic homogeneity in
production. This "variance components" approach (Delgado, 1986) estimates a given
market price at a given point in time and season as a function of the sample mean price
in that season, the location effect, and constant weekly time and stochastic interaction
effects in that season. The weakness of this approach is that the assumption of
geogaphic homogeneity may be violated because of the variable effects of altitude,
climate, population density, and consumption habits (Loveridge, 1988).

Another set of tests of market integation are those based on the theory of
spatial equilibrium discussed earlier. A model of spatial price differentials developed by
Ravallion (1986) estimates price in local market as a function of a larger, central,
market, where the econometric speciﬁcation of the model rests on the assumption that
there is a unidirectional ﬂow of goods from the local to the central market. In a
dynamic framework, this model speciﬁes that the change in local price from the last
period is a function of the change in central market price in the same period, last
period’s spatial price differential, last period’s central market price, and local market
characteristics (Heytens, 1986).

The solution to Ravallion type models rests on the assumptions built into spatial

equilibrium theory, namely that products are homogeneous, such that consumers are

30

indifferent as to the source; production and consumption occur at precisely the same
point in each market; there are no physical and institutional barriers to trade; and
transfer costs are constant regardless of volume or direction per unit of product. Thus,
the model dictates that, where a clear direction of trade from a surplus region to a
deﬁcit region exists, the difference between the regional prices should just equal transfer
costs. The implication for the volume of trade is that at the spatial equilibrium
differential in prices (i.e., just equal to transfer costs), there is an optimum "least-cost"
trading pattern given the supply and demand relations in each region. As transfer costs
decline, the optimal volume of trade increases until a maximum trade occurs where
transfer costs are equal to zero.

Tirnmer extends the Ravallion model by incorporating generalized distributed lags
(1987). This results in the testing of:

(a) the extent to which local prices are integated into the central market
over the long run. This ﬁrst test measures long-run integation, as
measured by the coefficient attached to the change in the m
differential in the central market.

(b) The extent to which short-run changes in local prices are caused by short-
run changes in the spatial price differential. This second test measures
short-run connection, as expressed in the coefﬁcient attached to changes
in the spatial differential between the two markets. In this model, an
index of market connection (IMC) can then be computed as the ratio of
the coefﬁcient of la ed local market effect to the coefficient of lagged
central market effect. Thus, market segnentation (lack of integation)
is indicated by an IMC which is very large, while IMC less than unity
indicates a high degee of market connection. The distinction between
long-run integation and short-run connection can thus be perceived by
comparing the IMC to the coefﬁcient of temporal differences in the

 

P

wli

3 The equation is expressed as:

= d “I“ (1 ‘I' d1)Pt-1 '1' d2( - Rt-l) 4' (d3 - d1)Rt-1 + d4X
ere is local market price, RRis central market price, and X is the matrix of local market

characteristics.
IMC = (1 + (II) / (d3 - (11) which is less than 1 when there is a high degee of market
integation.

31

central market price, which is not included in the computation of the
IMC.

While the Ravallion and Tirnmer approaches provide insights into marketing
efﬁciency, they are limited by the difﬁculty of determining appropriate central market
prices and variables that characterize the local market; by a possible simultaneous
equation bias requiring the speciﬁcation of instrumental variables; and the sensitivity of
model parameters to the time length of the data (Heytens,1986). Heytens also points
out that if the direction of the commodity ﬂow reverses seasonally, the model would
reject market integation.

More fundamentally, these models are constrained by their focus on a single
commodity without regard to cross-elasticities that affect demand and supply in each
market, by extensive data requirements (transfer costs, prices, market characteristics, and
supply and demand parameters), and by the rigid assumptions underlying the spatial
equilibrium theory. In particular, the model’s weakness is the assumption of a single
point at which buyers and sellers meet in each market.

2.4.3 Institutional Approaches

A complementary approach to viewing market performance has been through the
industrial-organization approach, developed by Breirnyer, Schmid, Shaffer, and Scherer,
among others. This approach is essentially concerned with the conditions of imperfect
competition within which markets actually operate, and what inﬂuences their
performance. The industrial organization literature attempts to explain more fully what
affects market processes, how these processes often fall short of desired performance,
and what policies may directly or indirectly adjust ﬁrms’ behavior toward desired ends.

While performance in neo-classical economics is related to the concept of local

equilibrium, i.e., the price at which markets clear, the institutional approach uses the

 

32

paradign of structure-conduct-performance (SCP) to derive direct linkages in market
performance.

An aspect of marketing largely neglected by the neo-classical approach is the
exchange itself, or relationship, between economic agents. Within the institutionalist
framework, Schmid and Shaffer (1964) focus on the social context of marketing in which
economic interaction between individuals is deﬁned as a transaction, the outcome of
which is an exchange. Thus, in their approach, the marketing system includes both the
eychange gstemngoverning transactions between individuals that results in the exchange
of property rightsuand the physical distribution gstem, which executes the physical
transfer of goods over space and time.

This classiﬁcation of the marketing system enables a clearer insight into the
transfer costs that are incurred in the marketing process, which can be separated into the
costs incurred in the physical transfer of goods and those incurred through the structure
of the exchange. Physical transfer costs are those related to transport, assembly,
handling, storage, sacking and gain treatment. Exchange, or coordination, costs are
those related to regulation, information, ﬁnancing, intermediation, negotiation and
enforcement of contracts, that is, those concerning the exchange relations between the
various market actors.

Policy inﬂuences both types of transfer costs. For example, investment in road
infrastructure reduces transport costs. . However, the interaction between policy and
coordination costs appears to be given more attention in policy discussion, perhaps due
to its more ambiguous nature. For example, a policy of liberalization dramatically
changes the relations between previously "parallel" market operators and the government,

although the impact on transfer costs is less identiﬁable. Similarly, providing public

33

market information is perceived to reduce transfer costs, although the measurement of
its impact on costs may be difﬁcult.
I . E E .

Within institutional economics, an important body of knowledge referred to
generally as the transaction cost economics perspective is an interdisciplinary approach
linking law, economics, and organization theory; its concern is the assessment of
alternative institutional arrangements (Willamson, 1985). A major contribution of the
transaction cost economics literature is the application of the behavioral assumptions of
WW deﬁned as behavior that is rational within the conﬁnes imposed by
imperfect information and limited capacity to process it, and opportunp' m, deﬁned as
self-interest seeking with guile. These assumptions affect economic organization in a
fundamental way. Transaction cost economics views the transaction as the basic unit of
analysis, instead of prices or output, as is the case in nee-classical economics. The three
dimensions viewed by this literature are: asset speciﬁcity, uncertainty, and frequency.

This extensive literature thus treats the set of issues which are related to, but not
limited to, the costs described above as physical and exchange costs. For this reason, this
study attempts to avoid confusion by referring to these costs as transfer QSIS, rather
than transactions costs for the remainder of the text. 7

2.4.4 Transfer Costs Analysis and Market Efficiency

The relationship between transfer costs and market efﬁciency or equilibrium can
be viewed in the comparison of transfer costs and marketing margins where, in spatial
equilibrium, physical transfer costs would just equal the spatial margin. .

Analogously, a parity price analysis (Hays and McCoy, 1977) is based on

calculating the price spread, deﬁned as the spatial price difference minus transfer costs.

34

Where price spreads approach zero, it is likely that markets are competitive. However, a
price spread of zero may be seen as necessary but not sufficient for market efﬁciency.
While prices are integated in space, the market may still be inefﬁcient because
economies of scale and scope may not be realized due to asset ﬁxity in the short term or
unwillingress to assume risk on the part of traders. Thus, this spatial integation of
markets may reﬂect a "second-best" condition, rather than an equilibrium point because
the outcome is less desirable than would be the case with realization of economies of
scale.

This type of analysis is also commonly used in trade analysis, where import and
export parity prices represent the c.i.f. or f.o.b. prices plus or minus the transport costs
(Koester, 1986). These two parity prices are commonly compared in order to evaluate
whether transfer costs prohibit trade.

Thus, transfer costs can be used to indicate whether marketing efficiency exists.
Before returning to these issues, the following section brieﬂy shifts the focus to research
undertaken in African marketing.

2.5 Domestic Marketing in Africa

2.5.1 Criteria for Market Performance

According to Jones (1974), marketing research in Africa throughout the 608 and
703 based its hypotheses on the following twelve commonly assumed characteristics of
African marketing systems:

(1) lack of experience in commerce;

(2) obligations to kinsmen make accumulation of funds for business
impossible;

(3) fragnented cultures/ societies inhibit trade and partnerships, and inhibit
capital accumulation;

35

(4) market participants do not seek economic gain, and are usually
unproductively or underemployed; ,

(5) excessive intermediaries increase marketing costs;

(6) excessive seasonal price ﬂuctuations exist because of inadequate storage,
high losses, and high post-harvest sales;

(7) merchants exploit farmers and consumers through monopolistic practices;

(8) arbitrage over space is imperfect due to inferior communication, lack of
public market information, and high transport costs;

(9) non-economic considerations inhibit access to markets;
(10) capital rationing to traders constrains efﬁciency;

(11) imperfect price discovery exists because of lack of standardized units or
quality; and

(12) effective demand is inadequate to support an efﬁcient system.

These assumptions have been proven largely, although not completely nor all of
the time, incorrect in the empirical literature on African marketing.

Shaffer et aL (1983) note that, while extensive research has focussed on pricing
efficiency of traditional markets (i.e., whether prices differ over time or space by more
than the storage or transport costs), the general conclusion that markets gig reasonably
price efﬁcient with respect to time and place leads one to ask whether these are relevant
questions to evaluating market performance in developing countries. Similarly, they
question whether marketing margin analysis, which reveals that margins in traditional
markets are low relative to the industrialized economies, is a good measure of market
performance by arguing that higher margins that can be attributed to increased services
and market coordination may leave the economy better off.

In this analysis, the ”efficient but poor" observation of T.W.Schultz (1976) can

also be applied to traders and markets, as well as producers. Thus, the relevant criteria

36

for evaluating market performance are factors such as market thinness that result in
major ﬂuctuations in price from small changes in supply, unreliability, unpredictability,
and lack of coordination in markets, lack of incentives for specialization and investment,
and the increase of storage risk.

This approach places emphasis on the gem of production and
distribution. By noting that the "efﬁcient but poor" hypothesis also held for traders and
markets, Shaffer et al. argue that efﬁciency is a static concept. Historically, events such
as the expansion of borders or international trade have led to sigriﬁcant changes in
institutional structures through expanded demand and increased production incentives
and access to inputs. These changes have led to the stimulation of active coordination in
the market, which may move the economy to a different equilibrium point, or level of
efﬁciency.

2.5.2 Measures of Market Performance in Mali

Within the past ﬁve years, an important body of research has been undertaken in
Mali by the Michigan State University Food Security Project, collaborating with the
Malian Food Security Evaluation Commission (CESA). For example, Barry (1989), in a
study of 8 retail and 4 wholesale markets, suggests that millet and sorghum markets
constitute strongly integated systems, particularly at the wholesale level.

Mehta (1989) analyzed coarse gain transactions from four wholesale markets,
Bamako, Mopti, Koutiala, and Sikasso, from two periods, 1985 and 1988. The study
revealed an increase in cereals specialization between the two periods, with the market
structure consisting of low-gade oligopolies. Bamako is relatively favored in terms of its

access to capital markets and information, compared to the other three markets.

37
Research undertaken by Dembélé and Steffen (1988) on the performance of

markets in the CMDT (cotton zone) and OHV (Operation Haute Vallée) concludes that
the CMDT rural markets are better integated with urban centers, that traders do not
engage in signiﬁcant storage activities, and that spatial margins are highly unstable at
each level of the marketing chain. However, given the stability of margins between rural
and consumer prices, it appears that the private sector absorbs the brunt of these
ﬂuctuations.

Dione (1989) reports that southern OHV and CMDT rural and wholesale
markets are well integated, with bivariate price correlations between 0.81 and 0.96. The
less integated northern OHV area does not have all-weather roads and therefore is. less
accessible in rainy months.

2.6 A Conceptual Framework of Analysis

The brief expose of the trends both in theoretical and empirical work on the
issues of regional trade, market integation and "efﬁciency," and the role of transfer costs
has revealed that there is scope for extending the linkages between these three
separately addressed, yet very much related, topics.

Returning to the schematic representation of these links, it follows that a
systematic investigation of the role of transfer costs in inﬂuencing market integation can
be used to explore the implications of domestic market integation on the potential and
actual ﬂows of trade in the region.

From the perspective gained from the above review of the literature, the
following assumptions, or norms, form the foundation of the analysis.

As_sumption 1: Trade encourages specialization, realization of economies of
scale, and ultimately, economic gowth.

38

W: Regional trade is a viable and important source of gowth and
food security for the countries of West Africa.

Won}: The underlying comparative advantage of a country is related to
both its domestic production structure and its marketing structure.

Asspmption 4: Transfer costs and marketing margins are important reﬂections of
market performance.

From the above, it follows that an examination of the relationship between
transfer costs and marketing margins, hence market integation, is a relevant
contribution toward better exploring the linkages between domestic marketing and

regional competitiveness.

CHAPTER III

SURVEY METHODOLOGY AND DATA COLLECTION

3.1 Identiﬁcation of "Axes Céréaliers"

The cereals marketing channels or "axes" identiﬁed in terms of their importance
to regional trade are those which connect certain production zones with border markets,
ultimately destined for external markets, passing through one or more transit wholesaler
markets. Generally, a marketing axis is composed of a producer market, a wholesaler
market and, or simultaneously, a border market. Within each axis, two markets are
linked within what is referred to hereafter as a market c1r_cuit. Thus, each market axis is
composed of one or more market circuits. Figure 3.1 indicates where the markets under
study are located on a map of Mali.

3.1.1 The Components of the Market Axis

The producer market is deﬁned as the rural market, most often weekly, where
cereals are sold by farmers to traders, likely to be collectors from a larger market.

The wholesmer market is the market where cereals are sold by the rural
collectors to wholesalers or semi-wholesalers, who then expedite the cereal toward
consumer markets or to other wholesaler markets, or to border markets.

The mrder market is the meeting place of buyers from neighboring countries
who come to Mali to procure gain with the local traders. In certain cases, the border
market is also a producer market where the external buyers purchase directly from
farmers.

A special case of border markets, as well as certain wholesaler markets, is that

they also function as tgapsit points. Thus, the cereal passing through these markets has

39

40

not been transacted by the traders in place. Rather, traders based elsewhere buy the
gain directly from the farmers or from rural collectors. Secondly, not only are the
traders involved not based in the market, but the destination of the sales is also
elsewhere. Thus, a wholesaler from another market may deposit funds with his
representatives in a given market. These representatives buy directly from the farmers
and send the cereals to the market where the trader is based. In this case, given that the
cereals where not actually transacted in the market from which they are sent, either in
the purchase or the sale, the problem lies in determining the transaction price since the
local market price may not be a perfect indicator of the value of the gain involved in
this operation.

It is clear that the cereals ”axes" identiﬁed for purposes of this study are not ﬁxed
from year to year, nor even within the course of the marketing year. These axes depend
on the current production outlook in the various areas, as well as the demand situation
in the markets of destination.

One must also bear in mind that the ﬂows through the marketing channel are not
limited to a single direction, as implied in the general and simpliﬁed description above.
In fact, a market which functions as a wholesaler market for the domestic market may
also be a transit point for the regional market, especially if this market is also a border
market. Similarly, the producer market may also be a border market, etc.

Therefore, the same cereals ”axis" may comprise several "sub-axes," in view of the
multiple roles of certain markets. This complexity of cereals marketing channels in
reality makes the characterization of market ﬂows more difﬁcult. For this reason, we
start by qualifying the markets included in this study by the typology presented below, in

order to identify the multiple roles of each market. The identiﬁcation of these roles by

«41

 

- O. as".

99...“. .. ....¢.

.o u g a
< x u u x a .

 

 

'II

. o O
o o

<uz_:o

. o..«o=<u . .

. . .ou:.a<.
O

o
. . . «p..
o o o 0.. o

. .=<uoaox . .
. . .u»<u

<¢<a
O

< ~.= < n . u a < a

f

nae: so one-:5»:

 

' II I as o .318

 

 

Figure 3.1 Map of Mali

42

market will enable a fuller description of the marketing "axes" chosen for the study.
3.1.2 Typology of Cereals Markets
The markets comprising the marketing channels were identiﬁed in terms of their

roles through interviews with traders in each market and discussions with local oﬂicials.

F Market: Producer Wholesaler Transit Border
Point

Badinko X

 

Kita
Kayes

Nara

><><><><><
><><><><

Kolokani

Zangasso
Koutiala

 

I! Bamako

Figure 3.2 Typology of Cereals Markets in 1989-90

As ﬁgure 3.2 above indicates, it is rare for a market to be limited to only one
function, as is the case for Zangasso. In the case of Nara, all four roles are identiﬁed.
Figure 3.3 presents a schematic description of the marketing axes, and within each axis,

the various market circuits that link two markets.

43

 

M A U R I T A N I A

S
E
N KOLOKANI
KAYES
E
G KITA
.A
B DINKO
L
BAMAKO
‘/;£UTIALA
ZANGASSO

NidhiO‘SPi-ED MtiCDO

 

 

 

Figure 3.3 Cereal Marketing Axes

3.1.3 Description of Cereals Marketing Axes
The preceding ﬁgure gives a global presentation of the ﬂows between the

indicated markets. However, one can distinguish between these ﬂows those which

44

represent major circuits in terms of their importance to domestic and external trade in
the region.

These circuits are:

(1) Badinko - Kita

(2) Badinko - Bamako

(3) Kita - Kayes

(4) Bamako - Senegal

(5) Kolokani - Nara - Mm

(6) Bamako - Nara - Mi;

(7) Zangasso - Koutiala - Qte d’vap“ e

(8) Koutiala - Bamako

Circuits (1) and (2) are located on the rail line and, in the ﬁrst circuit, link a
producer market with a wholesaler market. In the second circuit, a producer market is
linked to an urban consumption center.

Circuit (3) is a relatively important channel in terms of volumes transacted,
namely between the wholesaler market of Kita and the wholesaler/ consumer markets of
Kayes. Through this channel, there are also ﬂows from Kayes to Senegal and to
Mauritania, although the volumes involved do not appear important. There are more
important volumes, however, exported to Sénégal, through the circuit directly linking
Bamako and Dakar, along the railway.

Circuit (5), which links Kolokani to Nara, is a very important circuit in terms of
the volume of exports. Nara is also supplied by traders in Bamako, along circuit (6).
This axis was particularly important in 1990 due to the production shortfalls in the Nara

area resulting from locust attacks.

45
Finally, the circuit linking the wholesaler market of Koutiala and the Ivoirian

market was less important in 1990 compared to previous years. The reasons underlying
this situation may be the loss of competitiveness of Malian millet relative to other
exporters in the region, such as Ghana, with whom trade may appear more attractive as
it is outside of the franc zone. Koutiala also functions as a transit market for traders in
Bamako, who export directly to C6te d’Ivoire by way of Koutiala. In addition, Koutiala-
Bamako is a principal circuit for domestic marketing.

3.2 Market Prices

3.2.1 Survey Methodology and Sample

Market prices used in this study were collected by the Systeme d’Information des
Marches (SIM), based in the Ofﬁce des Produits Agicoles du Mali (OPAM). The SIM
price data collection covers 58 markets, of which 47 are collected by SIM agents and 11
markets are collected by agents of the Systeme d’Alerte Précoce (SAP). The
enumerators collect prices at three levels: producer, wholesale, and consumer prices, for
six cereals: millet, sorghum, rice "RM40" (40% broken, domestic and imported), rice
”BB" (100% broken, domestic and imported) and paddy rice.

The methodology used for the weekly price collection throughout the period of
analysis (November 1988 through July 1990) is based on random sampling techniques.
Thus, for the day of the week considered to be the survey day, 10 respondents are
chosen at random among the sample population of traders present in the market.

This methodology takes into consideration two hypotheses:

(1) the ideal case in which the traders collaborate with the enumerator. In

this case, the enumerator composes an exhaustive list of traders in the

market, from which he randomly (by lottery) selects ten each week for the
survey.

46
(2) the case in which the traders are unwilling to be included in a permanent
list of respondents. In this event, the enumerator is obliged to count the
traders in the market each week, and if the number exceeds 10, he divides
the total by 10 to get the sampling frequency.

After determining the sample, the enumerator collects the different prices, either
purchase or sale, depending on the actors. The enumerator asks the following:

- have you purchased or sold gain on the market today?
- if so, from (to) whom?

