Market Information Systems – Public or Private Provision?

Recently, we came heard about a new service in Ghana, CocoaLink, which is a partnership between the World Cocoa Foundation, Ghana Cocoa Board and the Hershey Foundation (USA). From marketing to health advice, Cocoa Link provides cocoa farmers with information on all facets of life. The really interesting thing to note about CocoaLink is the manner in which it is reaching the farmer – via mobile phones. The mobile phone holds the promise of a major transformation many sectors in poor nations because so many of the poor have access to these phones and service is now widely available.  But is it right to have donors finance this service?  How sustainable is a service which depends upon donor support? Currently, CTED is working with our partner Esoko, a private company, which also runs a Market Information System (MIS) that provides price information to farmers.  Although private, many of the customers of Esoko’s service are NGOs which purchase the price alerts on behalf of farmers and farmer groups.

So,what could be the problem with such public or donor supported projects ? On the one hand, there is the fear that without the competition of the marketplace, or the disciplined decision making of an entrepreneur whose income depends upon the success of the firm, quality of the service will deteriorate after time because of the easy money obtained by donors or the government.  Most government services to farmers are criticized as being ineffectual. For example, agricultural extension services – the transfer of agricultural research and knowledge to farmers – are often criticized (somewhat unfairly) for not giving farmers the information they really need.  After all, one can argue that despite huge investments in extension services there has been little marked improvement in African agriculture over the years.  Farming techniques remain at very basic levels.

There is however a set of alternate viewpoints.  First, the provision of information is notoriously difficult to make money off.  In the US and Europe, many top banks have research divisions which produce lots of information on firms and find it hard to make a profit from this information. Instead, their operations are often subsidized by (and some would say corrupted by) the investment banking divisions of the bank.

If donors care about farmers and seek to provide charity or aid, why not channel this through the distribution of useful and impactful information?   Perhaps the Esoko model is the right one – a private company providing a service and the donors as the customers of this service. After all, an investment by a donor may not be that different from that of a venture capitalist, except for the timing, level and nature of expected profits. 

One could ask whether an MIS is a public good.  Clearly, information is not “rival” – that is, one person getting the information does not diminish the value of the information or make the information unavailable to another person.  Further, since people can always and often do tell others about their information, information is not perfectly “excludable,” and often spreads that information into the community. The fact that information is not rival nor is it excludable support the idea of an MIS as a public good if we are to use the economist’s definition of a public good. Public goods often warrant public investments. Most of the existing MIS projects in the world today are either public or donor funded, like Pride Africa’s DrumNet Project in Kenya, Agmarknet, Reuters Market Light and Fisher’s Friend in India.  

One question that still remains to be answered is whether the Market Information Systems could make money on their own without the involvement of donors.  The private company Esoko is of course betting that it can.  Part of our research here at CTED will be to determine the “value” of the price alerts to farmers. Perhaps with this information we will be able to answer the question of whether the MIS’s can make money and therefore whether they should be privately or publicly provided.