Development Economics Seminar

Berber Kramer (International Food Policy Research Institute, United States)
Monday, 19 December 2016

This paper analyzes implications of cash constraints for collective marketing, using the case of the Kenyan dairy sector. Collective marketing through for instance cooperatives can improve smallholder farmer income but relies on informal, non-enforceable agreements to sell outputs collectively. Sideselling of output in the local market occurs frequently and is typically attributed to price differences between the market and cooperative. This paper provides an alternative explanation, namely that farmers sell in the local market when they are cash-constrained, since cooperatives defer payments while buyers in local markets pay cash immediately. Building on semi-parametric estimation techniques for panel data, we find robust evidence of this theory. High-frequency high-detail panel data show that farmers sell more in the local market, in particular to buyers who pay cash immediately, in weeks with low cash at hand. Moreover, households cope with health shocks by selling more milk in the local market and less to the cooperative, but only in weeks they are not covered by health insurance. Increased flexibility in payment and the provision of insurance through agricultural cooperatives can potentially reduce side-selling and improve the performance of collective marketing arrangements. Joint with Xin Geng and Wendy Janssens.