On the basis of the above, the enumerator determines whether the price is either
producer (bought from producer), wholesaler (bought from trader), or consumer (sold to
consumer).

3.3 Transfer Costs

3.3.1 Survey Methodology

Within the context of the collaborative research project between the SIM, the
International Food Policy Research Institute (IFPRI), and Michigan State University
(MSU), a one-shot survey between May and July 1990 was conducted with the objective
of determining the transfer costs of cereals marketing.

The methodology for this survey, in the markets identiﬁed as important for the
regional market, was essentially purposive-type sampling with as complete as possible a
sampling of all wholesalers and semi-wholesalers in each market.

The survey was conducted in two rounds for each market. The objectives of the
ﬁrst round were:

(1) to identify the market "axes" and circuits;

(2) to determine the sample of wholesalers and semi-wholesalers in each
market;

(3) to establish contact with local administration ofﬁcials and para-
govemmental structures; and,

47

(4) to pre-test the questionnaire with certain traders.

Thus, as noted earlier, on the basis of interviews and discussions, the market
circuits identiﬁed for the study are:

(1) Badinko-Kita

(2) Kita-Kayes

(3) Kolokani-Nara

(4) Zangasso-Koutiala

(5) Koutiala-Bamako

(6) Kolokani-Bamako

(7) Badinko-Bamako

(8) Bamako-Nara

The second round of the survey had the following objectives:

(1) to submit the questionnaire to the traders identiﬁed in the ﬁrst round;
and

(2) to complete supplementary information obtained from interviews with
local officials.

3.3.2 The Questionnaire
The questionnaire retained for the structured interviews, after modiﬁcations after
pre-testing, is divided into three principal categories:

(1) general information on principal activity, cereals traded, origin and
destination of transactions;

(2) the frequency and volume of transactions; and

(3) the costs of transactions.

In the third category, there are 4 principal elements covered by the questionnaire,
for which precise questions are asked: the costs of transport, storage, treatment of

stocks, and the costs of acquisition/ﬁnancing/regulation. While the first three are

48

essentially physical costs, the latter gouping represents the costs of coordination within
the marketing system, or "exchange” costs. '

Approximately 90% of the interviews were carried out by a team composed of
the MSU/IFPRI researcher, the director of SIM, and the local SIM agent, leading to a
better control of the information entered and a reduction of error. The interviews were
carried out in Bambara and lasted between 30-45 minutes.

3.3.3 The Sample

The sample of traders obtained for the survey totals to 82 traders, wholesalers
and semi-wholesalers, out of a population of 86, according to the census of traders
available from both the SIM operation as well as the ﬁrst round surveys in each market.

The distribution of traders surveyed across the markets reﬂects the large
differences between these markets, namely between producer markets and wholesaler
markets, and between Bamako and the rest of the markets.

TABLE 3.1. Number of Respondents by Market

 

 

 

MARKET NUMBER OF RESPONDENTS
Sagabary 2
Badinko 3
Kita 9
Kayes 9
Nioro 5
Nara 7
Kolokani 6
Koutiala 8
Bamako 32
TOTAL ' 81

 

 

 

CHAPTER IV

SITUATION, STRUCTURE, AND PERFORMANCE OF CEREALS MARKETING

4.1 Methodology of Analysis: The Subsector Approach

The methodology employed in this chapter is based on an application of the
following paradign: situation - structure - performance (SSP), applied to each
administrative circle and market for the 1989-90 harvest year. The theoretical approach
underlying subsector studies implies the idea of a chain of causality linking the basic
conditions constituting the §i_tpa_tio_n of supply and demand with those constituting the
My; of the market, the gaging; of economic actors, and the perm in
economic terms of the market.

Within this approach, two schools of thought can be distinguished: the
structuralist vs. the conduct perspective. In the former, more importance is attributed to
the structure of the market as determining the market performance, while the latter
perceives conduct as being pivotal to the economic performance of markets.

The approach taken in this study conforms more closely to the structuralist
perspective, with additional emphasis on the aspect of "situation," without knowledge of
which an attempt to evaluate the performance of markets will fall short. However,
aspects of conduct will also be noted where it seems appropriate.

(1) Situation

The situation of the marketing system can be understood as the set of basic

factors characterizing a given market. Among these basic elements, one aspect is that of

the local supply, the level of local production of the exchanged good.

49

50
A second aspect is that of the local demand. Implicitly, knowledge of local

demand is required in order to determine the level of marketable surplus/ deﬁcit relative
to the local needs, tastes and preferences, for the exchanged good.

Another factor is the degee of Mien into alternative sources of income,
that is, the importance to farmers of the market relative to other possibilities.

A fourth dimension is that of the proportion of W i.e.,
government parastatals, cooperatives or non-government organizations, relative to the
private sector in the market.

Another physical element basic to the marketing system is that of the w
m related to the physical distances between points of transfer.

In addition, the situation or basic conditions of the market are sigriﬁcantly
affected by the palm of the product that is exchanged. In the case of cereals, one
aspect is the sgprabilig of gains for up to two years, depending on the infrastructure and
ability of operators to use effective phytosanitary treatment. Secondly, cereals are b_u_lk1
and therefore are likely to incur high handling and transport costs, with the opportunity
for economies of scale.

The degee of ﬁxed assets required to operate cereals trade is also another
aspect of the market situation.

Finally, the ﬂows of m' fem: ation between market agents and, generally, prevailing
in the economy, also has an important inﬂuence on the market situation.

(2) Structure

According to the chain of causality embodied in the SSP paradign, the factors

comprising the market structure are linked, although not necessarily entirely due, to the

elements of the market situation. In contrast to the quantitative elements of market

51

situation, structure is based on more qualitative factors, such as the characterization of
economic agents in the market. Thus, one element of market structure is a Mpg: of
traders, in terms of their level of operations.

A second factor is the period or lapgyhmar'lreth—mgacﬁm which may vary
depending on basic elements such as supply and demand as well as market access.

The exchange §ystem employed by the traders, i.e., cash, barter, credit or a
combination of these, also constitutes an element of the structure of markets.

linked to the above-mentioned typology of actors as well as to the period of
activity is the degee of §pecialization of traders and the degee of trader copcentration
existing in each market. Specialization in cereals trade is inﬂuenced by a number of
factors. In particular, the nature of existing contractual arrangements is affected by the
degee of market thinness as well as the type of institutions existing in the market.
Contractual arrangements between traders can take the form, of agent-wholesaler
relations within a single operation or supplier-buyer relations between two separate

entities. These factors take the aspect of market conduct and will be discussed as such.

 

(3) Performance

Within the SSP paradign, market links are evaluated both quantitatively and
qualitatively. However, the evaluation of market performance becomes problematic in
light of what constitutes ”good" versus "bad" performance. One approach to solving this
normative issue has been to identify standards of ”efﬁciency" in relation to which
performance may be judged. Frequently, norms are drawn from the model of perfect
competition. However, this approach has been weakened by the restrictive conditions
required to meet those norms, which are hardly fulﬁlled in reality. In fact, these

conditions are themselves based on normative judgements of the ideal conditions for

52

markets. Generally, the conditions for perfect competition are that (1) information ﬂows
freely and “perfectly"; (2) there are no barriers to entry or exit to the market; (3)
products are homogenous; (4) there are many buyers and sellers in the market; and, (5)
there are no price setters (Debertin,1986).

In this section, this theoretical debate is temporarily bypassed by a simple
characterization of markets without attributing norms of performance.

A ﬁrst element in the qualiﬁcation of performance is the estimation of ymltmﬂ
marketed. Another factor is the capacity and means by which traders mm and
11913. the traded good.

A very important factor in the qualiﬁcation of market performance is the
stability, as well as the level, of market prices, which are clearly linked to both elements
of situation as well as structure.

Similarly, linked to the level of prices as well the basic conditions underlying the
market and the structure of the market, the level of marketing costs is an integal
element of the functioning of markets.

The last two elements of market performance will be treated in depth in the
analysis of margins and costs in the following chapter.

Figure 4.1 presents schematically the paradign which has been brieﬂy described
above.

The icharacterization of markets by the above paradign will be carried out
comparatively for three speciﬁc axes, which are located in different zones, with aspects of
transport infrastructure, local supply and demand, and external market access, unique to

each of the three.

53

 

SITUATION

LOCAL SUPPLY AND DEMAND
PRODUCTION DIVERSIFICATION
NON-PRIVATE ACTORS

ACCESS TO MARKETS

NATURE OF PRODUCT

ASSET FIXITY

INFORMATION FLOWS

\ STRUCTURE

\ TYPOLOGY OF TRADERS
\ MARKETING PERIOD
\ EXCHANGE SYSTEM
TRADER SPECIALIZATION
TRADER CONCENTRATION

[ cououcr ]

CONTRACTUAL ARRANGEMENTS
LEGAL/ILLEGAL TACTICS
PRICING BEHAVIOR

PERFORMANCE

MARKETED VOLUMES

TRANSPORT AND STORAGE CAPACITY
MARKET PRICE MOVEMENTS
TRANSFER COSTS LEVELS

 

 

 

Figure 4.1 Situation - Structure - Performance

54

The ﬁrst of these axes is Badinko-Kita-Kayes, with access to transport by train, a
slight cereals surplus, and proximity to both Senegalese and Guinean borders.

The second axis, Bamako-Kolokani-Nara, is connected by a gavel road, with
difﬁcult passage in the rainy season. This axis is located in a deﬁcit zone, particularly in
Nara, and with access to an important external market, that of Mauritania.

The third axis, Zangasso-Koutiala-Bamako, contrasts with the other two in terms
of its superior road infrastructure and a very important cereals surplus. The external
market to which it has access is that of C6te d’Ivoire.

Thus, the following descriptive analysis begins by a characterization of the
administrative circles in which these axes are located, followed by a comparative analysis
of their market structures and performance.

4.2 Situation By Administrative Circle

4.2.1 Kita Circle

The circle of Kita is one of the two surplus pockets in terms of cereals production
amongst the circles covered in the study. Total cereals production in 1989-90 was
estimated at 54,098 tons by the local authorities in the rural development organization
(ODIPAC), representing 2.5% of the goss production of Mali (Ofﬁce de Stabilisation et
Regulation des Prix, May 1990). \

The cereals surplus represented 8.7% of the circle’s production in 1989-90. The
level of non-private sector marketing, by 68 village associations, was relatively weak in
1989-90, according to local ofﬁcials. Only 303 tons, or 19% of the 1567 tons originally
planned, were bought by the associations. Including stocks recycled from the last year,

the total marketed volume by these structures was 649 tons, representing 14% of the

cereals surplus in 1989-90. This weak performance is attributed to the administrative

 

55
delays in the disbursement of PRMC credit by the Banque N ationale du Developpement

Agicole (BNDA), whose funds arrived to the associations in March 1990, when prices
were considerably higher than the November-December period when they were to have
arrived.

Recorded statistics by local ofﬁcials of the volumes transported since the harvest
out of Kita by train as well as by road reveal that 77% of the recorded trade is by train,
with a total amount as of early June 1990 of 1,273 tons. This amount, in addition to the
volume marketed by the village associations, represents 1,922 tons or only 41% of the
cereals surplus for the circle.

In fact, in light of this somewhat weak rate of commercialization, local officials
noted considerable non-marketed stocks at the producer level. This has led to difﬁculty
in certain production areas, such as Sagabary, of farmers to meet tax payments. Weak
trader activity is linked to what was perceived as a second consecutively good harvest,
resulting in traders holding unliquidated cereals stocks from the previous year.

In addition to cereals production, the circle of Kita is a highly productive zone
for goundnuts, with an estimated production of 29,800 tons, or 55% of cereals tonnage.
Valued in market prices (1987 average producer prices, World Bank 1989), goundnuts
represented. 69% of cereals production. Since goundnut production is almost entirely
destined for cash revenues, the farmers in this circle have access to a relatively
diversiﬁed income base.

In spite of the inadequacy and the extremely poor condition of roads in this
circle, the wholesaler market of Kita is linked to several rural markets within close

proximity, such as Sagabary (80 kms), Segouna (105 kms), Lambidou (155 krns),

56
Kokofata (65 kms), Baﬁn Makana (125 kms), Namala (40 kms), Bangassikoro (56 kms)

and Djidian (22 kms), as well as, by rail, Badinko (30 kms) and Sebekoro (65 krns).

The markets to which sales from Kita are destined, such as Bamako and Kayes,
are accessible by rail, or in the case of Nioro, by poor road at a distance of 250 krns.
Finally, the Guinean markets of Siguiry and Balato are located 180 krns and 155 krns,
respectively, from the border market of Sagabary.

4.2.2 Kayes Circle

The circle of Kaycs had a slight surplus in cereals production in 1989-90, with a
total volume of production estimated at 32,500 tons, of which a marketable surplus of
1,000 tons, or 3%, existed in that year.

However, the volume marketed by the village associations was relatively high in
comparison to the surplus, 324 tons, or 32% of the cereals surplus.

As in the case of Kita, the circle of Kayes has a diversiﬁed production base, with
11,755 tons of goundnut production in 1989-90, representing 23% of cereals production
in value terms. The low proportion of goundnuts in value terms was due to the high
prices of cereals in Kayes.

The Kayes market is supplied mainly by train, principally from the Kita market
for traditional cereals (millet and sorghum), and from Bamako and the Ofﬁce du Niger
for domestic rice. The markets of destination for gain transported out of the Kayes

market are Yelimane (151 kms), Nioro (255 kms) and Kenieba (250 kms).

57
TABLE 4.1. Cereals Production in 1989-90 by Circle (tons)

     

  

MILLET/SORGHUM . MAIZE TOTAL L

        
     
 

 

Kita 38,300 14,900 ' 898 54,098
Kayes 21,154 10,168 1,180 32,502
Nara 13,846 0 0 13,846
Kolokani 21,046 814 0 21,860

90,870 24,620 0 115,490

 

  
 

Sources: ODIPAC,Kita; Direction Regional d’Agiculture, Kayes; Secteur d’Agiculture,
Nara; ODIPAC, Kolokani; CMDT, Koutiala

TABLE 4.2. Cereals Surplus in 1989-90 by Circle (tons)

 

IT” I amﬁwﬁﬁ”- I .i_-,___ ____ ,___ __, k-!,

g CIRCLE PRODUCTION SURPLUSl

 

 

DEGREE or SURPLUS I

(% Surplus/Prod’n) ;

II Kita 54,098 4,710 9% I
Kayes 32,502 1,000 3% I
Nara 13,846 -4,163 -30%
Kolokani 21,860 551 3% Q
Konalaﬂut- 115,490 61,376 53% - _ j

Sources: ODIPAC,Kita; Direction Regional d’Agiculture, Kayes; Secteur d’Agiculture,
Nara; ODIPAC, Kolokani; CMDT, Koutiala

4.2.3 Nara Circle
Cereals production in the circle of Nara was severely reduced in 1989-90 by a
locust attack in the harvest season, especially of the millet harvest, resulting in a

signiﬁcant cereals deﬁcit of 4,163 tons, with a total volume of production of 13,846 tons.

 

1 Surplus data were obtained from local authorities who based these ﬁgures on estimates of
consumption for the local population which varied between 167 to 222 kg by person by year.

58

Millet production in this area is principally destined for Mauritanian markets,
while local demand is partially met by sorghum.

Given the poor harvest, no PRMC/BNDA funds were disbursed for the village
associations to buy cereals. These funds are one component of the donor-assisted
market restructuring progam, by which credit is made available toward purchase of
cereals at the village level, in order to provide farmers liquidity right after the harvest
and to support producer prices. ‘

Groundnut production in the circle was relatively weak, with 310 tons, or 2% of
cereals production in 1989-90, hardly compensating for losses in cereal incomes caused
by locust damage.

Due to the production deﬁcit in the circle, the Nara market was supplied in 1989-
90 from outside markets such as Bamako (374 krns), Kolokani (240 krns), and Banamba
(204 krns) for coarse gains, and Niono (218 kms) as well as by Mauritanian traders for
rice.

The Nara market represents a focal point in the exchange of cereals from interior
markets, namely Bamako and Kolokani, to Mauritanian markets. In normal harvest
years, this trade is secondary to trade in millet from the circle of Nara itself, while in
1989-90, traders in Bamako proﬁted from the expanded trade opportunity afforded by
the locust attack in Nara.

The Mauritanian market closest to Nara is that of Adel-bagoro (55 krns), where
much of Malian cereals transit before being expedited to the interior of Mauritania.
Thus, the market of Nara is a focal point of departure for important volumes of millet

exports to the interior of Mauritania. This is demonstrated by the use of large 30-ton

59

trucks to transport cereals from Nara into Mauritania, observed typically on the market
day.

Road conditions make access to Mauritanian markets with large vehicles difﬁcult,
if not impossible, in the rainy season, limiting the potential of this transit market.

4.2.5 Kolokani Circle

Cereals production in the circle of Kolokani was also subjected to a locust attack
in 1989-90, resulting in only a weak cereals surplus in a normally highly surplus zone.
Total cereals production was 21,860 tons in 1989-90, with a surplus relative to demand of
551 tons, or 3% of production.

As in the case of Kita, the participation of the village associations in cereals
marketing was geatly reduced by administrative delays in the disbursement Of credit
funds by the BNDA. When funds became available in April 1990, only 7 out of the 29
proposed associations chose to take the credit. Fears that the rise in cereals prices
would prohibit sales and, thus, cause problems of repayment, in addition to certairn
associations’ inability to meet bank conditions, led to this poor performance. Only 56
tons, representing 10% of the surplus, was bought by the associations.

Groundnut production represented 35% of cereals production in value terms,
with 4,345 tons produced. This ratio is thus likely to be lower in good cereals harvest
years.

Several rural markets in close proximity supply the Kolokani market, namely
Guiyoyo (25 kms), Toumanibougou (35 kms), Tioribougou (25 krns), Gueledo, and
Sabougou. The markets of destination are principally Bamako (130 kms) and Nara (240

kms), with more difﬁcult access in the rainy season.

60
TABLE 4.3. Non-Cereal Crop Production in 1989-90 (tons)

 

 

DEGREE 0F
CIRCLE GROUNDNUTS COTTON DIVERSIFICA’ITON2
Kita 29,800 0 69%
Kayes 11,750 0 23%
Nara 310 0 2%
Kolokani 4,345 0 35%
Koutiala 46,750 0 84%

 

 

 

Sources: ODIPAC,Kita; Direction Regional d’Agiculture, Kayes; Secteur d’Agiculture,
Nara; ODIPAC, Kolokani; CMDT, Koutiala

4.2.6 Koutiala Circle

The circle of Koutiala, located in the high rainfall zone of Mali, is a very
important cereals production area, with 115,490 tons estimated output in 1989-90,
constituting 5.4% of the total cereals production of Mali.

The sizeable cereals surplus, estimated at 61,376 tons, represented 53% of
production. This indicates cereals yields per inhabitant clearly superior to the other
circles in this study. This high yield in cereals production has been linked to the highly
viable cotton production in this area (Dione, 1989).

In contrast to Kita, the other surplus circle, the village associations did not
participate at all in buying cereals during 1989-90, given unsold stocks of 1791 tons from
the preceding year.

As mentioned above, the circle of Koutiala is a very important cotton zone, with

46,750 tons of output in 1989-90. This output, in value terms, represented 84% of

 

2 % (value of non-cereals/value of cereals), valued at average 1987 producer prices for
goundnuts and cotton (from African Economic and Financial Data, World Bank, 1989) and
1989-90 average producer prices for cereals for each circle.

 

61

cereals production, constituting a very important source of diversiﬁed income to Koutiala
farmers. Also, it is likely that, given the higher incomes of this zone, non-farm activities
are more important in this area.

The rural markets which supply the Koutiala market and the markets of
destination are linked by excellent all-weather roads, in sharp contrast to elsewhere in
the study. The major rural markets linked to Koutiala are Zangasso (35 kms), Togolasso
(40 kms), Bogola-Zangasso (60 kms), Kimparana (80 kms), M’Pessoba (63 kms) and
Molobala (45 kms). The markets to which output is destined are Bamako (400 kms),
Mopti (365 kms), and Sikasso (130 krns).

