Finding Missing Markets (and a Disturbing Epilogue): Evidence from an Export Crop Adoption and Marketing Intervention in Kenya

41 Pages Posted: 20 Apr 2016

See all articles by Nava Ashraf

Nava Ashraf

Harvard University - Business School (HBS)

Xavier Giné

World Bank - Development Research Group (DECRG)

Dean S. Karlan

Northwestern University - Kellogg School of Management; Yale University; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Date Written: January 1, 2008

Abstract

In much of the developing world, many farmers grow crops for local or personal consumption despite export options that appear to be more profitable. Thus many conjecture that one or several markets are missing. This paper reports on a randomized controlled trial conducted by DrumNet in Kenya that attempts to help farmers adopt and market export crops. DrumNet provides smallholder farmers with information about how to switch to export crops, makes in-kind loans for the purchase of the agricultural inputs, and provides marketing services by facilitating the transaction with exporters. The experimental evaluation design randomly assigns pre-existing farmer self-help groups to one of three groups: (1) a treatment group that receives all DrumNet services, (2) a treatment group that receives all DrumNet services except credit, or (3) a control group. After one year, DrumNet services led to an increase in production of export oriented crops and lower marketing costs; this translated into household income gains for new adopters. However, one year after the study ended, the exporter refused to continue buying the cash crops from the farmers because the conditions of the farms did not satisfy European export requirements. DrumNet collapsed in this region as farmers were forced to sell to middlemen and defaulted on their loans. The risk of such events may explain, at least partly, why many seemingly more profitable export crops are not adopted.

Keywords: Crops & Crop Management Systems, Access to Finance, Economic Theory & Research, Banks & Banking Reform

Suggested Citation

Ashraf, Nava and Gine, Xavier and Karlan, Dean S., Finding Missing Markets (and a Disturbing Epilogue): Evidence from an Export Crop Adoption and Marketing Intervention in Kenya (January 1, 2008). World Bank Policy Research Working Paper No. 4477, Available at SSRN: https://ssrn.com/abstract=1084710

Nava Ashraf (Contact Author)

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