Cost of Information in

Agriculture Markets
A case-study analysis of the production and sale of
produce at the Dambulla Dedicated Economic Centre
(DDEC)

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Dimuthu Ratnadiwakara
Transaction Costs

“The costs that arise when individuals exchange ownership

rights for economic assets and enforce their exclusive rights”
, Eggertson (1990:15)

Transaction costs can be classified into observable and

Cost of information
unobservable or inhibitive transaction costs (Staal, Delgado
and Nicholson, 1997 and Delgado, 1995).
and

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 Observable transaction costs - observable when a transaction
takes place

cost of facilitating a transaction

Include marketing costs such as transport, handling, packaging,
storage, spoilage etc.
 Unobservable transaction costs - not observable when a
transaction takes place

include cost of information search, bargaining, screening,
monitoring, co-ordination, enforcement
Cost of information

Costs that can be reduced if accurate

and timely information is available

Examples
 Cost of travel that can be reduced if

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information was available through ICT
 Cost of searching information
What we did –
quantify cost of information

Estimate the cost of information in
agriculture markets via a case-study
analysis of the production and sale of
produce at the Dambulla Dedicated

www.lirneasia.net
Economic Centre (DDEC)- largest
whole-sale market for vegetables in Sri
Lanka
How we did it – a sample survey

Random Selection of 10 farmer associations
out of 89 farmer associations in Dambulla
Area who sell their produce at Dambulla
DDEC.

30 farmers from each farmer association

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Use of a structured questionnaire
 questions relating to the entire farming process
starting from the point of decision to grow the
crop to the point of selling and receiving money
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Stages of the farming process

Harvesting,
Land and
Decision Seed Growing Packing, Selling
planting
Storing

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•Finding Seeds •Hiring •Finding Labour • Finding prices
• Deciding machines •Watering
•Preparing •Harvesting •Finding
•Allocating Land Seeds •Finding Labour •Purchasing and transportation
applying •Transporting
•Financing •Seed bed •Preparing land fertilizer, •Transporting
pesticides, •Packing
•Applying •Water supply weedicides •Selling
Fertilizer, •Storing
Pesticides, etc •Planting
Some examples of cost of
information

Harvesting,
Land and
Decision Seed Growing Packing, Selling
planting
Storing

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• Visits to meet •Cost of finding •Costs of •Costs of •Costs of •Costs of
farmer information finding labour finding finding market comparing
association about a fertilizer, prices prices of
officials to particular type •Costs finding pesticides, different traders
decide on a of seed machines to weedicides etc •Costs of
crop prepare the finding labour •Costs of
•Cost of land •Costs of finding
• cost of phone
traveling to traveling to •Costs of transport
calls to
purchase seeds purchase finding storage,
agriculture
if the seeds fertilizer, packing
officers to find
were not pesticides, materials etc
information
available weedicides etc
about the crops
if those were
not available
 Findings

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Transaction costs are 15.18% of
the total cost incurred by the farmer

Transcation
Costs,15%

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Direct Costs, 85%
Cost of information is 11.04% of
total expenditure

i.e. cost of information is 69.77% of the Transaction
cost

Transaction Costs

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15% Other transaction costs
30%
Direct costs
85%

Cost of information
70%
Small farmers feel it more
Cost of Information is FIXED
Cost (LKR)

15000
of information

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Transaction

10000
Cost

5000

0 50000 100000
Total Cost (LKR)
Total Expenditure
Findings
Distribution of Costs

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Growth phase has 44% of total cost
of production
Selling, 7.6% Decision, 5.6%

Seed purchase and seed bed, 9.1%

Havest ing, Packing and st or ing, 18.9%

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Land pr epar at ion and plant ing, 14.6%

Gr owing, 44.0%
Highest cost of information is in the
growth phase
Selling, 9%

Havesting, Packing
and storing, 2% Decision 24%

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Seed purchase and
seed bed, 5%

Land preparation and

planting, 6%

Growing, 53%
Growth has highest cost of
information irrespective of the crop

100.0%
90.0%
80.0%
70.0% Selling
Havesting, Packing and storing
60.0%
Growing
50.0%

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Land preparation and planting
40.0%
Seed purchase and seed bed
30.0% Conception
Decision
20.0%
10.0%
0.0%
Onion Chili Tomato Brinjal
 but.... The proportion of information
cost is not the same for every stage

4:1
50%
45%
40%
35%
30% 45 : 1

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25% 18 : 1
13 : 1
20% 1:2 5:1
15%
10%
5%
0%
Decision Seed purchase Land Growing Havesting, Selling
and seed bed preparation and Packing and
planting storing
 Decision stage has highest relative
percentage of cost of information

100%
90%
75.64%
80%
70%
60%

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50%
40%
30% 20.36% 16.98%
20%
7.07% 5.12%
10% 2.13%
0%
Decision Seed purchase Land preparation Grow ing Havesting, Selling
and seed bed and planting Packing and
storing
 Use of phones

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 Sri Lankan BOP does not realize the
economic benefits of phones

Access to phones at Sri Lanka is 92%

Only 8% of the calls are for business
purposes
.

Ability to earn or save

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India (3.97)
Pakistan (3.80)
Philippines
Thailand (3.56) (4.07)
Sri Lanka (3.19)

1 2 3 4 5
wo rsened slightly no change so mewhat impro ved
wo rsened impro ved

Source : Teleuse@BOP study, LIRNEasia, 2006

Farmers hardly use phones to find
information

Cost of phone calls is only 0.21% of
cost of information

i.e. they travel to find information
 The average cost of traveling = LKR 195

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per visit
 Average number of visits = 24
What if they used the phone more?

Current – almost 0%
If ICT use is increased

use of ICTs
 Average Cost of
traveling to the town –
LKR 195
 Total average
to 50%
 Assumption : Average
cost of a phone call –
LKR 40
 12 Phone calls & 12

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transaction cost – LKR visits
4,680  Total average cost of
 Number of visits = information– LKR
24 3,714
 Total average cost of
information– LKR
5,571
33% reduction in cost of information

6000
894
Cost of information (LKR)

5000
0

4000
894
3000

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481
4680
2000
2343
1000

0
00%
calls;
Phone24Use
Visits 1250%
calls; 12 Use
Phone Visits
Traveling Cost Communication Cost Other Costs

33% reduction in Cost of information and time saved !!

More scenarios

6000

5000

4000

3000

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2000

1000

0
0 calls; 24 visists 6 calls; 18 visists 12 calls; 12 visits 18 calls; 6 visits

Traveling Cost Communication Cost Other Costs