TABLE 4.4. Cereals Purchases by Village Associations
in 1989-90 by Circle (tons)

 

 

 

 

CIRCLE PRODUCTION PURCHASES BY VILLAGE ASSOCIATTON
Level % Production % Surplus
Kita 54,098 649 1.2% 13.8%
Kayes 32,502 324 1.0% 32.4%
Nara 13,846 0 0.0% 00.0%
Kolokani 21,860 56 0.3% 10.2%
Koutiala 115,490 0 0.0% 00.0%

 

Sources: ODIPAC,Kita; Direction Regional d’Agiculture, Kayes; Secteur d’Agiculture,
Nara; ODIPAC, Kolokani; CMDT, Koutiala

4.2.7 Comparative View of Three Axes

In terms of supply and demand conditions, the ﬁrst axis, Badinko-Kita-Kayes
(extending over two administrative circles, Kita and Kayes), with the weak cereals
surplus, contrasts with the second axis, Kolokani-Nara, I which has a weak surplus in
Kolokani and a deﬁcit in Nara, and even more sharply with the circle of Koutiala, in

which both Zangasso and Koutiala markets are located.

62

The surplus/ deﬁcit situation appears to be linked to the degee of diversiﬁcation
into other crops, in that the same pattern is followed for the three axes. While the
deﬁcit axis has very little diversiﬁcation, the circle of Koutiala is highly diversiﬁed into
cotton production. This may reﬂect an important link with rainfall patterns, which also _
vary by regions and circuits.

However, the relationship between senni-private marketing and production differs
from the above pattern in that no village associations were active in buying cereals this
year in both the deﬁcit axis (Kolokani-Nara) and the surplus axis (Zangasso-Koutiala).
4.3 Market Structure

In keeping with the comparative focus on the three axes of interest, the following
analysis attempts to identify key structural characteristics for each market along the
three axes, that can be evaluated comparatively.

Thus, the structure of the speciﬁc markets will be viewed separately, with an
emphasis on the points of comparison between the Badinko-Kita-Kayes, Kolokani-Nara,
and Zangasso-Koutiala-Bamako axes.

4.3.1 Badinko

Badinko is principally a producer market, located alongside the railway. The
traders in place assemble cereals from farmers who come to Badinko on the weekly
market day, as well as in nearby rural markets.

There are 3 traders engaged in this assembly activity, mainly for sorghum, who
then sell the cereal at the side of the railway tracks to collectors from Kita, Kayes or

Bamako who arrive on the train on the market day.

63
The period in which the assembly of cereals takes place is constrained by the

condition of roads between Badinko and other rural markets. Marketing activity is
essentially linnited to between November and July.

The exchange system prevailing between Badinko traders and farmers as well
between Badinko traders and outside traders is usually cash.

The degee of specialization of traders in cereals marketing is relatively weak,
with only 1 of the 3 traders in Badinko indicating that cereals trade is the principal
activity. This is explained by two factors: the priority given to agicultural activity, given
that Badinko is a small rural market, and the constraints to marketing imposed by the
road conditions.

Similarly, the degee of competition between traders can be qualiﬁed as relatively
weak since local traders operate within established and longstanding working relations
with the collectors from outside, based on trust and loyalty. These links effectively
present a barrier to unknown newcomers from other areas.

4.3.2 Kita

With 3-4 wholesalers and 8 semi-wholesalers, as deﬁned by the Systeme
d’Information du Marche (SIM) in terms of operators’ size, the market of Kita
represents an important center for assembly and dispatching of cereals to the markets of
Kayes and Bamako, as well as Nioro.

The transport of cereals from rural markets to Kita is also constrained by the
quality of roads, limiting the period of marketing activity to from November to July.

The degee of specialization in cereals marketing is relatively high, with 78% of

traders indicating cereals trade as their major activity. However, cereals marketing is

64

integally linked to goundnut marketing, with the same set of traders engaged in both
activities.

The degee of competition among traders, due to their larger number, is also
potentially high. However, according to ﬁeld interviews, traders have worked out among
themselves a system to counteract competition by establishing informal "territories" of
rural supply markets. These rural markets are usually within a 50-100 km radius of Kita.
Given the poor condition of roads, it is not likely that farmers have the option of going
to alternative markets to seek better prices. .

4.3.3 Kayes

In the Kayes market, there are 4 wholesalers and 4 semi-wholesalers, with the
large operators specialized almost exclusively in rice marketing.

Given the accessibility by train throughout the year, commercial activity is year-
round in Kayes.

The system of exchange between Kayes and Kita traders for coarse gains trade
is mainly cash payments, while the large rice traders beneﬁt from purchases on credit.

Moreover, the larger capacity of traders in Kayes, the local market near-deﬁcit
and the access by train, are perhaps linked to the relatively high degee of specialization
(89%) in cereals marketing. Here, also, cereals trade and goundnut trade are linked
and complementary.

4.3.4 Kolokani

The market of Kolokani, which is comprised of 7 wholesalers, is located in a
normally high-production area, with important ﬂows of cereals to Bamako as well as

Nara.

65
TABLE 4.5. The Economic Actors by Market

 

iﬁ

MARKET NUMBER OF PERIOD OF

 

 

PRINCIPAL CER. .

WHOLESALERS MARKETING ACTIVITY (%) '
Badinko 3 N ov-J uly 33%

Kita 12 Nov-July 78% A I

Kayes 8 all year 89% S

I Nara 7 Nov-Aug 17% i

Kolokani 7 N ov-J uly 50% l

i Koutiala 12 all year 78% '

l __‘“‘L I 32 _ __________a"yea_751-_I

Source: ﬁeld interviews

The most active period of marketing is between January and March, although
trade occurs throughout the year.

While exchanges between Kolokani and the rural supply markets are in cash,
barter is the dominant system of exchange with Mauritanian traders between Kolokani
traders who transact in the Nara market. Recently, given the increasingly severe
repression by the Malian government of smuggled goods, traders indicate a strong
preference for cash payments.

Due to the shortfall in cereals production in 1989-90, commercial activity was
relatively more concentrated in the goundnut trade. However, 50% of cereals
wholesalers still indicated cereals marketing as their principal activity.

4.3.5 Nara

Nara, a border market as well as a wholesaler and transit market, seems to
operate in a more structured manner, with larger volumes of trade than the other border
markets viewed in the study. There are 7 traders in place, who, in good harvest years,

supply themselves in the circle of Nara, and, in bad years as in 1989-90, purchase from

66

traders in Bamako. The Nara traders are linked to numerous Mauritanian wholesalers
who are regularly present in the market of Nara to purchase and transport signiﬁcant
volumes of millet for the domestic Mauritanian market.

These ties are based on kinship or longstanding bonds of confidence, which
represent barriers of entry to other entrants. Inasmuch as the trading activities are
considered clandestine, they are undertaken at night with considerable risk of seizure by
the local authorities. In fact, despite the relatively intense export activity, there is not a
single trader in Nara with an official export license.

The period in which marketing takes place is unrestricted for exchanges between
Nara and the markets of Bamako and Kolokani, but the rainy season renders access into
Mauritania difﬁcult between July and September.

In contrast to other border markets engaged mainly in barter, the dominant
exchange system prevailing between Nara traders and Mauritanians is in cash, resulting
in an active parallel market between the Mauritanian ouguiya and the CFA franc. This
is confirmed by the different parallel market rates for the CFA franc on the two sides of
the border. In July 1990, traders indicated during interviews that, while the CFA franc
sold for 0.44 ouguiya in Nara, it sold for 0.33 ouguiya on the Mauritanian side,
demonstrating the higher demand for the franc by Mauritanian traders buying Malian
millet in Nara.

Alongside the large-scale operations that are observed in Nara, there are smaller-
scale exchanges between traders from Kolokani and Mauritanians based near the border.

These exchanges are more likely to be barter.

67

Alongside grain marketing, traders in Nara are engaged in trade of Mauritanian
goods, obtained either through barter or bought from Mauritanian traders. I This is
confirmed because only 17% of traders indicated a specialization in cereals marketing.

Competition existing in this market is at the level of the items imported
informally from Mauritania, which sell at a lower price than their Malian substitutes, as
they are usually re-exported goods. This explains the official repression of exchanges
with Mauritania, which counteract Malian protectionist policies for manufactured items
such as cloth, as well as rice.

4.3.6 Koutiala

Koutiala is located in the most productive and commercial zone of Mali by far,
from where major ﬂows of cereals to the interior of the country originate. There are at
least 12 traders in place who assemble cereals from rural markets such as Zangasso and
M’Pessoba. A unique aspect of traders’ activities, in comparison to others in this study,
is that they undertake the transport of purchased cereals, not only between the rural
markets and Koutiala, but also between Koutiala and the markets of destination, that is,
to wholesalers in Bamako, Mopti, and Sikasso. Thus, the Koutiala traders are more
involved in the marketing chain, as they capture the entire margin between the rural
market to the urban wholesaler markets.

As far as their trade with Ivoirian traders is concerned, exchanges take place in
Koutiala with incoming traders. This trend was reversed in 1988-89, with a large number
of Malian traders from Koutiala transporting their cereals directly to Ivoirian urban
markets.

Another unique aspect of the Koutiala market, relative to others in this study, is

the excellent condition of the roads, enabling year-round marketing activity.

 

68

While the exchange system between farmers in rural markets and traders is in
cash, traders in rural wholesale markets may be using a "credit fournisseur," or supply
credit, obtained from a larger trade in Bamako or Kayes. In this case, the larger traders
supply funds for purchases to smaller operators, from whom they obtain cereals for a
given commission.

The degree of specialization of traders in Koutiala is relatively high (78%) due to
good roads, high volumes of local production, and, importantly, access to PRMC credit.

Despite active marketing in Koutiala, competition among traders does not seem
high due to possible informal price-fixing of rural market prices, which appear stable at 5
F CFA/ kg. below the Koutiala market price, as well as contractual" type arrangements
between Koutiala traders and their buyers in Mopti and Bamako. However, these
arrangements may be based on a competitive equilibrium, and will be investigated in the
following chapter.

4.3.7 Bamako

There is a very large difference in terms of number and capacity of traders in
Bamako relative to elsewhere in this study. Thus, there are 32 cereals (including rice)
wholesalers in Bamako, with the capacity to supply the urban consumer market and
engage in official export activities.

Marketing is not limited to a particular period of the year, and depends
principally on the following axes: Koutiala-Ségou—Bamako, Niono-Bamako, Bamako-
Kolokani-Nara, or by train, Bamako-Kita-Kayes.

Exchanges with traders in satellite markets such as Koutiala or Ségou are
predominantly in cash. Alternatively, Bamako traders place funds for purchase of grain

with collectors in rural markets in these zones.

69
The degree of specialization is relatively high, 75%, linked in part to traders’

access to PRMC credit.

On the surface, given the large number of traders and local markets within the
city, there appears to be a higher level of competition between traders. However, this
market is characterized by a low-grade oligopoly in which a few "giants", especially with
regard to rice marketing operations and ofﬁcial exports of coarse grains to the
neighboring countries, dominate the market. Evidence suggests that between 1986 and
1988, four wholesalers accounted for approximately 40% of the' cereals marketed.
(Mehta, 1989).

4.3.8 Comparative View of Three Axes

For all three axes, the above discussion reveals that there is a higher degree of
specialization along the Badinko-Kita-Kayes and the Koutiala-Bamako axes compared to
that of Kolokani-Nara, where traders are engaged in trade of other goods, imported
clandestinely from Mauritania.

Given that transport infrastructure determines the period of marketing activity,
the Badinko-Kita-Kayes and Koutiala-Bamako axes function throughout the year, while
the period is shorter along the Kolokani-Nara axis.

4.4 Market Performance

4.4.1 Market Volumes

The actual volumes bought and sold by traders are actually very difficult to
estimate in a one-shot type of survey for a number of reasons, such as the fact that there
are hardly any written records kept by the traders and that the marketing period varies

inter-annually.

70

In addition, there is a seasonality pattern in marketing over the year. A bi-
modal trend in marketing activities exists, with two marketing peaks. One peak occurs in
the period immediately following the harvest, when prices fall due to the ﬂooding of
grain into rural markets. This is due to the farmers’ need for cash to meet tax and other
payments. The second peak occurs in the roughly two-month period immediately prior
to the period of heavy rain, when prices are rapidly rising as farmers’ stocks become
liquidated and the threat of impassable roads leads to increased stocking by traders as
well as by consumers. The period in between these two, extending from February to
April, is essentially that in which marketing activities are stable with gradually increasing
prices.

The approach taken in the survey was to estimate the most typical or average
volumes purchased by the trader in a month since the beginning of the harvest year. In
the event where the traders indicated two typical "cases", for each of the bi-modal peaks,
the average between the two was used.

Thus, Table 4.6 indicates a large variation in average volumes of coarse grains
purchased per trader among the markets in the study, as well as among traders within
each market. Clearly, Bamako is very important in terms of volumes, given the relatively
very high level of transactions and the greater number of traders. However, the
variation among traders is also very high, with a coefficient of variation of 1.42. This is
explained by two linked factors: (1) access to the PRMC credit line of only 2 operators
in 1989-90 compared to 19 the preceding year, and (2) the greater financial capacity of
certain very large traders, due to the increase in liquidity provided by returns from other

commercial activities.

71

In Bamako, of the 31 traders surveyed, only 7 indicated monthly purchases above
the average of 256 tons. Among these 7 respondents, only 3 purchased above 1,000
tons/ month. On the other end of the spectrum, among the 24 surveyed traders with
below the 256 ton average, 16 respondents had average monthly purchases below 100
tons. This demonstrates a very skewed distribution among the surveyed traders,
conﬁrming the existence of a few "giants” in the market, as discussed in the preceding
section.

TABLE 4.6. Selected Indicators of Performance by Market

 

 

 

  
  
 

 

AVER.
MONTHLY MAXIMUM
NO. OF PURCHASES STOCKED IN OWN
MARKET TRADERS BY TRADER 1989- VEHICLE
(tons (CV))4 (tons (CV)) (%)
Badinko 3 17 (0.35) 3 (1.73) 0%
Kita 9 39 (1.02) 28 (1.27) 33%
Kayes 9 81 (1.12) 241 (1.82) 0%
Nara 7 80 (1.50) 27 (0.81) 0%
Kolokani 6 12 (0.88) 58 (1.21) 17%
Koutiala 9 70 (0.57) 22 (0.58) 11%
Bamako 31 256 (1.42) 402 (1.58) 13%
TOTAL 75 132 (1.89) 203 (2.26) 16%

  

 

Source: Author’s surveys
In Nara and Kayes markets, traders also indicated significant volumes of monthly

purchases. In the Nara market, these volumes represented considerable exports to

 

3 This indicates the maximum held in stock at one time.

4 CV is coefficient of variation, equal to standard deviation divided by the mean.

72
Mauritania. Local ofﬁcials in Nara informally estimate that 60% of cereals entering the

market are expedited to Mauritania.

In Kayes, the mean amount indicated is biased upward by the important volumes
of rice purchased by the larger operators. It is very difﬁcult to estimate for this market
the proportion that exits towards either. Sénégal or Mauritania, by rail or on the Sénégal
river. 1

There appears to be relatively less variation in the quantities purchased by
traders in Badinko, Kolokani, and Koutiala. In particular, it is striking, given the surplus
supply in the Koutiala zone, that the volumes marketed are not more signiﬁcant.
Koutiala traders invest more in marketing because they are engaged in moving cereals
from rural markets up to end destinations, such as Bamako or Mopti (unlike in other
markets where wholesalers only move cereals from rural markets up to the given
wholesale market). Given the additional investment, they may be restricted to lower
volumes, due to a limited ﬁnancial capacity. At the same time, they gain from a larger
share of the margin between the rural markets and Bamako, because they capture both
rural-Koutiala and Koutiala-Bamako margins. Volumes purchased in Bamako
correspond roughly, within a 30% band, to mean volumes in 1986/87 obtained by Mehta
(1989). ‘

Finally, it is clear that the variation over the entire sample is larger than within
each market, given major differences among the markets in terms of ﬁnancial capacity,
physical infrastructure, and market structures.

Viewed by axis, it appears that the three axes follow similar patterns, with the
supply markets in each, such as Badinko, Kita, and Kolokani, involved in lower volume

transactions in com arison to the "end" markets in each axis, such as Ka es, Nara
’

73

Koutiala, and Bamako. This is logical in that the "end” markets each have more than
one supply point.

4.4.2 Storage Capacity

Instead of viewing the potential storage capacity per trader, that is the physical
capacity of their warehouses, the survey noted their actual ﬁnancial capacity to stock
cereals as indicated by the maximum stocks held in 1989-90. . In certain cases, this
presented a problem because traders did not distinguish maximum stocks from those
held usually.

As in the case of purchasing capacities, Bamako traders clearly demonstrate
higher capacities for storage than elsewhere in the study. However, Kayes traders also
have high storage capacity, despite a large variation among the traders. This is explained
by the division of traders into two goups: larger rice specialists and smaller coarse
gains traders. This also explains the relatively high average stocks, of which a large
proportion are stocks of imported rice held from the previous year. Thus, while two
traders held maximum stocks of 500 and 1,250 tons, the remaining traders in Kayes did
not stock beyond 100 tons.

The markets of Kita, Nara, and Koutiala have similar performance in storage
capacities, with also relative homogeneity among traders. The high storage performance
of Kolokani traders is in contrast to the small purchase quantities noted earlier. This
behavior was conﬁrmed by observations by local ofﬁcials that lack of credit to the village
associations had led to traders accumulating stocks gadually in the hopes of eventual
price rises.

Koutiala, on the other hand, has a surprisingly low performance in storage

capacity, in view of the traders’ access to PRMC credit and the relatively large quantities

74

purchased. However, as noted earlier, Koutiala is a dispatching center for weekly
movements of cereals to the urban consumption markets. Another reason for the low
average storage by Koutiala traders is that they have a geater investment in transport
per unit, given that they expedite the cereals from producer markets to urban
wholesalers. Unlike other wholesalers such as in Kita or Nara, who obtain cereals in
rural markets and store them until a wholesaler comes to purchase their stock, Koutiala
traders themselves transport the cereals to the next level in the marketing chain.
Therefore, they do not hold stocks for longer than the time it takes to accumulate
enough cereal to send by truck, usually a week.

These results correspond to ﬁndings by Mehta (1989) that Koutiala traders store
for only approximately. one week, on the average, and in small quantities.

Viewed by axis, it appears that storage in the "end” markets varies, with larger
volumes stored in Kayes and Bamako than in Nara or Koutiala. Moreover, the
Kolokani-Nara axis is the only one in which storage is higher for the supply market than
for the "end" market, probably because cereal stocks in Nara are quickly expedited across
the border to warehouses in Adel-Bagoro (Mauritania), in order to avoid notice by local
authorities.

4.4.3 Means of Transport

In general, the use of self-owned vehicles for cereals transport is low for the
sample, with only 16% of traders having access to this type of transport. Among the
markets, only Kita has above 20% of traders using their own vehicles. This may be
linked to poor road conditions, which make vehicle rental more unreliable, as well as less

available.

75

The markets of Kayes and Nara did not have any traders who used their own
means of transport. In the case of Kayes, this is due to the existence of the railway and
otherwise, relatively impassable roads. In the case of Nara, this is less clear, except by
the established routine of Mauritanian trader inﬂux into the Nara market.

Kolokani, Koutiala, and Bamako have similar levels of traders using their own
means of transport. In the case of Bamako and Koutiala, the importance of trading
activity and traders’ access to PRMC credit have not resulted in investment in transport
capacity, also conﬁrmed by Mehta (1989).

In fact, in the case of Bamako, traders who owned vehicles indicated a preference
not to use them for cereals transport, but rather for other commercial operations.
Another point of note is the very high cost of spare parts, on one hand, and ‘the
numerous road blocks and ”under the table" payments incurred by owners of vehicles.
While these costs may be reﬂected in rental rates, traders with limited ﬁnancial liquidity
are not in a position to acquire their own transport. In both the cases of Koutiala and
Bamako, favorable road conditions make access to the various markets easy and
relatively cheap.

Comparing axes, it seems that supply markets employ more owned vehicles than
do the end markets, for both Kita-Kayes and Kolokani-Nara axes. .The opposite is true
for the Koutiala-Bamako axis. In the ﬁrst two instances, this is due to the need for
access from the supply market to surrounding rural markets, usually linked by difﬁcult
roads. In the case of the Koutiala-Bamako axis, Mehta(l989) also found that Bamako
wholesalers own more vehicles than Koutiala traders. One reason might be that
Koutiala is connected to its rural markets, such as Zangasso, by all-weather roads, for

which rented transport is cheap and readily available.

76
4.4.4 Price Trends

The variation of prices is an often used indicator of the performance of cereals
markets as well as of the basic supply and demand situation. The analysis of producer
and wholesaler prices, marketing margins, and the estimation of market integation along
certain axes are the subjects of the next two chapters. In this section, a brief
presentation of the evolution of prices in the survey period for the axes under study is
linked to the understanding developed thus far of the situation and structure of these
markets.

