Incentive mechanisms to exploit intraseasonal price arbitrage opportunities for smallholder farmers: Experimental evidence from Malawi

Abstract

Seasonal commodity price fluctuations can potentially offer farmers arbitrage opportunities to increase their income. However, smallholder farmers in most of sub‐Saharan Africa often do not exploit these opportunities to the fullest extent possible. To inform this issue, we conducted a randomized controlled trial among 1739 smallholder farmers in Malawi to estimate the impact of two key post‐harvest constraints, lack of appropriate storage technology and commitment issues, on farmers' legume storage and sales decisions. The treated groups received (i) an improved storage technology in the form of two hermetic (airtight) bags, (ii) the same improved storage technology under the condition that farmers store collectively with members of their farmer club in their village, and/or (iii) the improved storage technology under the condition that farmers store collectively at a centralized association warehouse. We analyzed the impacts of these treatments on storage behavior and revenue from sales. Results indicated that addressing the technological and commitment constraints simultaneously had the largest average impacts. One year after the intervention, farmers offered hermetic bags and the village storage program (Treatment 2) stored 24% more legumes at harvest, stored 27% longer, received a 3% higher price for their legumes and ultimately made 12% more on average than farmers in the control group. Farmers in that treatment also improved some (but not all) outcomes compared to farmers in other treatment groups. These findings suggest that combining technology with collective action that is localized and flexible can lead to better post‐harvest outcomes for smallholder farmers.

Comparative utility of hermetic and conventional grain storage bags for smallholder farmers: a meta‐analysis

“…In Uganda, a similar study found increased use of hermetic bags occurred when there was a subsidy to assist with their initial purchase 93 . In Malawi, hermetic bags enabled smallholder farmers to store more legumes for longer periods of time 94 . These bags are as effective as, and often better than, pesticides in reducing storage losses due to insects 47,95,96 .…”

“…47,95,96 They also improve food security and increase household income by providing safe storage for grain for household consumption and/or sale when food supplies are low and prices are high, with the availability of community storage for the bags further increasing the quantity of legumes stored and the duration of their storage. 94 In conclusion, hermetic bags can preserve quality of cereals, e.g. maize, paddy rice, and sorghum, and legumes, e.g.…”

“…93 In Malawi, hermetic bags enabled smallholder farmers to store more legumes for longer periods of time. 94 These bags are as effective as, and often better than, pesticides in reducing storage losses due to insects. 47,95,96 They also improve food security and increase household income by providing safe storage for grain for household consumption and/or sale when food supplies are low and prices are high, with the availability of community storage for the bags further increasing the quantity of legumes stored and the duration of their storage.…”