How mobile phones benefit farmers

The main theme of my job market paper can be summed in a comment that a farmer made during my primary data collection field trips.

“Before I had a cell phone I harvested my crop and then had to wait for a trader to buy my crops; now I talk to the trader and harvest my crops when he will buy it.”
-Farmer in rural Pakistan

Economists have long believed that shifting to cash crop production is very important for development (World Bank, 2013; IFPRI, 2013; FAO, 2014). Cash crops are often highly perishable and experience rapid rates of spoilage when storage technology is dated and market linkages are weak (Duke and Ducellier, 1993). As a result, in developing countries, farmers growing cash crops are at a risk of experiencing high post-harvest losses (NRCBSTID, 1993). It can be hypothesized that this risk deters the farmers from growing the high-return cash crops. Can cell phones help the farmers mitigate the risk of incurring post-harvest losses by improving farmer-trader coordination?
Previous studies related to cell phones have primarily focused on the their role in providing price and weather related information (e.g. Jensen, 2007; Aker, 2010; Cole, 2012; Goyal, 2010). My job market paper fills the gap in the literature, by providing novel estimates to show that access to cell phone coverage improves farmer-trader coordination in post-harvest period, resulting in farmers shifting towards growing and successfully selling the perishable cash crops and thus experiencing positive impact on their income and consumption.

Context:

I exploit the spatial expansion of cell phone coverage in Punjab, the hub of agriculture in Pakistan, which provides the context to test its impact on farmers’ crop choice and farmer-trader coordination. The farmers in Pakistan sell their crops to traders in the agricultural wholesale market, which is commonly known in South Asia as the mandi. The traders in the mandi, due to storage related constraints, have limited purchasing capacity for perishable crops. In the given circumstances, it is hypothesized that both the farmer and the trader have a strong incentive to coordinate.
One possible mechanism for achieving coordination can be through pre-arranging a sale date and then harvesting crops close to this date. This can be beneficial for the farmer as he has lower post-harvest losses. The trader can also benefit as this allows him to prevent having below capacity days, leading to higher income over the season. Despite the presence of strong incentive to coordinate, it may not be achieved due to the high cost associated with it. Can the cell phone help farmers and traders coordinate better?

“Dead Zone” – Identification And Data Collection:

Cell phone coverage started expanding into the rural areas of Pakistan in 2000. Cell phone towers are not placed randomly, making it difficult to estimate the causal impact of access to cell phone coverage on crop choice. To deal with these issues, I make use of the following unique policy: As a result of security concerns, the Government of Pakistan declared the area within 10 km of International border with India as the “Dead Zone,” area without cell phone coverage. I found in my field work that the enforcement of this restriction is achieved by strategic placement of cell phone towers combined with placement of signal jamming devices. This restriction allows the use of a spatial regression discontinuity design. The map in the figure shows the discontinuous change in cell phone coverage at the 10 km restriction.

The data utilized to implement the aforementioned econometric techniques exists at two levels, both at the village and household level. A village census from 2008 provides information on every village in the country. By combining this data with spatial information, I can accurately estimate the distance between the village and the “Dead Zone” restriction boundary. I utilize this dataset to test the impact of cell phone access on crop choice at the village level. The village level dataset is complemented by a detailed new household survey that I conducted in 2013 of 450 agricultural households located in 30 villages in 5 districts which are located in Punjab, next to the International Border with India. The household data allows me to test the different mechanisms through which cell phone access can impact crop choice.

Results:

• The RD estimates, utilizing the method of Dell (2010), from both the village level and household level data show that access to cell phone coverage leads to farmers moving towards growing perishable crops. I define the crops as either extremely (e.g. orchards, corn and sugarcane), highly (e.g. root vegetables) or least (e.g. cereals) perishable. Village census data shows that the estimates of impact of access to cell phone coverage on probability of growing extremely and highly perishable crops lie in the range of 0.23 to 0.26. Household level RD estimates suggest that cell phone access increases the share of land allocated to extremely perishable and highly perishable crops by 23-27% and 16-18% respectively. Visual evidence for discontinuity in both village and household cases is presented in the figure.
• There are at least three potential mechanisms through which access to cell phone coverage can impact the production choices of farmers.
  • Improvement in farmer-trader coordination, can result in lower post-harvest losses making perishable crops more profitable. Estimates show that cell phone coverage decreases the number of days between harvest and sale date by 5-7 for extremely perishable crops and 4-6 for highly perishable crops. The percent of output lost in the post-harvest losses falls by 21-35 % for extremely perishable crops and 16-20% for highly perishable crops. In contrast, no effects are observed for least perishable crops.
  • Second, access to cell phones can improve farmers’ knowledge of the optimal planting date and this improved knowledge can have a greater impact on perishable crops compared with the less perishable ones. Results provide evidence for a statistically significant effect through this channel but are not economically significant.
  • Third, cell phone coverage may increase the price of perishable crops received by farmers more than that of less perishable crops. Estimates reveal that the impact of cell phone access on price is positive and statistically significant. This effect is however uniform across all categories of crops.

The analysis of the three mechanisms shows that only the farmer-trader coordination mechanism is both statistically and economically significant, and is unique to perishable crops.

• I find that access to cell phone coverage increases farmers’ agricultural income and household consumption by 10-15 % and  8-10 % respectively.

Policy Implications:

• Coordination: My job market paper shows that cell phones can be utilized for improving farmer-trader coordination in context of developing country agriculture markets. The problem of buyer-seller coordination is more general and can be extended to other developing country markets (e.g. dairy products).
• Adding the “when” dimension to Agricultural Extension: Modern ICTs can be leveraged to introduce different types of extension services for farmers living in rural areas of Pakistan. The results presented show that farmers require access to different types of information at different points during the agricultural cycle. Based on the goal, extension programs can leverage modern information and communication technology to provide relevant information to farmers throughout the agricultural cycle.
• Post-harvest Risk Mitigation: In the absence of agriculture related insurance coverage in the post-harvest period, coordination remains the only post-harvest loss management strategy. Although cell phones can enhance coordination, they cannot completely mitigate the risks that farmers face in the post-harvest period. Further theoretical and empirical research is required on mechanisms or products that can help farmers in mitigating the post-harvest risks in lucrative opportunities (e.g. floriculture).

This post first appeared on The World Bank’s Developmemt Impact Blog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Saher Asad is a Ph.D. candidiate at George Washington University.

Image: A worker picks tea at a plantation near Kasese town, 497km (309 miles) west of Uganda capital Kampala January 29, 2013. REUTERS/James Akena.