4.4.4.1 Producer Prices

Millet and sorghum producer prices in the rural markets of Badinko and
Zangasso in three harvest years, between September 1988 and July 1990, are
characterized by large intra-annual variation (Figure 4.2). While prices were high in
September-October 1988, due to a poor harvest in 1987-88, the following year’s prices
show a declining trend, even in the rainy season, when they normally would have risen.
This decline in prices explains the inability of traders and village associations to liquidate
stocks. In contrast, the third year, 1989-90, was characterized by an upward trend in
prices as the rainy season approached, although not as dramatic as that of 1987-88. The
unexpected aspect of this upward trend is its contradiction with the very good harvest
and estimated surpluses of cereals in this year.

4.4.4.2 Wholesale Prices

The wholesale prices for millet and sorghum, for Badinko, Kita, Kayes, Kolokani,
Koutiala, Nara, and Bamako are indicated in Figures 4.3-4.4, for the period between

April 1989 and July 1990.

77

PRODUCER PRICES -- MILLET
Sept 1988 - July 1990

 

“0

‘30 -‘- lulnko 'L' ' loomed

um

"0

um
so
80
70
00
60
40
30

 

 

OX\>mOm

 

 

j I I I 1 I,-P I
O

 

 

PRODUCER PRICES -- SORGHUM
Sept 1988 - July 1990

 

120
1 10
100
so
so
10“
oo
so '
40
so

 

 

“' Badlnko ' ‘ ' Zangasso I

 

Oxx>m01

 

 

 

 

20
91011121234507591011121234507
leel so I so I

WW5
Source: cm

Figure 4.2 Producer Prices for Millet and Sorghum: Badinko and
Zangasso

78

WHOLESALE PRICES -- MILLET
April 1989 - July 1990

 

120

 

 

-— Beulah *Kayoo Centre " ° Klta I

 

100 "

 

03\>ﬂ01

 

 

 

 

OWN. ‘ 8|“
0

WHOLESALE PRICES -- SORGHUM
April 1989 - July 1990

 

 

 

 

 

 

 

 

110
'00" biodlnko *Kayoo Contra "'Klta
F
C
F
A
I
K
G
20 l l l l l l l 1 1 l l l l
667891011121234567
I as I so |
DATE
Contensm

Figure 4.3 Wholesale Prices for Millet and Sorghum: Badinko, Kayes,
Kita

79

WHOLESALE PRICES -- MILLET
April 1989 - July 1990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100
90- .-°—Kolokanl *Koutinla "“04an l
p
C
F
A
I
K
G
20 l l l l l l J l l 1 l l I l
667891011121234567
I so I so I
DATE
Source: om
WHOLESALE PRICES -- SORGHUM
April 1989 - July 1990
100
90” L'" Kolokanl *Koutlnla "“Nornl
F
C
F
A
I
K
G
20 l I l l l l J l l l 1 J l l
667891011121234667
I 99 I 90 I
DATE
800700: SIM

Figure 4.4 Wholesale Prices for Millet and Sorghum: Kolokani,
Koutiala, Nara

80
In the case of millet, the ﬁgures reveal clearly higher wholesale prices for Nara

and Kayes. This is directly linked to cereals deﬁcits in these areas, higher transport
costs, and for Nara, particularly, the effect of external demand in the market.

In the case of sorghum, it is important to note that price trends are closely
similar to those of millet for Badinko, Kita, and Kayes. Sorghum prices in Koutiala and
Nara, on the other hand, are clearly inferior to millet prices. This observation seems to
conﬁrm that millet is the export crop, both to Ivoirian or Mauritanian markets.

In comparing the relative stability of prices between markets, it appears that the
coefﬁcients of variations over the period fall between 9% and 21% for markets. Of
these, Kayes and Kita appear to be the most stable markets, while prices in Koutiala and
Kolokani have the highest coefﬁcients of variations.

Finally, it can be noted that the tendencies for wholesale prices correspond to the
trends observed for the producer prices, along the axes: Zangasso-Koutiala, and
Badinko-Kita-Kayes.

4.4.5 Transfer costs

This section is a general presentation of the transfer costs obtained through the
survey, which will be treated in geater depth in the following chapter.

One way to distinguish or classify transfer costs is to identify those which are

variable that is varying by volume of transactions, versus those which are considered

 

f'ged, that is unchangeable in the short to medium term (i.e., by month or year).
Obviously, in the long term, all ﬁxed costs eventually become variable.
There are also certain cases when these deﬁnitions are misleading, such as when

costs usually classiﬁed as ﬁxed are in reality variable. An example of this, observed

81

occasionally in the survey, is the case where the rental of warehouse space was by sack
instead of by month.

4.4.5.1 Variable Costs

The major types of variable costs are those incurred through transport, in terms
of quantity and distances; treatment of damaged sacks or cereals over the course of
transport or storage; the costs of handling; and losses of gain incurred from transport or
storage, as well as the opportunity cost of capital tied up in cereals purchases.

IBM

Table 4.7 indicates the transport rental rates along the circuits identiﬁed for
analysis, with both actual and kilometric costs per kilogam. There are economies of
distance in transport costs. In addition, these rental rates are also very much inﬂuenced
by the type of transport that is used.

TABLE 4.7. Vehicle Rental Rates by Circuit (FCFA/kg)

 

 

 

CIRCUIT (KMS) RENTAL COST DISTANCE COST/KG/KM
Badinko-Kita 5.0 30 .167
Kita-Kayes 8.0 ' 300 .027
Kolokani-Nara 10.0 240 .042 "
Zangasso-Koutiala 2.5 35 .071
Koutiala-Bamako 7.5 400 .012
Kolokani-Bamako 5.0 130 .038
Badinko-Bamako 5.0 ' 170 .029
Bamako-Nara 10.0 374 .027

 

 

 

Source: Author’s surveys

Thus, the Badinko-Kita circuit has by far the highest transport costs, while the

Koutiala-Bamako circuit has very low transport costs, due to excellent all-season roads,

82

economies of distance, and a geater availability of transporters. Several circuits have
similar kilometric costs, despite differences in the type of transport infrastructure
available. For example, the train transport circuits: Kita-Kayes, and Badinko-Bamako,
are very closely similar to the gavel road transport on the Bamako-Nara, Kolokani-
Bamako, and Kolokani-Nara circuits.

W

The costs of treating damaged sacks include the cost of the sack as well as the
cost of labor. The mg for this treatment depends largely on the condition of the p
original sacks, road conditions, other items transported in the same vehicle, the condition
of the cereal itself, and the length of storage.

The .co_st of treatment depends on the quality of sacks, the number of times the
sacks are recycled, and the need to use hired labor. In major dispatching centers such as
Kita and Kolokani, these costs are relatively high because traders are obliged to change
many sacks due to difﬁcult roads coming from the rural markets (Table 4.8). Although
Koutiala is also a dispatching center, re-sacking is less of an issue because of good roads
linking it to rural markets and low labor costs, due perhaps to higher labor supply in a
more active trading environment.

Handling

The costs of handling, mainly involving labor to load and unload sacks to and
from vehicles and warehouses, do not vary widely between markets, nor within markets.
The only exception is the need for additional handling when using rail transport, raising

handling costs for traders in Kita and Kayes (Table 4.8).

TABLE 4.8. Variable Transfer Costs by Traders (FCFA/kg (CV))

  

HANDLING (%)6

    

 
  

LOSSES

 

       
        
 
 

 

 

Badinko -- 1.2 (0.28) 2.5% (0.00)
Kita 9.8 (2.14) 2.4 (0.24) 1.7% (0.52)
Kayes 0.5 (1.42) 2.4 (0.24) 0.0% (0.05)
Nara 0.5 (0.26) 0.4 (0.64) 1.5% (0.47)
Kolokani 3.0 (1.28) 0.9 (0.14) 6.0% (0.00)
Koutiala 0.4 (0.94) 1.2 (0.19) 1.1% (0.71)
Bamako 0.6 (1.13) 0.8 (0.39) 1.6% (0.72)
SAMPLE MEAN 1.9 (4.10) 1.2 (1.05) 1.6% (0.80)

   

 

Source: Author’s survey

Losses

Storage and transport losses are very difﬁcult to estimate because the majority of
traders do not record these quantities, judging that they can recuperate what they lose by
other means. In the case of transport losses, they recuperate losses in the following
ways: often sacks in rural markets are not weighed on scales and in reality weigh 5 to 30
kgs higher than the 100 kgs for which they were bought. Secondly, in wholesale markets,
sacks are standardized at 101 kgs instead of 100 kgs, given the provision of losing 1% in
the course of transport.

In the case of storage losses, traders attempt to recover losses by selling torn

sacks in retail amounts, at more favorable prices per kilogam.

 

5 excluding transport which has been indicated per circuit in Table 5.2.

6 This indicates the quantities (as opposed to value) lost on volumes either stored or

transported.

84

In terms of quantities lost, the sample average was 1.6%, which compares with
other estimates of 2% in previous studies (Mehta, 1989; Dembelé, 1990).

As expected, these losses vary widely within the sample, from very low losses on
rail transport for Kayes to very high losses on unfavorable roads for Kolokani and
Badinko.

4.4.5.2 Fixed Costs

Fixed costs are those for which the operator .has relatively less ﬂexibility or
control in the short term, such as the. rent of the warehouse, the monthly wages of
personnel, interest payments on loans, and annual taxes.

The major ﬁxed costs are warehouse rental, taxation and regulation. Surveyed
traders complain of excessive tax rates, as well as licensing and fees, depending on their
category of trade.

Large differences exist between surveyed traders in terms of the costs of
regulation, reﬂecting the important differences among traders in size of operations. It is
difﬁcult to estimate conclusively the level of "under the table" payments of which traders
indicated having rough knowledge or were unwilling to communicate.

Wagghoggg and ngonngl Qgsts

There is an important difference in the costs of traditional type (banco)
warehouses and modern cement structures. Thus, differences observed between the
markets reﬂect differences in infrastructural development.

The costs of personnel indicated in the following table are for wages of outside
hired labor, usually non-family members. However, since a geat deal of the labor used

in marketing is in reality family labor, these costs do not reﬂect true labor inputs.

85

Among the entire sample of traders, only 3 indicated having made interest
payments on formal credits in 1989-90. While other traders indicated having access to
informal credit, these loans were remunerated in ways other than interest, generally
through proﬁt sharing. Generally, however, monetary loans are quite rare.

TABLE 4.9. Fixed Transfer Costs by Trader ( ’000 FCFA/ year (CV))

 

 

 

 

WAREHOUSE

MARKET RENTAL SALARY PERSONNEL INTEREST TAXES TOTAL
Badinko - -- 17 (0.59) 17 (0.59)
Kita 156 (0.34) -—- 247 (0.77) 334 (0.63)
Kayes 496 (0.51) 255 (0.08) 75 (0.00) 251 (1.18) 633 (0.83)
Nara 100 (0.93) 76 (0.79) 244 (0.87) 273 (0.98)
Kolokani . 72 (0.23) 186 (1.32) .— 98 (0.99) 184 (1.29)
Koutiala 163 (0.54) 180 (0.00) 400 (0.00) 135 (0.48) 347 (0.66)
Bamako 1,454 (0.89) 768 (1.23) .. 2,084 (1.42) 3,802 (1.05)
SAMPLE MEAN 849 (131) 566 (1.45) 237 1,073 (2.07) 1,851 (1.71)

Source: Author’s survey

4.4.5.3 The Opportunity Cost of Capital

An important aspect of transfer costs that has not been included in the above
cost calculations is that Of the opportunity costs of both traders’ capital and labor. The
difﬁculty in estimating these costs lies in the choice of an appropriate interest rate or
wage rate by which to value the investment in cereals marketing and value of the traders’
own labor. This is particularly the case in Mali, where a very small proportion of the
population has access to formal banking. A However, it is possible to use rough
estimations of prevailing interest rates. Unfortunately, in the case of labor markets, it is
unlikely that a reliable estimation of a market wage rate for a trader can be obtained.

Thus, the following discussion focusses on the Opportunity cost Of capital.

86
The opportunity cost of capital can be calculated as the rate of return to

operator’s capital through a cost budgeting exercise. A more explicit measure of the
opportunity cost of capital is to multiply the purchase price by an estimate Of the

prevailing market interest rate. Table 4.10 indicates this second measure for the markets

under study, using an average annual interest rate of 24%, based on rough estimates.7

This calculation indicates that the Opportunity cost of capital represents roughly FCFA

10-12/kg per annum.

TABLE 4.10. The Opportunity Cost of Capital in 1989-90 (FCFA/KG)

MARKET AVERAGE ANNUAL LENGTH PRO-RATED
PURCHASE OPPORTUNITY OF OPPORTUNITY
PRICEll COSTb STORAGEc COST

Badinko 45 10.8 0 --

Kita 40 9.6 22 0.58
Kayes 51 12.2 20 0.68
Nara 51 12.2 15 0.49
Kolokani 48 11.5 28 0.88
Koutiala 41 9.8 8 0.22
Bamako 44 10.6 35 1.01

SAMPLE AVERAGE 10.8 24 0.17
(C.V.) (0.08) (1.92) (1.89)

 

 

a Average purchase price is the producer price for Badinko, Kita (in Sagabary),
Kolokani, and Koutiala (in Zangasso) or the wholesale price for Kayes (in Kita),
Nara (in Bamako), or Bamako (in Koutiala).

b Average market interest is assumed to be 24% per year.

 

ource: . _ at- om ' cata

 

7 Estimates based on previous work by CESA/MSU team in Mali. See Dembele, Dioné,
and Staatz, 1986.

87

Since most wholesalers do not hold stocks for an entire year, the ﬁgures are also
pro-rated for the average length of storage in each market, with a sample average of 0.71
FCFA/kg. The length Of storage varied between no storage in Badinko to 35 days in
Bamako, with an average of 24 days for the sample of traders.

4.5 Comparison of Market Performance by Axis

In terms of market volumes, there appears to be one market in each set of axes
that is the "mover" of large volumes Of cereals. In the ﬁrst axis, this market is Kayes; for
the second axis, it is Nara, and for the third axis, this market is Koutiala. Bamako plays
a very important and distinct role in this aspect because it is, in a sense, a ”central"
market, relative to almost all of the markets in this study. This is understandable in View
of the extremely large volumes that pass into and through Bamako.

Storage performance does not necessarily follow the above trends, given the
important exceptions of Nara and Koutiala with weak storage behavior, and Kolokani
with relatively important storage volumes.

Price trends vary between the three sets of axes in one important aspect. In
comparing millet and sorghum, prices trends for both products in the Badinko-Kita-
Kayes and Zangasso-Koutiala-Bamako set of axes appear to be similar in contrast to the
Bamako-Kolokani-Nara axis. This suggests that the Bamako-Nara axis is externally
oriented, unlike the other two, with millet exports to Mauritania.

Finally, several points emerge from a comparison of transfer costs between
circuits, broken down by transport and other costs. First, regarding transport costs, there
appear to be important economies of distance along all three axes. However, in terms of
per-volume costs, the markets located on the paved road beneﬁt from the lowest costs,

while the markets on the gavel road face the highest costs, as would be expected.

88

Secondly, as regards the costs of re-sacking, handling, and losses, it is not Obvious
that there are differences between the axes, with the exception of handling, which
appears to be more costly along the railway, due to the double loading and unloading
that takes place. However, for the set of transfer costs, it seems more plausible that the
existence of economies of scale is an important factor in determining differences
between markets. Thus, the larger markets, Kayes, Nara, Koutiala, and Bamako, have
lower per kg costs than the markets of Badinko, Kita, and Kolokani. ‘

This chapter has attempted to highlight and focus on some of the important
structural and behavioral characteristics of these markets that have bearing on what is
judged to be their performance. Essentially, it has been shown that, beyond their access
to a particular type of transport infrastructure, market performance is very much linked

to the supply and demand conditions initially prevailing and the size of the market itself.

CHAPTER V

SPATIAL MARKETING MARGINS AND TRANSFER COSTS

This chapter analyzes spatial margins in terms of price differentials for the
circuits identiﬁed earlier, that is, Badinko-Kita-Kayes, Kolokani-Nara, Bamako-Nara, and
Zangasso-Koutiala-Bamako. These spatial price differentials represent m spatial
margins. The analysis will focus on the levels and the variation in these spatial price
differentials.

In the second part of this chapter, transfer costs Obtained from survey data are
calculated for the above axes. The analysis will address the levels of these costs along
the various circuits, as well as the decomposition Of the costs into ﬁxed versus variable
costs, and physical versus coordination costs. In addition, a decomposition of the
transactions, separately for vehicle owners and non-owners, will reveal the importance Of
various types Of costs in the overall structure of transfer costs.

Thirdly, this chapter will integate the information on spatial price differentials
with that on transfer costs by comparing the levels of both for the same circuits. This
will give an indication of ﬁt spatial margins, represented by the goss margin minus the
transfer costs. In theory, the net margin should approach zero under competitive
equilibrium conditions. If the net margin is signiﬁcantly higher than zero, there are
opportunities for proﬁt which, in absence of barriers of entry, will increase market
participation (i.e., increase supply of product) until the price is bid down, reducing the
goss margin. If the Opposite is true, where net margins are sigiiﬁcantly below zero, the
economic actors Operate at a loss, and will exit the market, resulting in higher prices and

a higher goss margin.

89

90

PRICE TRENDS FOR MILLET
Kolokani - Nara - Bamako

 

100

 

 

90 *Knlokani *Nara +Ianlallo I

 

    

 

 

 

so
F
c 70
F
A w
I
g 6
40-
8o-
20 l l l 1 l l A I l l l 1 l l
567891011121234567
I 89 I so I
. DATE
Sarcasm

Figure 5.1 Price Trends for Millet: Kolokani, Nara, and Bamako

PRICE TRENDS FOR SORGHUM
Kolokanl - Nara - Bamako

 

 

 

 

 

 

 

 

100
00 r *Kolokanl *Nara *Ialaallol
F
C
F
A
/
K
G
30'-
20 L I l l l l l l I l l l l l
587891011121234567
I 89 I 90 |
DATE
Sourcazom

Figure 5.2 Price Trends for Sorghum: Kolokani, Nara, and Bamako

91

PRICE TRENDS FOR MILLET
Badinko - Klta - Kayaa - Bamako

 

130
120 r
110 r
100 r

 

 

*Badlnko *Kayaa Cantu "'1‘ Kita 'G'Bamab I

 

 

OXx>101

 

 

 

 

Figure 5.3 Price Trends for Millet: Badinko, Kita, Kayes, Bamako

PRICE TRENDS FOR SORGHUM
Badlnko - Klta - Kaylaa - Bamako

 

 

 

 

 

 

 

 

 

130
‘20 *Badlnlio "I-Kayaa Contra ”*“Klta 'G'Bamako
110P
F
C
F
A
I
K
G
1 A J J 1 l l I L
567891011121234567
l 89 I oo - I
DATE
Couroazom

Figure 5.4 Price Trends for Sorghum: Badinko, Kita, Kayes, Bamako

92
5.1 Spatial Margins by Circuit

Millet and sorghum market prices for each circuit over the survey period are
presented in ﬁgures 5.1 - 5.6. These ﬁgures reveal varying levels of spatial price
differences among the markets as well as varying degees of stability of these

differentials.

TABLE 5.1. Stability of Spatial Gross Margins

 

 

 

TRANSPORT COEFFICIENT VARIATION:
CIRCUIT TYPE OF MILLET SORGHUM
Badinko-Kita TRAIN 0.39 0.44
II Kita-Kayes TRAIN 0.06 0.13
Kolokani-Nara GRAVEL ROAD 0.39 ‘
Zangasso-Koutiala PAVED ROAD 0.25 0.18
Koutiala-Bamako PAVED ROAD 0.40 0.41
Kolokani-Bamako GRAVEL ROAD ‘ "
n Badinko-Bamako TRAIN 0.29 0.32
* For these axes, the existence of negative margins for up to 40% of observations
biases the coeﬁcient upward and is therefore excluded.

 

 

S—i—T - —IL
OUI'CCZ

It appears that the circuits located on both the train line and those on the paved
road are quite stable and similar for the two crops, with coefﬁcients below 50%.

The circuits located on the gavel road are characterized by differences between
millet and sorghum. In the case of sorghum, a large incidence of negative margins
makes the analysis of coefﬁcients of variation unreliable. For the Kolokani-Bamako
circuit, the presence of negative margins may indicate either that no transfers took place
along this circuit, or that transfers may reverse direction seasonally, or that there may

only be transfers at certain times of the year.

