The proposed research addresses critical questions about the operation of agricultural markets in East Africa, focusing specifically on cotton markets in Tanzania. Over the last two decades Tanzania has made significant steps toward price liberalization and integration with world commodity markets. While the potential benefits of market liberalization are well understood, it is not entirely clear that the current structure and operation of agricultural output markets benefit the rural poor, who are the primary focus of development policy in this region. Simply put, although development strategies increasingly rely on markets to guide resource allocation, researchers know remarkably little about market functioning and the resulting price patterns in rural African markets. The PI's ask three important questions about Tanzanian cotton markets: First, what is the relationship between the subjective price and yield expectations held by farmers and their production and marketing choices? Second, noting that there exists considerable temporal and spatial dispersion of producer prices, what are the farmer, trader and local market characteristics that determine the actual price received by a particular producer? Third, are the price spreads earned as profits by cotton traders more consistent with full competition or with non-competitive, collusive behavior? The PI's address these questions by gathering two unique data sets. To address the first question, they will supply farmers with cell phones and collect their immediate, subjective expectations regarding harvest time prices and yields at bimonthly intervals throughout the course of an entire planting, cultivation, harvest and marketing year. To assess the second two questions, they will conduct a two-year panel survey of agricultural traders, with traders matched to farmers who are part of a three-year panel being gathered by the World Bank and Tanzanian National Bureau of Statistics. The results of the project will shed new light on price discovery and formation processes, and on the relation between market functioning and supply response in low-income rural areas. By emphasizing the role that expectations at the individual level play in determining agricultural production and marketing decisions, the research joins a recent, fast-growing literature incorporating insights about the importance of expectations into the analysis of economic outcomes. The question of trader competitiveness is an open one that has been addressed in recent papers, but without the benefit of a matched farmer-trader panel like the one they propose to gather. The two data sets they aim to gather are both highly innovative. There are no available matched trader-farmer surveys, and no attempts have been made to use cell phones to capture subjective expectations at regular intervals over an extended period. Thus in addition to addressing important questions on the frontier of agricultural and development economics, the research will pioneer new data collection methods that could prove useful for gathering high frequency subjective data in other settings.
Broader Impact Recent volatility in world agricultural markets, and the expected ongoing volatility from increased use of organic fuels, speculation in commodity markets and climate change, make the questions the PI's address important not only for the design of policy in rural east Africa and the advancement of knowledge in the field, but also for broader understanding of the workings of globalized commodity markets and their connection to rural poverty reduction in low-income, agrarian nations. If price changes in global commodity markets do not transmit cleanly to farmers, or if farmers do not adjust their expectations and behavior in response to market developments, then policymakers must take this into account in the design and implementation of market-based solutions to global poverty. The findings from this study should be of broad interest to non-governmental organizations, government ministries, international donor organizations, the private sector agribusiness community and national and regional media
