L Limited product grades and standards contribute to higher transaction costs of market
exchange by requiring traders to visually inspect the product rather than contracting
remotely by product specification.
• Implicit caveat emptor (“let the buyer beware ”) rules in which failure to detect product
quality deterioration is a cost incurred by the buyer. This implicit rule tends to increase
the potential for opportunism in exchange, which imposes additional transaction costs of
trading. In general, not being able to trust participants in the marketing system adds
greatly to marketing costs, restricts the use of markets, and thus limits opportunities
(Shaffer et al. 1985).
• Transport constraints. A considerable part of the food price instability problem in Africa
is related to the high cost of transportation, which makes import parity prices two to four
times higher than export parity prices in much of the region (Koester 1986). For example,
the cost of sending a ton of white maize by rail from the Northwest Province in South
Africa to the Copperbelt of Zambia is about $90, roughly the amount that South African
farmers are paid to grow it (Scott 1995). Both the productivity and stability of the food
systems in the region could be substantially improved by public investments and policy
changes that reduce the costs of distribution — internally, between countries in the region,
and with the wider world market (Antle 1983). Transport constraints also contribute to
temporary market concentration. Small traders who must wait two weeks after buying
products to secure transport have their working capital tied up in inventory. This allows
relatively large traders (who have greater liquidity) to temporarily exert greater influence
over the market (Gebremeskel, Jayne, and Shaffer 1997).
• Institutional constraints in linking African farmers to foreign markets. With inelastic
demand in local markets, African agriculture faces the dilemma that success in raising
agricultural production would jeopardize continued profitability through a drop in output
prices (Delgado 1992). Trade offers the potential to expand agricultural production
without depressing domestic output prices, a key issue in sustaining long-run profitability
and productivity in the sector. Penetration into global markets is increasingly tied to
understanding the complexities of food laws in major importing countries. African-based
agribusiness and processing firms need to understand and comply with the proliferating
and continuously changing pattern of laws controlling food import into the North
American, European, and Asian markets.
Moreover, African agribusiness firms will increasingly need to establish partnerships with
firms operating in potential importing countries to ensure demand for their products.
Multinational firms have a major advantage in international trade in that resources can be
devoted to assembling the product in the country of production (i.e., invest in the complex
coordination of input supply, production, processing, and marketing) with the assurance of
a subsidiary distributor with established access to retail markets in the importing country.
Developing a vertically coordinated system of production/marketing that bridges across
countries substantially reduces the risks and costs of engaging in international trade.
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