93

PRICE TRENDS FOR MILLET

Zanoaaao - Koutiala - Bamako

 

130

 

 

‘20 _, "- Koutiala *lanoaaao " ‘ Bamako I
110 r

100 r
90 l-
80 I'
70
80
80 -
40‘
30

2° 1 l l l l l I l 4 L411 1 l

4189 8/89 8189 10189 12189 2190 4190 8190
DATE

 

03x>ﬂ0m

 

 

 

 

Figure 5.5 Price Trends for Millet: Koutiala, Zangasso, and
Bamako

PRICE TRENDS FOR SORGHUM
Zanoaaao - Koutlala - Bamako

 

130
120 r
110 r
100 r
90 r
80 "
70 r
80 '-

80
40 .

30

20' l 1: 1 l l l l 1 J L l I l 1

4189 8189 8189 10189 12189 2190 4190 8190
DATE

 

 

*Koutlala *Zanoaaao +Bamako I

 

OX\>'IIOTI

 

 

Bouroa: 91M

Figure 5.6 Price Trends for Sorghum, Koutiala, Zangasso,
and Bamako

CA

mv>._._>r Z>DQ.Zmll§_rrmH\mOmOIC§ w< >X.m
>2: some . .E_< ammo
mo

 

 

 

07(\>'l1011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mun31.23xxoixgooxﬁowizwa Noacixoe. .3562: xo_oximo3 mugging. meal-‘93
>x.m

I 2:... ' 2.8.3...

$9.39 23
Ens—a uh manga— Zpﬂ...» . 35832.95 3 E

 

95
Comparison of Price Differentials Betweeg Circuits

Figure 5.7 presents a comparative view of spatial (goss) margins, averaged over
the survey period, for millet and sorghum. For the circuits of Kita-Kayes, Kolokani-
Nara, Koutiala-Bamako, Kolokani-Bamako, and Bamako-Nara, spatial goss margins are
calculated between W levels. In the case of Badinko-Kita, Zangasso-Koutiala,
and Badinko-Bamako, spatial goss margins are calculated between MM
W levels.

The level of price differentials varies dramatically between circuits, in some cases.

Gross margins for Kita-Kayes and Badinko-Bamako are the highest, perhaps due to low
production in Kayes and the upward pressure of local market demand on its prices.
This is particularly the case for Kita-Kayes, with goss margins of F CFA 23-24 / kg. This
axis is located on the railway line, leading to one hypothesis that this implies relatively
higher costs, which is tested in later sections.

A second hypothesis regarding these relatively high goss margins, also
characterized by stable trends, is that -- given that the wholesale price margin represents
the difference in % prices between wholesalers - the upward pressure on prices from
consumer demand in Kayes is passed on to the wholesale level in the Kayes market.
However, under competitive conditions, this demand effect should be passed on to the
wholesale prices in Kita, and result in lower margins, which is not the case.

A third hypothesis is that Kayes traders may be price ﬁxing, or pegging, at a
certain minimum differential with the Kita price.

The markets of the second axis, Kolokani-Nara, Bamako-Nara, and Kolokani-
Bamako, are linked by a gavel road, with difﬁcult access in the rainy season. The

spatial margins between these markets varies widely between the individual circuits.

 

96

Thus, margins are roughly similar, and relatively lower than the Kita-Kayes circuit, for
Kolokani-Nara and Bamako-Nara. In contrast, the Kolokani-Bamako circuit has very
low spatial margins.

In the case of the low spatial margins between Kolokani and Bamako, it is clear
that trade along this circuit may be weaker than for the other two circuits. In fact,
among surveyed traders in Kolokani, only one trader was transferring sorghum to
Bamako. While this circuit may be more active in other years, it seems likely that the
locust attack in the harvest year 1989-90 reduced this link.

As regards the other two circuits, whether the relatively lower margins (compared
to the ﬁrst set) are due to a different transport infrastructure or due to other factors will
be explored further.

Finally, the third axis, Zangasso-Koutiala and Koutiala-Bamako, linking a major
production zone with the largest urban center of the country, are connected by an all-
weather paved road. Gross margins for these circuits are lower than both the other
circuits.

Compamﬁ n of Price Differentials Between Egoducts

There is no singular trend emerging from Figure 5.8 in terms of differences
between millet and sorghum for all the circuits. However, it is evident that, in the case
of the Kolokani-Nara and Bamako-Nara circuits, the dramatically higher margins for
millet indicate that it is the principal product exchanged, namely to Mauritanian markets.
This is especially true for transfers between Bamako and Nara, where the differential is

extremely low for sorghum.

97

In the case of the other circuits, there is little difference between the two
products, with sorghum margins slightly higher for Badinko-Kita, Badinko-Bamako,
Zangasso-Koutiala, and Koutiala-Bamako circuits.
51mm

The above Observations have highlighted several key points:

(a) goss spatial margins appear higher where local demand is high relative to
local supply, and where barriers to entry to increasing marketed supply
appear to exist, as seems possible in the case of the Kita-Kayes circuit;

(b) high goss spatial margins at border markets, such as Kayes, do not
necessarily imply heavy ﬂows of exports, which may be lowered by high
unit transfer costs; and,

(c) where differences between products exists, relatively higher spatial
margins for millet indicate ﬂows Of millet to export markets, in the case of
circuits located on the gavel road.

5.2 Transfer Costs
Deﬁnitjgns

The following analysis of transfer costs is based on primary data collected
between May and July 1990, in a survey of 82 wholesalers and semi-wholesalers, covering
3 regions of Mali as well as the district of Bamako.

Among the choice of deﬁnitions of transfer costs, the deﬁnition used in this
analysis of transfer costs considers these to be costs incurred directly or indirectly in the
marketing process. An alternative deﬁnition considers transaction costs as only those
related to human interaction, such as contractual costs, information, and regulation costs
(Schmid, 1987). The deﬁnition used in this analysis includes both the above set of costs
as well as those considered ”marketing" costs. The two subsets of costs are distinguished

by classifying the traditional marketing costs (transport, etc.) as physical costs, and the

interaction costs as exchange costs.

 

98

Generally, the entire set of transfer costs includes transport, storage, handling,
product treatment, acquisition, ﬁnancing, and regulation.
Another way to decompose the set of transfer costs is to distinguish mg and

variable costs. Fixed costs are independent of the volume of transactions, and are linked

 

to time factors (monthly, annual costs, etc.). Variable costs vary with the quantity,
distance, or number of transactions. This decomposition of costs indicates the ﬂexibility
a trader disposes in his or her operations. Thus, the Operation is characterized by a
certain degee of "ﬁxity' (Johnson and Quance) in the event that the trader has a high
proportion Of fixed costs, which are immovable in the short term, and which inﬂuence
the traders’ market behavior. The implication of this ﬁxity is that, the trader is leSs
likely to quickly adjust to market signals.

Returning to a decomposition into physical and exchange costs, it is clear that
this breakdown has important implications for the performance of markets. One reason
that these costs are important is that coordination, or exchange, costs are those
attributed to market imperfections, and are mainly ignored by economists assuming that
markets operate without opportunism, inefﬁciency, or formal and informal contracts. .
High levels of coordination costs (relative to physical costs) can be perceived as limiting
the performance of markets.

Methodology

The methodology employed in the subsequent analysis is based on the conversion
of transfer costs into FCFA/ kg terms. In the case of variable costs, which are expressed
by traders per sack or per ton, the conversion is based on the weight traders indicate for
their sacks. However, in the case of ﬁxed costs, usually expressed either per month or

per year, the conversion is based on estimating traders’ annual volume Of transactions by

99

extrapolating from information traders provided about their monthly transactions and the
months of the year that they Operate.

A second methodological issue is how to estimate transfer costs per circuit Of
analysis. While the survey had been carried out in each market, with a certain set of
principal circuits in mind, the trader clearly is not limited to one circuit in his or her
Operations. Therefore, it was impossible for respondents to distinguish costs pertaining
to one speciﬁc circuit, other than transport costs, of course. However, these other costs
actually vary between the markets. In Kayes and Nara, all traders indicated acquiring all
of their cereals only in Kita and Bamako, respectively. Thus, the set Of transfer costs
they indicated pertains entirely to the Kita-Kayes and Bamako-Nara circuit. In the case
of the other markets, the method employed was to calculate the set of non-transport
costs (per kg) relevant to their cereals operation (on all circuits) and add these to the
transport cost (per kg) traders indicated for the speciﬁc circuit. This approach assumes
that per-unit non-transport costs do not vary widely by circuit, which is plausible.

5.2.1 Transfer Costs by Circuit

The transfer costs indicated in Figure 5.8 vary considerably between the circuits.
Comparing between the three axes identiﬁed earlier, it is difﬁcult to distinguish major
trends, with the exception of Kolokani-Nara, in the second axis (on the Bamako-Nara
gavel road), with the highest cost (FCFA 16.3 / kg) and Zangasso-Koutiala, in the third
axis (on the all-weather road), with the lowest cost (FCFA 6.4 / kg).

However, if these costs are calculated per kilometer, the ﬁgures indicated in
Table 5.2 reveal important economies of distance, resulting in the extremely high

kilometric costs for both Badinko-Kita and Zangasso-Koutiala Circuits.

100

These results are analogous to the transport costs per kilometer viewed in the
previous chapter. A comparison of cost can be made for roughly similar distances
between the three different types Of transport infrastructure. The longer distances on
train, gavel, and paved road have very similar kilometric costs (FCFA .03 / kg - .04 / kg).
On the other hand, for short distances, costs for train transported cereals is nearly
double that of paved road costs (FCFA .34 / kg vs. FCFA .18 / kg).

TABLE 5.2. Transfer Costs Per Kilometer

 

CIRCUIT DISTANCE (FCFA/KG/KM) TRANSFER COS
Badinko-Kita 30 .34 i
Kita-Kayes 300 .04 '
Kolokani-Nara 240 .07 l
Zangasso-Koutiala 35 .18 I
Koutiala-Bamako 400 .03 I
Kolokani-Bamako 130 .07 I
Badinko-Bamako 170 .06
Bamako-Nina 374 . .03 J

 

Source: Author’s surveys

Another important determinant of the level of transfer costs is potential
economies Of scale in storage, acquisition, etc. Thus, the important volumes transacted
on the Kita-Kayes, Bamako-Nara, and Koutiala-Bamako circuits would imply lower per
volume costs. This is, in fact, the case in Table 5 .2. However, it is difﬁcult to distinguish
the effects of scale economies from those of distance in this instance, because the circuits
with longer distances are also those with higher volumes, indicating a fuller use of fixed

assets in both cases.

101
5.2.2 Fixed vs. Variable Costs

As is evident from Figure 5.8, variable costs are signiﬁcantly geater than ﬁxed
costs for all circuits. This implies that costs incurred in longer term investments in
cereals marketing are limited. Fixed costs are low particularly for two circuits
characterized by high transaction volumes, Kita-Kayes and Bamako-Nara. For both of
these circuits, transport is entirely by rented transport, either train or trucks, respectively
for the two circuits.

On the other hand, the Kolokani-Nara circuit has the highest level of ﬁxed costs,
due to either relatively high storage in Kolokani or to the effect of higher costs due to
the trader employing his or her own vehicle in the sample. However, since this case is
represented by only one respondent in Kolokani, these Observations are not conclusive.

' 5.2.3 Transfer Costs by Vehicle Ownership

The above points raise an important issue with regard to the importance of using
rented or owned vehicles in marketing. In other words, does using rented transport
reduce the share of transport in overall transfer costs? Secondly, does using rented
transport reduce the share of ﬁxed costs in overall transfer costs?

Figure 5.9, broken down by market and ownership, reveals that, in fact, transfer
costs for owners are higher, except in the case of Bamako, where costs are roughly equal.
In addition, ﬁxed costs appear to be considerably higher for vehicle owners than non-
owners, in all cases, including Bamako. This implies geater asset ﬁxity in cereals
marketing for vehicle owners, as well as reﬂecting a diversiﬁed commercial strategy.
Whether or not the share of transport is reduced for non-owners of vehicles will be

addressed in the following section.

102

TRANSFER COSTS PER KG BY AXIS
lead and Varlabla Costa
(unvalahtad avaraoa)

 

QX\>110"1

    

 

Bad-Kita Klta-Kay Kol-Nara Zan-KoutKout-Bam Kol-Bam BadeBamBam-Nara
AXIS
- leod Costa - Varlabla Coats

Couroa: author's aurvaya .
Figure 5.8 Transfer Costs Per Kg by Axis

5.2.4 Composition of Transfer Costs

Following the above separation of vehicle owners and non-owners for the sample
as a whole, the following ﬁgures indicate the shares of several categories of activities in
overall transfer costs.
113052911

The share of activities comprising transport is limited to transport rental in the
. case of non-owners and, for owners, includes fuel, driver, vehicle maintenance and
amortization, and road stops. (See Figures 5.10 and 5.11.) In the case of non-owners,
the share of transport is 72% of total costs, while the sum Of the shares of the above

categories for non-owners is also 72%.

103

FIXED AND VARIABLE TRANSACTIONS COSTS

For Owners of Vehicles vs. Non-Owners
(unweighted averages by market)

MARKET

 

Bad inko-rent

I\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\‘| 11,976

 
  
  
  
  
  

 

\\\\\\\‘ Varlabla Costa

 

 

 

 

Kita-own 13.29
. -- lead Coats
Kita-rent 11.83
Kayes-rent 12.77
Nara-rent 12.15
* Kolokani-own 31.51

 

Kolokani-rent W 12.8 .

* Koutiala-own .\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\VI 20.86

‘WI 7,43
' t\\\\\\\\\\\\\\\\\\\\‘l 117
W

 

Koutiala-rent
Bamako-own
Bamako-rent

 

 

 

 

11.8s
l 'I I T I T I I
o 5 10 15 20 25 so 35 4o
FCFA/KG

Source: see text

* N=1, potential outliers.

Figure 5.9 Fixed and Variable Transactions Costs

104

The parity of shares between owners and non-owners indicates that regulatory

 

costs are reﬂected in rental rates, and that transport markets function competitively.

Generally, the levels of transport costs are similar between owners and non-owners,

 

except in the case of Kolokani and Koutiala. In both of these markets, there is only one
vehicle owner, whose operation is not likely tO be limited to cereals marketing.
92mm

The share of non-physical costs, such as taxes, interest payments on credit,
payments to collectors, and road stops, has been discussed earlier as an important
indicator of market performance. In the sample, the sum of the shares of the above
categories varies dramatically between vehicle owners and non-owners. For vehicle
owners, the coordination costs are 23%, of which more than half is the share of road
stops. The corresponding coordination costs for vehicle non-owners is 10%. This
suggests that the vehicle rental rate accounts for the cost of road stops, as also noted by
the respondents. Given the earlier inclusion of road stops in the calculation of the share
of transport for vehicle owners, it appears that reducing this cost would result in lower
transport costs for both sets of operators.

AS expected, the share of taxes is higher for owners, who presumably pay
regulatory fees for operating their vehicle.
Transport and Storage Losses

Losses, presented as a share of total transfer costs, constitute between .6 and 1
percent for vehicle owners and non-owners respectively. Losses are lower for owners,

who are perhaps able to exert more control over losses in their own vehicles.

105

Also, when Viewed in physical terms, as opposed to their share in costs, losses

were approximately 2% of total volumes.
t a Re- ° nd '

Vehicle owners and non-owners exhibit opposite patterns regarding their
respective shares of storage and re-sacking. While owners spent 8% of costs in storage,
and 2% in re-sacking, vehicle non-owners spent only 3% of costs in storage and 7% in
re-sacking.

The reasons for this difference, in contrast to roughly similar shares for other
costs, are not immediately Obvious. One hypothesis is that vehicle owners are forced to

hold existing stocks until there is a sufﬁcient supply to ﬁll the vehicle. Secondly, vehicle

owners have more control over losses from damage to sacks,etc., and therefore do not
need to spend as much on re-sacking their supplies at the ﬁnal destination.

These costs are nearly identical between the two sets of operators, representing
roughly 9% of costs. In the case of vehicle noneowners, this is the second most
important cost, after transport.

53 Comparison between Spatial Margins and Transfer Costs by Circuit

Figure 5.12 indicates average goss spatial margins and transfer costs for the
survey period, along the same circuits viewed earlier. The hypothesis is that goss
margins and costs become close to equal, or net margins become close to zero, when
markets operate at near equilibrium. This is the simple spatial equilibrium concept
discussed in earlier chapters. A more formal price formation model, incorporating cost
and other elements, will be presented in Chapter VI.

A preliminary overview of the different circuits reveals three likely scenarios.

The ﬁrst is where goss margins and costs are roughly equal. Secondly, costs are higher

106
COMPOSITION OF TRANSFER COSTS

(average % shares for sample)
TRANSPORT 71.9

 

LOSSES I STORAGE 2.6
HANDLING 7.7 RESACVINC-i 6.6
VehiCIe Non—Owners
Source: author's surveys

Figure 5.10 Composition of Transfer Costs - Vehicle Non-Owners

COMPOSITION OF TRANSFER COSTS

(average % shares for sample)

LOSSES 0.6 TAIES . 7 ,

FUEL 21:3 . .........

ACQL'l-ElI'IIC'II 2.2

   

AMORTIZATICIII 10.3

I [I
DRIVER 9W

MAINTENANCE 18.7

Vehicle Owners

Source: author's surveys

Figure 5.11 Composition of Transfer Costs - Vehicle Owners

9ng £11 sisoo pus suyﬁluw - uospndluog zrg 9mm

sAeAJns 9,10u1n3 =oo.l nos

IIW-U!519Wﬂ

sisoo - 5Jos-ulﬁlew 7%

SIXV

EJeN-ulea wea-ugpea wee-notox meg—mo» max—Buzz BJBN-XO|O)|88AB)|-El!)| aux-pea

QX\>TIO‘H »

09

 

 

 

 

 

 

 

 

066L Mnr - 6861 ”NW
SIXV A8 SISOO CINV SNIOHVW-NOSIHVdWOO

L01

108
than spatial margins, prohibiting trade. Third, spatial margins are considerably higher
than costs, implying positive net margins, leading to new entrants in the market if there
are no sigiiﬁcant barriers to entry.

As seen in Figure 5.12, 6 out of 8 circuits fall into the ﬁrst scenario: Badinko-
Kita, Badinko-Bamako, Zangasso—Koutiala, Koutiala-Bamako, Bamako-Nara, and
Kolokani-Nara. Along these circuits, costs and spatial goss margins are within 4
FCFA/ kg.

One circuit falls into the second scenario, with a large negative net margin, and
thus a disincentive to trade. This circuit is Kolokani-Bamako. From Observation in the
ﬁeld, it is known that this circuit is less used, especially in the present survey period due
to a weak harvest.

There is one circuit that falls into the third scenario described above, that of
large positive net margins. This circuit, located on the train route, is Kita-Kayes, which
is a major circuit. This circuit has a very dramatic difference between goss margins and
transfer costs.

It is difficult to explain how this net margin can be maintained, given that there
would be opportunities for new entrants into the market to eventually reduce these
margins.

One hypothesis is that it is possible that the use of train transport can present a
barrier to entry, given constraints on wagon space and time. In addition, an unquantiﬁed
dimension of costs is that of acquiring the contacts among the railway staff, authorities,
bribes for wagon space, etc., in order to facilitate timely transfer of product and reduce

losses.

109

The above argument is strengthened by the fact that there is, in reality, no viable
alternative transport infrastructure. For this circuit, roads are virtually Out of use, with
very difficult access between Kita and Kayes.

The Badinko-Kita circuit, also on the rail line, is identiﬁed among the equilibrium
circuits. Unlike the Kita-Kayes circuit, where margins are inﬂuenced upward in excess of
costs because of high urban consumer demand in the Kayes market and possibly
maintained because traders do not have alternatives to train transport, the Kita market
is located in a producing region where consumer demand is low relative to Kayes, and
where the market can be supplied from Badinko by road as well as train.

Observations regarding Spatiﬂ Egum 'brium

To summarize the above points, it appears from the gaphical analysis that 6 of 8
circuits are characterized by "spatial equilibrium", as it has been deﬁned above.

Comparing between types of transport infrastructure, the performance of the
circuits is not limited to one particular type of transport. Thus, both circuits located
along the paved road fall into this category, as well as the Badinko-Kita and Badinko-
Bamako circuits on the railway, and Kolokani-Nara and Bamako-Nara on the gavel
road.

On the other hand, circuits characterized by disequilibrium are located in the ﬁrst
and second axis. Along the gavel road, the Kolokani-Bamako circuit seems to operate
"irrationally," with large negative net margins. This may indicate that reversals of ﬂows
occurred throughout the harvest year along this circuit, and in particular, in a poor
harvest year such as 1989-90.

Secondly, the Kita-Kayes circuit located on the train line appears to also perform

"non-economically," with significantly high positive margins. However, it is difﬁcult to

110

ascertain whether this is a case of artiﬁcial price ﬁxing by traders, or a result of the basic
structure of the market with high barriers to entry to train transported markets.

In the following chapter, the question of what factors are important in the
formation of prices, and speciﬁcally of the goss margins observed for the above circuits,
is explored more systematically in the context Of an econometric model. Thus, the
tentative conclusions reached on the basis of the above gaphical "snapshots“ will be

explored further.

CHAPTER VI

AN ANALYSIS OF FACTORS INFLUENCING GROSS SPATIAL MARGINS

The preceding two chapters provided an in-depth description of the axes under
study. From this descriptive analysis, it appears that a variety Of factors have bearing on
the relationship between spatial margins and transfer costs. This relationship itself can
be viewed as indicating market performance.

These factors are the basic supply and demand conditions prevailing in the area
in which the markets are located, the quality and distance of transport links, the number
and competitiveness of traders, and the aspect of seasonality in cereals marketing.

This chapter attempts to explore these issues further through a formal testing of
the above relationships, based on a model of spatial equilibrium developed by Ravallion
(1986) and extended by Tirnmer (1987).

In Mali, previous work on market integation has Shown sigliﬁcantly high
bivariate correlations between rural and wholesale markets in two zones, the CMDT and
OHV (Dioné, 1989). These results are important in revealing differences between the
two zones in terms of market performance, in addition to comparing pre- and post-
liberalization market performance.

However, the approach of determining market integation through bivariate price
correlations between isolated market pairs is generally criticized for a number of reasons.
Critics argue that factors common to all markets such as seasonality or inﬂation will bias

the correlation upward, that variances of prices are not constant over the year, and that

111

 

112

high correlation may result from a spurious relationship, such as ofﬁcial price ﬁxing
(Harriss, 1979). Moreover, what seems of interest is that ”the system of markets be
integated and not that a particular pair be integated at any one time" (Delgado, 1986,
p.971). Thus, one aspect of the proposed model is its j9_i_n_t testing Of integation for
eight market circuits, consistent with the three axes comparatively analyzed in preceding
chapters Of the study.

Secondly, due to data constraints, very few models of market integation include
non-price variables, or what may be speciﬁed as local market characteristics. These
models usually assume that variables such as transfer costs and ﬂows of goods are
constant between markets as well as within given time periods.

However, the gaphical presentation of costs and spatial margins in the previous
chapter reveals that, in reality, costs certainly vary between circuits, and, moreover, make
a difference to margins and ﬂows, and vice versa.

A set Of pre-Ravallion market integation studies that include transport and
other transfer costs were carried out in northern Nigeria by Hays and McCoy (1977). A
comparative analysis Of spatial and temporal price differences and costs indicated that
non-zero parity price spreads (parity price spreads being equal tO price Spreads minus
costs) result from market imperfections, inherent to the system, rather than monopolistic
competition. In this analysis, costs varied between markets but were constant over time.
However, this approach did not formally model these relationships.

The static model of price differentials used by Ravallion assumes a spatial market
structure in which .there is one central market and many local markets. The central
market price drives local market prices, and, under competitive equilibrium, the

difference between the prices would be the transfer cost from the local to the central

113

market. Thus, the local market price is perceived as a function of the central market
and the local market characteristics, i.e.,

Pi = f(P1, Xi ), fori = (2, ..., N)
where Pi is local market price, P1 is central market price, and X1 is matrix of local
market characteristics for market i
and P1 = f (P2, ...., PN’ X1)
where P2 PN are other I'central" market prices.

Timmer’s approach, based on the above model, tests the extent to which local
prices are integated with the central market in the m and the extent to which
m changes in the local market price are caused by short run changes in the
maggi; between local and central market prices.

The formulation of Timmer’s model incorporating generalized distributed lags is
as follows:

Pt-Pt-1= do + d. (12,, - R.-.) + d. (R. - R.-.) + 8,12,, + d,X + e,
where P is local market price, R is central market price and X is matrix of local market
characteristics.

A static expression Of the above is essentially the Ravallion model above, and a
simple algebraic manipulation results in the following, expressed in period t:

P, - R1 = a + b X + e

Thus, the spatial margin is on .the left hand side and the independent variables
are the components of factors known as local market characteristics.

The model presented below attempts to highlight the importance of these local

market characteristics. Furthermore, it expands this set of factors to include

 

114

characteristics speciﬁc to the M instead of just the local market, in addition to
characteristics of the central market.

In this model, both transfer costs and estimated volumes of ﬂows, varying
between market circuits but constant for the survey period, are included in the
econometric formulation of goss spatial margins.

A third aspect of the model is an issue brieﬂy touched on in the preceding
paragaph, that is, the inter-relationship between margins, ﬂows and costs. Theoretically,
there is causality in both directions, because traders respond to changes in margins while,
simultaneously, margins adjust to changes in ﬂows. Thus, the relationships between
spatial margins and ﬂows as well as costs are modelled as a Wm of three
equations, with margins, ﬂows between markets, and costs considered endogenous to the
system.

6.1 The Model

The proposed model is based on the Ravallion approach of regessing local
market price on central market price and local market characteristics. It is expressed as
a simple three equation simultaneous system, reﬂecting the inter-relationship between
spatial margins and aggegate ﬂows, as well as the factors determining costs. The three

equation system is written as:

(l) MARGIN = am + b“ AGGPLOW + bu COST + bu TRADI + b” TRAD] + bls HYR
+ bl, TRAIN + bu MOISl + bu, MOISZ + bu, M0183 + buo MOIS4 -l- bm
MOISS + bus M0186 + bm MOIST + bm MOISS + bus MOIS9 + bus MOISlO

+ bm MOISlZ + bus MIL + bug AXISSRG

(2) AGGPIJOW = ago + b.“ MARGIN + b” SURPLI + baa SURPL] + b2, KM + bzs COST

(3) COST = a30 + b31 AGGPLOW + b,, KM + b,3 KMZ + b,, TRAIN + bas TRADI

 

115

where MARGIN = goss spatial margins between markets i,j

AGGFLOW = aggegate ﬂows between markets i,j

COST = transfer costs between markets i,j

TRADI = number of traders in market i

TRADJ = number of traders in market j

SURPLI = cereal surplus in zone i

SURPLJ = cereal surplus in zone j

KM = kilometric distance between markets i,j

KM2 = KM squared
with the following set of dummy variables:

TRAIN (1 = train)

HYR (1= Nov 1989 - July 1990)

and 11 monthly dummy variables.

Two additional dummy variables are also included in the model speciﬁcation in
order to distinguish crop effects, that is, differences between millet and sorghum. Thus,
variable MIL is equal to one when the product is millet and is zero otherwise. The
variable AXISSRG is equal to one where the product is sorghum am! the circuit is either
the Kolokani-Nara or the Kolokani-Bamako circuit, otherwise it is zero. This dummy
variable is included to distinguish the special case where ﬁeld interviews revealed that
practically no transfers of sorghum were made from Kolokani to Nara or Bamako.

6.1.1 The Data

The model was estimated for the following circuits: Badinko-Kita, Kita-Kayes,
Kolokani-Nara, Zangasso-Koutiala, Koutiala-Bamako, Kolokani-Bamako, Badinko-
Bamako, and Bamako-Nara. Gross spatial margins were computed using monthly
wholesale and producer prices, collected by the Systeme d’Information du Marche (SIM),
as well as by the CESA-MSU Food Security Project (for Bamako wholesale prices).

The period covered by the data extends from April 1989 to July 1990, covering 7

months in harvest year 1989 and 9 months in harvest year 1990.

116

Data on transfer costs, volumes of ﬂows, cereals production and surplus, as well
as other local market characteristics such as kilometric distances, type of transport
infrastructure, and number of traders were Obtained through an IFPRI-funded survey
carried out in collaboration with the Systeme d’Information du Marche between May and
July 1990.

6.1.2 Estimation Techniques

Viewed as a system Of equations, the model has three endogenous variables,
MARGIN, AGGFLOW, and COST, and is simultaneous, since MARGIN appears on the
right hand side of the ﬂow equation; AGGFLOW and COST appear on the right hand
side Of the margin equation; and, AGGFLOW appears on the right hand side of the
COST equation. ‘

It can be seen that all three equations are identiﬁed without solving for the
reduced form. The margin equation is exactly identiﬁed because there are three
exogenous variables in the system that do not appear in the margin equation. The ﬂow
equation is overidentiﬁed because there are 18 variables in the system that do not
appear in the ﬂow equation. Similarly, the cost equation is overidentiﬁed because there
are 17 variables in the system that do not appear in the cost equation.

All Of the equations were estimated using two stage least squares (281.8). This
estimation technique is useful in Obtaining unique estimates of the values of structural
parameters in overidentiﬁed equations (Pindyck and Rubinﬁeld, 1981, p. 191).

The assumption underlying ordinary least squares estimation is that the
independent variables are uncorrelated to the error term. This assumption breaks down
in a simultaneous equation system where one or more Of the independent variables is

determined in part by the dependent variable.

117

In the above case, estimation is possible by replacing the variables measured with
error with new variables, called instruments. Essentially, two stage least squares
estimation creates a new variable, MARGIN-hat, which is used as an instrument in the
estimation Of the second equatiOn.

The estimation procedure obtains the reduced form equation of MARGIN in the
ﬁrst stage by regessing margin on all exogenous variables in the system through ordinary
least squares. The ﬁtted values of MARGIN (i.e., MARGIN-hat) are thus linearly
related to the predetermined variables and are independent of the error term in the ﬂow
equation.

In the sedond stage, the ﬂow equation is estimated using the ﬁtted values of
MARGIN (MARGIN-hat) from the ﬁrst stage, instead Of MARGIN.

Analogously, the cost equation is estimated using the ﬁtted values of AGGFLOW
(AGGFLOW-hat) from equation 2, instead of AGGFLOW, with the ﬁtted values of
AGGFLOW independent of the error term in the cost equation.

Finally, both linear and log-linear forms of the equations were estimated. The
linear speciﬁcation yielded a better ﬁt and is reported below.

6.1.3 Choice of Instrumental Variables

The choice Of instruments for the 281.8 model depended largely on knowledge of
the marketing system as well as data availability.

The instruments used in the three-equation system include both time-speciﬁc,
circuit-invariant variables as well as time-invariant, circuit-speciﬁc variables.
Time-invariant, Circuit-specific Variables

Through the survey carried out in May-July 1990, several useful data speciﬁc to

each circuit were Obtained. In addition to information on the ﬂows of cereals between

118

markets and transfer costs, data were collected on the Mes between markets, the
number of M in each market, and the MW in the zone in which each
market is located.

The inclusion Of the above variables is based on hypotheses regarding the effect
of certain variables on margins and ﬂows. In the case of transfer costs, one hypothesis is
that costs are positively related to spatial margins, since margins are composed of costs
and proﬁt.

Another hypothesis is that per-unit costs are negatively related to aggegate ﬂows,
implying that economies of scale exist.

It is expected that there are higher costs where the distances are geater. At the
same time, economies of distance seem to exist from the analysis in Chapter V. Thus,
this hypothesis will be tested through including a quadratic for KM in the cost equation.

In the case Of the number of traders, it is posited that a higher number Of traders
in both markets along a circuit would result in a higher degee Of competition and thus
lower margins. A related hypothesis is that this occurs because costs decrease where
more traders exist in the supply market.

Finally, one expects that the volume of marketable surplus in the exporting
market will have a positive effect on aggegate ﬂows of cereals and the reverse effect in
the case of a surplus in the importing market.

Time-speciﬁc, Circuit-Invariant Variables

In cases where cross-sectional and time-series data are pooled, the assumption

that parameters are constant for all sample Observations breaks down. These parameters

may vary in some either random or systematic manner across sample data (or subsets

119

therein). The non-constancy of parameters violates the statistical properties of the least
squares estimators, and their interpretation becomes unclear (Judge et al., pp.420-442).

The usual way to test for parameter changes due to external effects such as the
passage of time, among other factors, is through the use of Wiggles.

In the model presented above, three sets of dummy variables have been chosen
to reﬂect the dimensions of seasonality, inter-annual variability, as well as the effect of
different types of transport infrastructure. There are 11 monthly dummy variables, a
harvest year dummy variable, and a dummy variable for train transport. The omitted
month for the monthly dummy variables is November (month 11), chosen because this
month marks the start of the marketing year. The omitted harvest year is 1988-89.

6.2 Summary and Interpretation of Results

Tables 6.1 - 6.3 provide results of estimations of the linear model described
above. In addition to the coefﬁcients, standard errors, and t-statistics for each included ‘
variable, elasticities at the mean for the non-dummy variables are also reported.

1 umm f R 1

Several key points are worth noting. First, the effect of aggegate ﬂows on
margins is positive and statistically signiﬁcant. Correspondingly, in the second equation,
margin has a highly signiﬁcant and positive effect on aggegate ﬂows. These
relationships may be expected because higher margins increase ﬂows, while, in the short
run, prices in the demand market are high, raising margins. In both equations, the
relationship between aggegate ﬂows and goss spatial margins is highly inelastic, ”with

point elasticities of .23 and .19 in equations (1) and (2).

 

120
TABLE 6.1. Two Stage Least Squares Regession Equation 1

 

 

I Dependent Variable: MARGIN 1
Mean of Dep.Var.: 9.73
I Std. Dev. of Dep. Var: 7.38
s I
i Std. Error of Reg: 4.53
I Sum of Squared Resid: 3729.08
I R-squared: .66 I
I Adjusted R-squared: .62
. I
I Variable Coefficient T-ratio“ Blast I
i (Std.Error) I
I I
I Constant 3.500 (2.690) 1.301 I
f AGGFLOW 0.005 (0.001) 3.564" 0.23
COST 0.984 (0.225) 4.372" 0.91
TRADI .0053 (0.050) -1052 .009
I TRADJ -0255 (0.033) .7661" .045 i
I I
I .
I TRAIN 8.078 (0.822) 9.818" I
I I
HYR 1.970 (0.942) 2.091" I
I
JAN -2.064 (2.081) -0991 I
, FEB -4.981 (1.739) -2.864” I
I MAR -1.151 (1.784) -0.644 I
1 APR 2343 (1.634) -1433
I MAY .2229 (1.634) -1.364 ;
JUN -3.366 (1.808) -1.862* ;
JUL .2974 (2.785) -1.666 I
I AUG -3421 (1.980) -1.738
I SEP 2.157 (2.163) 0.997 I
I OCT .0303 (2.074) -O.146 I
, DEC -4.366 (1.848) -2.362" I
MIL -0.613 (0.740) -0.828 :
AXISSRG -10.159 (1.393) -7290" I

 

*5% sigiiﬁcance

 

 

** 1% signiﬁcance

121

TABLE 6.2. Two Stage Least Squares Regression Equation 2

. Dependent Variable:
. Mean of Dep. Var.:
Std. Dev. of Dep. Var.:

1 Sum of Squared Resid:

 

AGGFLOW I
328.018 I

 

    

313.442

136.246
3639323

 

I
I
I Std. Error of Regr.:
I
I

R-squared: .82
Adjusted R-Squared: .81

 

Coefficient

I Variable
' (Std. Error)

' Constant

6.467 (1.627)
-8.246 (12.346)
0.006 (0.001)
-0003 (0.001)
1.613 (0.141)

COST
SURPLI

' SURPLJ
KM

-80.429 (111.847)

-0.694

3.974"

I -0.668
9.763“
3.049“

T-ratio‘
11.409"

 

I MARGIN
I
I

*5% significance

spatial margins, as is expected in the case of gross margins. In the ﬂow equation, costs
have a negative effect on ﬂows, although the coefﬁcient is not signiﬁcant. Conversely, in
the cost equation, flows have a negative and significant relationship with costs. Viewed

in in terms of elasticities, spatial margins appear to have almost a unit elasticity to

changes in costs (elasticity equal to

absorb a small proportion of the increased cost in lower margins. Aggregate ﬂows seem
quite inelastic in relation to costs (elasticity equal to -.37), while the converse is also
true, that costs are unresponsiveness to ﬂows, with an elasticity of -.04 for ﬂow in the

cost equation. These results imply that there are small economies of size in transfer

COStS.

 

" 1% significance
ypot esnzec , trans er costs ave a

.91), which may suggest that as costs increase, traders

11y Sign cant an- pos1t1ve 1mpact on

122
TABLE 6.3. Two Stage Least Squares Equation 3

I Dependent Variable: COST

_____._. __ #— , ,,_ _ __ ,, _. _ I

 

 

 

 

Mean of Dep. Var.: 10.33 I
Std. Dev. of Dep. Var.: 1.99 I
:- I
Std. Error of Regr.: 1.06 I
: Sum of Squared Resid: 220.15 I
R-squared: .72 ;
Adjusted R-squared: .72 '
3 Variable Coefﬁcient T-ratio‘ Elast I
(Std.Error) I
I
I Constant 6.700 (0.228) 29.365" I
AGGFLOW -0.001 (0.001) 2245" -0.04 '
KM 0.026 (0.002) 9.983" 0.36
KM 2-2E-05 (8E-06) 3.065 " I
TRADI -0.013 (0.136) -0.936 -0.01 .
TRAIN 0.837 (0.175) 4.785“ I
. I
i *5% signiﬁcance ” 1% signiﬁcance J

The number of traders can be perceived as a proxy for the degree of competition
in each market. As posited, higher competition lowers spatial margins signiﬁcantly. The
elasticities for traders in the originating and destination markets are -.09 and -.45,
respectively, indicating an inelastic response of margins to changes in the number of
traders. In particular, margins appear less responsive to changes in the number of
traders in the supply market than the end market.

The hypothesis that a greater number of traders in the supply market reduces
transfer costs, through potential competition for marketing services, is not confirmed in

the cost equation, with a negative but non-signiﬁcant coefﬁcient for number of traders in

 

123

market i. As in the case of margins, costs appear extremely unresponsive to changes in
the number of traders in the supply market, with an elasticity of -.01.

The hypothesis that distance increases transfer costs is demonstrated with a
highly signiﬁcant and positive coefﬁcient for distance (KM) in the cost equation,
although this relationship is inelastic with an elasticity of .36. In addition, the posited
economies of distance are demonstrated by the negative and highly signiﬁcant coefficient
for KM-squared. This indicates that costs increase at a _ decreasing incremental rate as
distance increases.

The relationship between distance and aggregate ﬂows reveals that long-distance
trade corresponds to higher volumes. This may be related to the observed economies of
distance in costs per kg in the cost equation (Table 6.3).

Train transport has a highly signiﬁcant and positive relationship with spatial
margins. This is further supported by the result that the train dummy variable is
signiﬁcant and positively related to cost, in the third equation. Thus, it appears that
higher margins on the railway line are not only due to higher costs along this line, but
also other effects that independently raise margins. This ﬁnding may be interpreted in
several ways, which are discussed below.

The harvest year dummy variable for the 1989-90 harvest is positive and
signiﬁcant, indicating lower spatial margins in 1988-89. This may be explained by the
better harvest recorded for 1988-89.

The monthly dummy variables provide useful information about seasonality
trends in margins. The impact on margin for the months between September and
February is varying and important. From the harvest season (September-November),

where margins are at their highest, margins sharply decrease in the post-harvest season,

 

124

December to February, when they are at their lowest level in February. They remain
fairly constant between March and August. The only signiﬁcant coefﬁcients are for
December, February and June.

A previous study of market integation in Northern Nigeria found that coarse
gain prices exhibited a "bump" in October, analogous to the peak of margins found here
in September-November (Delgado, 1986). A possible explanation forwarded for this
bump in the Northern Nigerian case was the differentiation made by consumers between
old and new gain on the market. Thus, in this analysis, September prices are pushed
downward by rushed sales of old gain, while October prices rise as the new, and better,
gain reaches the market. In the Malian case, as the "hungy' season, or w peaks
in September, and markets shrink, which has a potential upward pressure on margins.
Whether this interpretation holds will be addressed in the following section.

The crop dummy variable in the margin equation was negative and insigniﬁcant,
indicating that overall for the circuits, no differences in margins existed between crops.

In the case of the dummy variable that was included to correct for circuits with
little ﬂows, as in the case of sorghum from Kolokani to Bamako and to Nara, the impact
is highly negative and signiﬁcant, as expected. Thus, the downward pressure on margins
for these circuits (where descriptive analysis in the previous chapter revealed low or
negative margins) is captured by this dummy variable.

Finally, in the ﬂow equation, the impact of cereals surplus in the zone in which
the markets are located has a small although highly significant impact. In the case of the
sellers’ market, as expected, higher surplus leads to higher ﬂows, while the reverse is true
for the buyers’ market. However, despite the signiﬁcant relationship, aggegate ﬂows are

relatively inelastic in response to surpluses in either market.

125
6.2.2 Direct and Indirect Impacts on Margins

By placing the spatial margin, as opposed to the local market price, on the left
hand side of the equation, factors that inﬂuence the margin directly can be distinguished
from those that affect either local or central market price individually.

Factors that inﬂuence margins directly are the level of transfer costs, the type of
transport infrastructure, and the volume of ﬂows. Factors that inﬂuence margins through
their effect on either or both market prices are the number of traders in each market
and seasonality.

Secondly, the incorporation of simultaneity allows one to distinguish factors
inﬂuencing margins indirectly through their effect on aggegate ﬂows or on costs,
incorporating simultaneously the reverse effects of margins on ﬂows, and ﬂows on costs.
These factors are the marketable surplus in each zone, and the effect of costs and
distances on ﬂows. Secondly, margins are inﬂuenced indirectly by the effect of ﬂows, as
well as distances, transport infrastructure, and competition, on transfer costs.

Dir Impacts on Margu' 8

Among the factors directly affecting spatial margins, it appears that train
transport has'a large positive inﬂuence on margins. This may be interpreted as a result
of relatively high barriers to using this means of transport, due to limited space and
frequency of transport. This limit enables those who do have access to maintain high
margins. Alternatively, the rent from the effective monopoly on train transport may be
captured by railway transporters in the form of bribes, etc., that were not fully expressed
by traders in ﬁeld surveys. Finally, the effect of this dummy variable may in fact be
interpreted as a signal that, unrelated to the train itself, there are other factors

characterizing the behavior of traders in this circuit that push margins upward. One

 

126

possibility is the issue raised in Chapter V that the observed margins in this circuit are
maintained under short-term disequilibria, and persist in a non-competitive environment
(with potential price ﬁxing practices). However, it is difficult to go beyond speculation as
to this issue without further investigation of both the business practices of traders in this
circuit, as well as the full extent of costs incurred in train transport.

Another important factor inﬂuencing margins is that of costs, which, as expected,
has a relatively large and positive impact. While an inverse relationship between costs
and 11g spatial margins is expected, a positive relationship with m margins follows
from the straightforward deﬁnition of margins, which are composed of cost and profit.
In the previous chapter, the descriptive analysis pointed to several circuits where costs
are higher than margins when there are little or no transfers of a particular cereal. This
effect is captured by the AXISSRG dummy variable, which takes a very large negative
value to account for cases where there are no transfers of sorghum along certain circuits,
leading to low or negative spatial margins.

Finally, among the variables having a direct impact on margins, aggegate ﬂows
appear to have the least important effect. The coefﬁcient is positive, which conﬁrms the
hypothesis that higher ﬂows correspond to higher margins.

Indirect Impacts on Margy} s

The number of traders plays a role in determining the competition between
traders in each market, which will theoretically inﬂuence prices. In the above model, the
hypothesis that a higher number of traders drives prices down, and indirectly reduces
margins, is supported by the empirical estimates.

The distance between markets has a signiﬁcantly positive, although small, impact

on both ﬂows and costs. Clearly, the further markets are apart, the higher costs of

 

127

transfer will be. However, it is less intuitive that ﬂows increase with distance. In
considering the circuits under study, this result seems to be linked to the important
volumes traded between Bamako and Koutiala as well as Bamako and Nara, both
separated by relatively large distances.

Among the dummy variables indicating time, several monthly dummy variables
have relatively very large impacts on margins. In particular, February has a sigiiﬁcantly
negative impact on margins, while margins appear higher in the harvest season. This
pattern corresponds closely to information provided by traders during ﬁeld interviews to
the effect that marketing activities begin in November and are fully under way in
December and January. As markets become saturated by February, margins are at a
very low level. The pattern of producer and wholesale prices in this period conﬁrms the
above. Producer prices rise in the immediate post-harvest period between December
and February (see Fig. 4.2), while wholesale prices decline or remain Constant in the
same period (see Fig. 4.3-4.4).

As for the rise in margin levels in the harvest period, a plausible explanation
would be that producer prices and wholesale prices in producing zones fell as harvested
gain entered the market, in addition to the effect of the expectation of an abundant
harvest in 1989-90. However, a corresponding decline in wholesale prices in the larger,
more distant urban markets, was lagged by a month, given the delay it takes for the gain
to reach these markets.

There are several variables that have a signiﬁcant impact on ﬂows. The impact
of margin on ﬂows is relatively large and positive. However, the responsiveness of ﬂows
to higher goss margins is low, indicated by a low elasticity of 0.05. If costs are assumed

to be constant (where all goss margin changes would be exactly equal to net margin

128
changes), this would, in effect, translate to a sluggishness in responding to market signals.

However, in reality, changes in goss margins do not necessarily correspond exactly to
changes in net margins, as indicated by the elasticity of margins with respect to costs
equal to .91, instead of exactly 1.

Distance between markets has a relatively important and positive impact on
aggegate ﬂows. While distance would presumably be inversely related to ﬂows, it is also
plausible that the relationship is positive because, in the sample, the circuits with the
highest ﬂows are those separated by the geatest distances (i.e., Koutiala-Bamako and
Kita-Kayes).

While marketable surpluses in both markets have the expected signs and are
signiﬁcant, their impact on ﬂows is relatively small. The effect of surplus in the
exporting market is more important in increasing ﬂows than is the negative effect of
surpluses in the importing market. This can be interpreted as indication that trade is not
necessarily only from surplus to deﬁcit markets, but may occur between markets with
different levels of surplus (and therefore a price differential in excess of transfer costs).
Secondly, this may indicate that the importing ”surplus” market may be exporting part of
its own surplus as well as the imported cereal to another market.

Finally, the relation between costs and ﬂows appears to be negative in both ﬂow
and cost equations, although this result is not signiﬁcant in the ﬂow equation. In the
cost equation, the low elasticity for ﬂow (-0.04) indicates that costs hardly respond to
changes irn scale. -

_ The above discussion has focussed on the interpretation of the results from the
simultaneous model to test the factors inﬂuencing market integation along the 8 circuits.

The results point to transport infrastructure, costs, and seasonality as having important

129

impacts on margins. Indirectly, through their impact on ﬂows and costs, distances and
surpluses in each market are also important.

The following chapter attempts to integate these ﬁndings into a discussion of the
implimtions for Malian exports of cereals to its neighbors--Mauritania, COte d’Ivoire,
and Sénégal. This analysis will tie in ﬁndings from the preceding chapters on the
description of the marketing system and the comparison of costs and margins into the

econometric work carried out above.

 

CHAPTER VII

IMPLICATIONS OF MARGIN ANALYSIS FOR REGIONAL TRADE

The preceding chapters revealed that several important factors have bearing on

goss spatial margins. These factors are

(i) the type of transport infrastructure linking markets (e.g., train),

(ii) transfer costs in marketing cereals between markets,

(iii) external effects such as seasonality and inter-annual variation, and (iv) the
indirect effects of marketable surpluses and distance that affect ﬂows of
cereals between markets.

In this chapter, an attempt is made to extend these ﬁndings by exploring how

they inﬂuence Mali’s interests in terms of regional trade in cereals. This discussion is

structured according to the following questions:

( 1) Which axes matter for Mali’s present trade patterns, both ofﬁcially
registered and informal?

(2) Is there a relationship between Mali’s present trade patterns and the
factors inﬂuencing spatial margins?

(3) What are possible changes to margins that would inﬂuence trade
patterns?

7.1 Mali’s Present Trade Patterns
In discussing Mali’s exports of cereals to the West African region in 1989-90, the
discussion must distinguish between ofﬁcially registered ﬂows, which are accounted both
in the customs statistics as well as those of the Direction Nationale des Affaires
Economiques, from unofficial ﬂows, for which data were obtained through a survey of
traders and informal interviews with ofﬁcials carried out between May and July 1990.
This distinction is important for several reasons. In the ﬁrst place, data obtained

regarding both unofficial and registered trade indicates that these two types of trade are

130

 

131
passing through different axes. Secondly, it also appears that these two types of trade

involved completely different operators. Finally, it is also evident that these two types of
trade are destined to different countries.

7.1.1 Ofﬁcially Registered vs. Informal Exports

Among the eight axes viewed irn this study, ﬁeld interviews revealed that,
generally, the most important axes for informal exports of cereals in 1989-90 were
Bamako-Nara and Kolokani-Nara, destined for Mauritania.

These observations can be compared to the data obtained for ofﬁcially declared
"intentions" to export cereals, presented in Table 7.1 for the period under study, which
also coincides with the period since the official liberalization of cereals exports from
Mali.

TABLE 7.1. Officially Registered Export Intentions March 1989 - July 1990

 

__ _
PERIOD QUANTITY NUMBER OF NUMBER OF
(tons) INTENTIONS TRADERS
Mar-Dec 1989 19,632 73 37
Jan-July 1990 10,147 32 14
II
TOTAL 29,779
DISTRIBUTION BETWEEN COUNTRIES
. I
PERIOD COTE D’IV. SENEGAL MAURIT. NIGER BURKINA '
FASO I
Mar-Dec 1989 75% 22% <3% <3% <3% I
Jan-July 1990 36% 63% < 1% < 1% < 1%

Source: Direction Nationale des Affaires Economiques, 1990

132
The export liberalization policy reform implemented in March 1989 consisted of the

removal of export taxes (8%), and in 1990, a PRMC-funded export subsidy on transport
costs of 10 FCFA/kg. .

In contrast to the patterns in informal exports noted above, officially registered
exports appear to have been principally destined to Sénégal and COte d’Ivoire in 1989-90.

Exports to Mauritania were almost entirely within the informal sector, given the
very low ofﬁcially registered exports. This suggests that the actors and mechanisms for
this particular channel were very different from those for exports to Sénégal and COte
d’Ivoire.

In Table 7 . 1, it is clear that traders involved in ofﬁcially registered exports may
obtain more than one "intention". Thus, there appears to have been a high concentration
of actors (particularly in 1990) and a larger scale of operations within registered trade.
This was in contrast to the situation observed in the informal sector, where many small
traders were involved in small transactions.

Another important aspect of ofﬁcially registered exports is that they were almost
entirely based in Bamako, and did not involve traders at the borders of either Sénégal or
COte d’Ivoire. Although exports to Sénégal passed through Kayes, they did not involve
the Kita-Kayes axis which has been under study. These exports were of gains obtained
elsewhere in the country, marketed by Bamako traders.

Exports to COte d’Ivoire were somewhat different from the Sénégal case in that,
while the actors were also Bamako traders, exported cereals originated in the Koutiala
region and thus involved the Zangasso-Koutiala axis under study. For these operations,
traders in Bamako commissioned agents in Koutiala to collect given amounts of cereals

for Ivoirian markets. There were also certain cases of Koutiala traders who engaged in

133

registered exports to COte d’Ivoire, as well as Ivoirian traders who purchased gain

directly in Koutiala.

In effect, then, the distinctions between officially registered and informal sectors

can be summed up in the following manner:

(1)

(2)

(3)

(4)

(5)

the axes of importance to registered trade were Bamako-Sénégal and
Zangasso-Koutiala(Bamako traders)-C6te d’Ivoire, while the axes of
importance to informal trade were Bamako-Nara and Kolokani-Nara;

the operators in Mali’s registered exports were mairnly large Bamako-
based wholesalers, while those in the informal trade were small
wholesalers based in the border market of Nara;

the destination of registered exports were principally Sénégal and Cbte
d’Ivoire, while informal trade was directed mainly to Mauritania;

the size of registered exports was large-scale and beneﬁtted from PRMC
transport subsidies, while informal operations were small-scale, and
continuous throughout the year;

ﬁnally, for both registered and informal exports, Bamako was the source
of important ﬂows of cereals to neighboring countries. There were three
distinct cases in which this occurred:

- in the case of exports to Mauritania, the cereal was brought into
Bamako from production zones by Bamako traders and was moved from
Bamako by Nara traders;

- in the case of exports to Sénégal, the cereal also came from elsewhere
and was moved by Bamako traders through Kayes directly into Sénégal;
and,

- in the case of exports to Cbte d’Ivoire, the cereal did not come to
Bamako, but was assembled by Bamako traders in Koutiala and moved
directly to external markets.

In all three cases, the exported cereal was assembled from producer zones in the

areas of Koutiala and Ségou. Therefore, this implies a strong link between the domestic

marketing and exports of cereals to neighboring countries.

134
7.1.2 Comparison of Recorded and Informal Exports to Mauritania

An estimation of informal exports can be obtained by extrapolating monthly
average purchases indicated by traders in ﬁeld surveys in the border markets of Nara
and Nioro to the periods of March-December 1989 and J anuary-J uly 1990 (taking into
consideration that there are no ﬂows between August and November due to rains).
Local oﬂ'icials in these markets indicated that they considered that 66% and 45% of
cereals purchased by traders in Nara and Nioro, respectively, was exported clandestinely
to Mauritania. In Table 7 .2, these estimates of exports are compared to the volume of
ofﬁcially recorded trade destined to Mauritania, which is estimated from percentages of
total intentions to export indicated in Table 7.1 (for Mauritania, a maximum 3% for
March-December 1989 and 1% for January-July 1990 of total recorded intentions). In
effect, Table ' 7.2 demonstrates that these ofﬁcial intentions are only 17 % and 3% of

actual trade ﬂows, respectively for the two periods.

TABLE 7.2. Comparison of Registered and Informal Exports to Mauritania
(tons)

    
 
  

EXPORTS“

 

March-December 1989 589 3529
January-July 1990 101 3087

 

a obtained from Table 7.1 ﬁgures for registered ﬂows and distribution of
exports by country.

 

b calculated from survey data and ﬁeld irnterviews for Nara and Nioro markets. '

 

 

 

Source: Direction Nationale des Affaires Economiques, author’s surveys.
The estimates presented in Table 7.2 reveal a large difference between registered
and informal ﬂows to Mauritania in the survey period, as posited from ﬁeld observations, '

with an order of magnitude of at least 6 times higher informal than registered ﬂows.

 

135
Although these calculations should only serve to highlight a sense of the magnitudes

involved, they conﬁrm the earlier suggestions that Mauritania is an important, and
unaccounted, trading partner of Mali. Also, the above ﬁgures for informal ﬂows may
have been underestimated because they only account for the trade irn the two border
markets of Nara and Nioro, although ﬁeld observations revealed that exports to
Mauritania occurred at a large number of points along the border in smaller markets.

7.13 Domestic Marketing and Regional Exports
W

The link between domestic marketing and regional trade is especially interesting
because of the perspective taken in the previous chapter of viewing market integation
for a m of markets, rather than a pair of markets. Speciﬁcally, it is clear then that
the integation of Koutiala and Bamako was as important as the Bamako-Nara axis for
the ﬂow of cereals from Mali to Mauritania through Nara.

Secondly, this link challenges the view that exports between Sahelian countries
are only a border phenomena. In many cases, this still holds true, especially where
actors on both sides were small-scale traders or producers, and the markets are located
in isolated areas. However, the Nara market appears to be a central market in the
exchange between Mali and Mauritania.

An interesting issue that arises from the above is why, given these links, cereals
do not ﬂow directly from the Koutiala region to Nara, for exports to Mauritania. In
part, this is explained by the lack of road infrastructure, facilitating access between Nara
and the producer zones. Thus, while the present system involves a high level of transfer

costs, there may be no less costly alternatives.

 

136

However, another aspect may be that, even if traders in Nara routed the cereals
through Bamako, they may prefer to avoid the risk of higher involvement in the assembly
of cereals, given their lack of ofﬁcial authorization to export cereals. Conversely, this
may also explain why Bamako traders do not export directly to Mauritania, as they do to
other countries. The clandestine nature of the transactions between Nara traders and
their Mauritanian counterparts may act as a barrier to entry of new participants, such as
the Bamako or Koutiala traders.

A further explanation of why trade with Mauritania remains clandestine, and
therefore impenetrable to outside traders, is perhaps because the non-convertibility of
the Mauritanian currency (My) forces barter transactions. Restrictions on both
sides of the border for the exchange of goods such as rice, wheat ﬂour, sugar, and cloth
imply that the operation was necessarily clandestine. These goods were either re-
exported items (imported at subsidy by the Mauritanian parastatal SONAMEX from
world markets in the case of rice and sugar) or food aid, in the case of wheat ﬂour. The
restrictions existed because the trade diverted government resources on the Mauritanian
side and competed with local goods on the Malian side.

Another explanation for this situation may be that, according to results from ﬁeld
interviews, it appears the Bamako-Nara axis is less used in years when the Nara area has
a relatively good harvest of millet. Thus, in these years, exports to Mauritania would be
less linked to the system of domestic cereals markets than was the case in 1989-90.

The Case of Ofﬁcially Registered 5312on

For registered trade ﬂows, such as to Sénégal and C6te d’Ivoire, the domestic

markets (Kayes and Koutiala, respectively) bordering these countries were hardly

involved in the exchanges in 1989-90. The domestic markets of importance were the

 

 

137

rural markets supplying the gain and the Bamako market, where the export operations
were based.

A pertinent question is why Kayes traders don’t compete with Bamako traders in
exporting cereals to Sénégal. One reason may be that while traders in Bamako had
access to credit and export subsidies, traders in Kayes did not. Secondly, traders in
Bamako were likely to have more access to the necessary formalities, i.e., paperwork, for
which transactions costs are likely to be higher in Kayes. Thirdly, while Mauritanian and
Ivoirian traders were engaged in marketing activities directly in Malian border markets,
ﬁeld interviews in Kayes revealed no Sénégalese presence in this market. Thus, the costs
as well as the risk of exporting to Sénégal may have been higher than that which Kayes
traders were willing or able to support.

7.2 A Comparison of Net Margins by Axis

A quick review of the comparative analysis between transfer costs and spatial
margins carried out in Chapter V indicates that the difference between spatial goss
margins and transfer costs varies considerably in magnitude between the various axes.
This essentially conﬁrms the ﬁnding in Chapter VI that factors other than cost inﬂuence
goss spatial margins. Table 7.3 summarizes net spatial margins, equal to goss margins
minus transfer costs, by axis and crop.

Table 7.3 provides a view of the variation in margins between axes. It indicates
that goss margins are composed of factors other than cost. Through this comparison, it
is possible to highlight several implications for Mali’s export interests in the region.

The ﬁrst poirnt is that, for millet, both the Bamako-Nara and the Kolokani-Nara
circuits exhibited net margins that were close to zero. This coincides with the conclusion

from ﬁeld interviews that this axis was clearly the most important for Mali’s exports in

138

the region. The two other circuits where net margins were very close to zero are the
ZangassocKoutiala and Badinko-Kita axes, for both products. The Zangasso-Koutiala
axis was also linked to the export of cereals to Cbte d’Ivoire.

Secondly, the high levels of net margins for Kita-Kayes coincide with the absence
of links to trade with Sénégal. In the long run, it is expected that these high margins will
be pushed downward by new entrants in the market. However, in Chapter V, margins
along this axis were shown to be relatively stable over the year under study. This
indicates that, possibly, other factors may hold margins constant.

In the preceding discussion, the question arose as to why Kayes traders do not
engage in cereals exports to Senegal. Another argument may be that they were likely to
gain more from selling on the local Kayes market than from exporting given these high
net margins. This hypothesis requires an investigation of margins between Kayes and
Senegalese markets, compared to Kita-Kayes margins.

In summary, it appears that axes with relevance to external trade ﬂows had net
margins close to zero, as theory would suggest is the case where competitive markets
exist. On the other hand, highly positive net margins occurred where virtually no export
activity existed, or where they may have been barriers to entry, i.e., the Kita-Kayes
circuit. In the latter case, the potential for expansion to external markets exists, although
at present, it has not been exploited.

7.3 Does Policy Matter?
The actual impact of the export liberalization policy on trade ﬂows and margins is

difficult to measure, given the lack of comparable data prior to the reform. However,

 

TABLE 7.3. Average Net Spatial Margins by Axis (FCFA/KG)

Circuit--Average Net Margin-W/ Out Opportunity—With Opportunity

 

 

 

 

Cost of Capital Cost of Capitals I

Millet Sorghum Millet Sorghum

I I. TRAIN
Badinko-Kita 0.85 1.37 -1.43 0.79 I
Kita-Kayes 12.31 11.17 11.63 10.49 '-

I Badinko-Bamako 3.43 5.80 2.42 4.79 I
. II. GRAVEL I
I Kolokani-Nara -2.48 -1259 -3.36 .1347
I Kolokani-Bamako -8.16 -6.20 -904 -7.08 I
I Bamako-Nara 2.42 -7.69 1.93 -8.18 I
I III. PAVED I
I Zangasso-Koutiala 0.35 0.81 0.13 0.59 I
I Koutiala-Bamako -3.78 -1.01 .4.00 -123 i

 

— w W. ~—-J

 

 

Source: Author’s calculation based on surveys
this snapshot view of cereals markets in the ﬁrst year of the reform can point to certain
observations.

The effect of export policy liberalization, in concrete terms, seems to have had a
perceptible impact only on registered trade. This effect would be largely attributed to
the relative easing of the burden of exporting through ofﬁcially recognized channels. On
the other hand, it does not seem that the March 1989 liberalization reform had any

impact on the unofficial trade destined toward Mauritania.

 

8 This ﬁgure is based on pro-rated opportunity cost of capital, using estimated interest rate
of 24 % and survey information on length of storage.

140
The reasons behind this are twofold. The ﬁrst issue is why, if exports were

legalized and no longer taxed, clandestine activities continued. That is, why have traders
who operated informally in past years not been encouraged to register their operations?
Field interviews indicated that traders have a deep-seated mistrust of the authorities and
therefore did not disclose their activities. Secondly, there appears to be a
communication transfer problem at regional and sub-regional administration levels,
demonstrated by the fact that border ofﬁcials, including, the customs and border patrol,
were not informed of the change in export policy. Finally, there is the more plausible
explanation that, although export taxes were lifted, an import-export license - at a cost
eight times higher than a domestic commercial license - was still required in order to
export legally. Thus, it appears that there remains a disincentive to operate within
ofﬁcial channels as long as the export policy reform is not accompanied by a concession
on trade licenses for cereals exports.

From the perspective of Mauritanian traders, there are also plausible
explanations why trade remained clandestine. On the one hand, the issue of the non-
convertibility of the Mauritanian currency seems to encourage barter rather than cash
transactions, which in turn violates import rules in Mali aimed at protecting domestic
industry. On the other hand, the Mauritanian government control of the re-export of
subsidized imports and food aid forces the barter operation into the informal economy.
In fact, much of Mauritanian trade within West Africa remains very much within tightly
knit informal commercial networks, which extend as far as the Canary Islands.
Paradoxically, while the government did not impose restrictions on imports of coarse

grains, the weak ouguiya was the basis for the shadow operations.

 

141

The second issue involves traders who did have import-export licenses. Why have
they p_o_t_ taken more advantage of the liberalization policy, and, speciﬁcally, why were
there hardly any registered exports to what seemed a solid market in Mauritania? An
important factor was that exports to Mauritania are based on long-standing and
traditional networks of trade. Thus, ethnic and even familial ties may exist between
traders in Mauritania and those in Nara. This is a mechanism that enables trade to
continue outside of ofﬁcial boundaries, particularly in the period prior to liberalization.
However, as revealed in ﬁeld interviews, traders based elsewhere in the country still
perceived, at present, the N ara-Mauritania market as impenetrable due to the nature of
the closed relations among traders.

Beyond the March 1989 export policy reform, the promotion of Malian cereals
exports in the region can be inﬂuenced by policies directed at strengthening domestic
marketing. In particular there appear three areas in which policy may play an important
role.

One role for policy is in the reduction of transfer costs, of which 72% was shown
to be transport related. Transport costs were thus a very large part of total costs, and
were themselves related to road infrastructure and regulatory payments on the road.

Secondly, the econometric analysis carried out in the preceding chapter indicated
that there was a seasonality pattern in margins over the year. This seasonality was
related to the constraint on marketing activities imposed by road conditions in the rainy
months, as well as to patterns in production. The decomposition of transfer costs in
Chapter V revealed that while transport shares were very high, the share of storage in

transfer costs was in fact relatively low.

142

As transport costs are lowered from policies directed at transport activities, the
transport share should also fall as the investment in storage increases as a result of
policies to encourage storage, such as the PRMC credit program in 1988-90. However,
this program needs to be directed at strengthening the capacity of traders interested in
cereals exports, including those located in border markets. The issue remains, however,
why this storage is not taking place currently 91mm government or donor subsidies,
which are unsustainable in the long term. Traders, in the course of field surveys, appear
keenly interested but ﬁnancially incapable of investing in storage. It is unclear whether
this lack of ﬁnancial capacity was due to the non-profitability of storage in Malian
cereals marketing (given its volatility) or whether traders simply lack the resources to
exploit the market fully.

Finally, a third observation 'is that specialization in cereals marketing appears to
be negatively related to export activities, at least for traders engaged in informal trade.
The implications of this are that, in the ﬁrst place, export activities may be linked to
either re-exports of imported items in neighboring countries, or that cereals exports were
used to compensate or "mask” other commercial activities. The diversiﬁed business
practices of traders located in border markets appeared to be tied to the weakness of the
Mauritanian currency, as well as being perhaps an important risk management strategy.
An interesting question is what will happen as the government’s import substitution
campaign, ”consommer Malien” continues to clamp down on border markets. Several
traders in Kolokani expressed frustration at not being able to sell the bartered goods
easily. There were two effects of these tightened controls. On the one hand, the shadow
market rate for the CFA rose relative to the gggmya, in 1989-90, with the CFA rising

from .25 ouguiya to .33 ouguiya, according to traders in the market. On the other hand,

 

143

the value of the ”contraband” barter goods also rose as the supply was restricted due to
higher transfer costs involved in smuggling operations. The possible impact of this will
be that the proﬁtability of these operations is lowered, as the price gap between local
goods and imports narrows, causing demand for imported goods to fall. Thus, the
tendency of border trade would appear in favor of non-barter transactions over the long
term. In fact, ﬁeld surveys conﬁrmed that this process was taking place, with the major
operations in Nara occurring in cash and small scale exchanges with traders in Kolokani
typically in barter terms. In terms of a farsighted trade strategy, it seems unlikely that
ofﬁcially registered trade to Mauritania can expand without relaxing restrictions on the
imports of Mauritanian goods, which enable Mauritanians to earn the CFA needed for
their transactions with Mali.
7.4 Lessons and Issues for Further Research
Marketm g 111' Mali

In viewing the cereals marketing system in Mali, from a domestic perspective, the
question of how net margins for the Kita-Kayes circuit can be maintained at very high
levels merits further investigation. This entails a closer investigation of the structure of
transfer costs in order to test whether the costs obtained in this survey were under-
estimated. Secondly, an in-depth investigation of the transactions costs of using train
transport needs to be carried out in order to test whether high proﬁts are absorbed by
the railway authorities through bribes or by the traders in Kayes, through artiﬁcially ﬁxed
prices.

As regards the cross-border trade between Mali and Mauritania, further
investigation needs to be taken, identifying which traders are engaged in either barter or

cash transactions, in order to distinguish (a) how the barter market functions and (b)

 

144

what the effects of the "consommer Malien" campaign are likely to be on future trade
patterns.

In terms of understanding the pattern of trade in West Africa, this study would
beneﬁt from two follow ups. First, similar studies of the marketing systems of Mali’s
trading partners, namely Sénégal, COte d’Ivoire, and Mauritania, would provide useful
reference points for the analysis carried out in this study. Secondly, expansion of the list
of products studied to include goundnuts and livestock would provide a more accurate
picture of the magnitude and linkages within trade patterns in the region.
WWW

From a methodological standpoint, the analysis of costs revealed that the
proportion of transport costs between vehicle owners and non-owners is roughly equal,
implying that transport markets operate competitively. At the same time, the question
of backhaul was not addressed in this study. It would be useful in follow-up research to
determine how to quantify and account for the revenue of backhaul along the various
circuits, and to test how this effect changes the real costs of vehicle owners.

Another issue regarding the measurement of transfer costs is in the share of
coordination costs, which in this study were not distinguished as ofﬁcial versus "under the
table”. Thus, while coordination costs represented 23% of total transfer costs for vehicle
owners, it is not clear what proportion is due to unofﬁcial payments that result indirectly
from official policy.

Given the complexity of the Malian marketing operation, another important area
of further "untangling" is related to attributing costs to a given circuit, a given product,
and to a given volume. In the typical case where the trader’s operation is based on a

large number of circuits and a large variety of products, the measurement of costs will be

145

biased upward if they are not scaled to the proportion due to a given product along a
given circuit. This scaling requires careful measurement of the entire commercial
operations of the trader, including backhaul. This scaling can be based on either revenue
from transactions, or volume / frequency of operations, or, alternatively, the allocation of
labor.

Finally, the econometric analysis demonstrated that a Ravallion type model could
be enriched by (a) including a measure of transfer costs and (b) modeling a simultaneous
system of margins, ﬂows, and costs. Two further steps that would shed light on the
question of market integation would be (a) to obtain seasonally and annually variant
costs, through at least a two-season survey of traders (ideally, in the immediate post-
harvest and the pre-rainy seasons), and (b) to model a dynamic system in which margins

and costs in the previous period are included as right hand variables.

146

BIBLIOGRAPHY

Ahmed, Raisuddin and Narendra Rustagi, "Agicultural Marketing and Price Incentives:
A Comparative Study of African and Asian Countries", Paper prepared for FAO,
IFPRI, Washington,DC, 1985.

Badiane, Ousmane, ”National Food Security and Regional Integation in West Africa,"
PhD dissertation, University of Kiel, Germany, 1988.

Badiane, Ousmane, ”Espace Regional Cerealier en Afrique de l’Ouest: Potential et
Importance pour la Securite Alimentaire,” Invited paper, CILSS / Club du Sahel
Seminar on Regional Trade in West Africa, Lomé, 6-11 November 1989.

 

Barry, Abdoul W., "A Study of Cereal Price Interrelationships Across Markets and
Commodities at the Wholesale and Retail Levels in Mali,” MS Plan B Paper
(East Lansing: Michigan State University), 1989.

Bates, R.H., Markets and States in Tropical Africa: The Political Basis of Agricultural
Policies (Berkeley: Univ. of Calif.,1981).

Berg, Elliot, Inna-African Trade and Economic Igtegration, Elliot Berg Associates,
August 1985.

Chileshe, Jonathan H., The Challenge of Developing Intra-African Trade, East African

Literature Bureau, 1977.

 

Coste, Jerome, "Esquisse Regionale des Flux des Cereales en Afrique de l’Ouest,"
Invited paper, CILSS/ Club du Sahel Seminar on Regional Trade in West Africa,
Lomé, 6-11 November 1989.

D’Agostino, Victoire C., ”Coarse Grain Production and Transactions in Mali: Farm
Household Strategies and Government Policy," MS Thesis (East Lansing:
Michigan State University), 1988.

D’Agostino, Victoire and John Staatz, "The Impact of Import and Export Policies on
Malian Coarse Grain Producers," East Lansing: Agicultural Economics Staff
Paper, No. 89-95, September 1989, mimeo.

Debertin, David, Agricultural Production Economics, MacMillan Publishing Co., New
York, 1986.

Dembele, J osué Dione, and John Staatz. ”Description et Analyse de la Structure du
Marche des Céréales (Mil-Sorgho-Ma'is) au Mali." Projet Sécurité Alimentaire
MSU-CESA, Document de Travail 86-04. Bamako, Mali: September, 1986.

147

Delgado, Christopher, "Cereals Protection within the Broader Regional Context of
Agicultural Trade Patterns Affecting the Sahel,” Invited paper, CILSS/ Club du
Sahel Seminar on Regional Trade in West Africa, Lomé, 6-11 November 1989.

Dembele, N. Nango and Philip Steffen, ”Quelques Elements de Performance de la
Commercialisation Privee des Cereales (Mil- Mais- Sorgho) au Mali,”
CESA/MSU Working Paper, October 1988, mimeo.

Dembele, N.Nango and John Staatz, "Transparence des Marches Cerealiers et Role de
l’Etat: la Misc en Place d’un Systeme d’Information des Marches au Mali,”
prepared for European Agicultural Economics Seminar, Montpelier, May 1989,
mimeo.

Dembele, N.Nango, John Staatz, and Johny Egg, "La Mise en Place d’un Systeme
d’Information des Marches au Mali," CILSS / Club du Sahel Seminar, Bamako,
April 1990, mimeo.

Dione, Josue, "Informing Food Security Policy in Mali: Interactions between Technology,
Institutions, and Market Reforms,” PhD dissertation (East Lansing: Michigan
State University), 1989.

Egg, Johny, 'Disparites des Politiques Economiques et Echanges Agicoles Regionaux en
Afrique de l’Ouest,” Invited paper, CILSS / Club du Sahel Seminar on Regional
Trade in West Africa, Lomé, 6-11 November 1989.

Egg, Johny, "Rapport d’Evaluation du SIM au Mali," OSCE/ INRA-ESR, December
1989, mimeo.

Faminow, Merle D. and Bruce L. Benson, ”Integation of Spatial Markets," Ameg'cap
Joumal of Agricultural mnomics 72, no.1 (February 1990):49-62.

Gentil, D and G. Ledoux, ”Commentaires sur l’Etude ’The Competitiveness of Sahelian
Agriculture’--Shapiro-Berg," IRAM, February 1988, mimeo.

Gentil, D., ”Agicultural Production, Regional Trade, and Imports in the Sahel,” Invited
paper, CILSS/ Club du Sahel Seminar on Regional Trade in West Africa, Lomé,
6-11 November 1989.

Goetz, Stephan, ”A Review of Basic Price Analysis Techniques with Emphasis on
Interpretation and Data Limitations in Third World Food System Applications,”
M.S. Plan B Paper, (East Lansing: Michigan State University), 1986.

Harriss, Barbara, "There Is Method in My Madness or is it Vice Versa? Measuring
Agicultural Market Performance", Food Research Institute Studies Vol. XVII,
No.2, 1979.

Hayenga, Marvin (ed), Pricing Problems in the Food Industg (with Emphasis on Thin
Markets [NCR Research Project NC-117, Monogaph No. 7], 1979.

 

148

Heytens, Paul J ., ”Testing Market Integation," Eggs! Rgearch Institutg Stumps, VoLXX,
No.1, 1986.

Humphreys, Charles, "Cereals Policy Reform in the Sahel - Mali,“ Elliot Berg Associates,
April 1986, mimeo.

Igue, John 0., ”National Border Markets: Regional Trade Supports," Invited paper,
CILSS/ Club du Sahel Seminar on Regional Trade in West Africa, Lorne, 6-11
November 1989.

Jones, William 0., ”Regional Analysis and Agicultural Marketing Research in Tropical

Africa: Concepts and Experience,” Eood Egeamh Ipstimte Studig, Vol. XIII,
No.1, 1974.

Judge, George, R.Carter Hill, William Grifﬁths, Helmut Lutkepohl, Tsoung-Chao Lee,
troduction to the co a d Practice of nometrics New York, John Wiley
& Sons, 1988.

Koester, Ulrich, ”Regional Integation to Improve Food Security in Southern and

Eastern African Countries”, Egg: Research Report N9. 53, Washington, DC,
1986.

Lambert, Agies, 'Ihe Dynamics of Traders’ Networks in West Africa," Invited paper,
CILSS / Club du Sahel Seminar on Regional Trade in West Africa, Lomé, 6-11
November 1989.

Lambert, Agnes and Johny Egg, "Regional Integation through Trade: the Senegal- Mali-
Gambia- Mauritania- Guinea- Guinea-Bissau - Subregion,” Invited paper,
CILSS/ Club du Sahel Seminar on Regional Trade in West Africa, Lomé, 6-11
November 1989.

Lipton, Michael, "Regional Trade and Food Security in Southern Africa" in vaerty,

Poligy, and Food Securig in Southem m'ca (ed. Coralie Bryant), (Boulder:
Lynne Rienner Publishers) 1988.

Loveridge, Scott, ”Uses of Farm and Market Survey Data to Inform Food Security Policy
in Rwanda,” Unpublished PhD dissertation (East Lansing: Michigan State
University), 1988.

Marion, Bruce, The Organization and Performance of the US. Eopd Sysrem, NC-ll7
Committee, DC Heath & Co., Lexington, Mass, 1986.

McIntire, John and Christopher Delgado, ”Statistical Siinﬁcance of Indicators of
Efficiency and Incentives: Examples from West African Agiculture," m Vol.
67, No.4, November 1985.

Mehta, Mona, "An Analysis of the Structure of the Wholesale Cereals Market in Mali,”
MS Plan B Paper (East Lansing: Michigan State University), 1989.

149

Monette, Marcel, "la Promotion des Exportations de Cereales au Mali: un apercu de la
problematique et propositon d’axes de travail”, Document de Travail
ACDI/PRMC 90-03, April, 1990.

Ofﬁce de Stabilisation et de Regulation des Prix (OSRP), Ministere des Finances et du
Commerce, "Note de Synthese sur la Campagie de Commercialisation 1989-90",
Bamako, Mali, April 30, 1990.

Ofﬁce des Produits Agicoles du Mali (OPAM), Ministere des Finances et du

Commerce, Buuerrp' D’Information sur le Marche Cerealier, April-May-June,
1989.

Plummer, Michael, "A Theoretical Review of the Customs Union Debate,” unpublished
paper.

Ravallion, Martin, "Testing Market Integation,” m February 1986.

Rogers, Beatrice and Melanee Lowdermilk, "Description of Food Purchasing and Food
Expenditure Patterns in Selected Cities in Mali,” Tufts University/DNSI/AID
Urban Food Price Study, December 1987, mimeo.

Robson, Peter, Integration, Development, and Eguig, George Allen & Unwin, London,
1983. '

Schmid, A.Allan, Prpper_ty, Epwgr, and Public Choice, Praeger Publishing, 2nd edition,
New York, 1990.

Schmid, A.Allan and James Shaffer, ”Marketing in Social Perspective” in Agriﬂlrprpl
Marker Analysis, Vernon L. Sorenson, ed., Bureau of Business and Economic
Research, Michigan State University, East Lansing, Michigan, 1964.

Scott, William, ”Mali Cereals Marketing Restructuring Progam (PRMC) - Annual
Evaluation," USAID/ Mali, June 1988, mimeo.

Shaffer, James D. and Michael Weber, Harold Riley, and John Staatz, "Inﬂuencing the
Desigi of Marketing Systems to Promote Development in Third World

Countries”, Paper presented at International Workshop on Agicultural
Markets in the Semi-Arid Tropics, Hyderabad, India, Oct.24,1983.

Shapiro, Kenneth and Elliot Berg, "The Competitiveness of Sahelian Agiculture,” Elliot
Berg Associates, 1988.

Staatz, John, "The Role of Market Conditions in Inﬂuencing The Adoption of New
Agicultural Technologies in Mali," MSU Dept. of Agicultural Economics Staff
Paper 89-109, October 1989.

Staatz, John, Josue Dioné, and N.Nango Dembele, ”Cereals Market Liberalization in
Mali," World Developmenr, Vol. 17, No. 5, 1989.

150

Stryker, J.Dirck, J can-J acques Dethier, Ignatius Peprah, and Donald Breen, "Incentive
System and Economic Policy Reform in Mali," AlRD, June 1987, mimeo.

Sundberg, Shelly, ”An Overview of the Food Consumption and Nutrition Situation in
Mali," USAID/Mali, March 1988, mimeo.

Tirnmer, C. Peter, The Corp Economy of Indonesia, (Ithaca: Cornell University Press)
1987.

Tomek, William and Kenneth Robinson, WM (Ithaca: Cornell
University Press) 1981.

Vaitsos, Constantine, ”Crisis in Regional Economic Cooperation (Integation) among
Developing Countries: A Survey," Wprld Dgeloprpenr Vol.6, 1978.

Vega, Hector, 'Bilan Cerealier et le PRMC au Mali”, Cooperation Suisse, Bureau de
Coordination, Bamako, Mali, April 3, 1990.

 

 

 

 

   

HICHIGRN STQTE UNIV. LIBRRRIES
IIIIIIIIIIIIIIIIIIIIIIIIIIIII|II|I|III|IIIIIIIIIIIIIIII
_ 31293007914538