Transaction costs analysis of maize and cotton marketing in Zambia and Tanzania

This study examines the experiences in the mar- keting of maize and cotton in Zambia and Tanzania, where state- led and controlled marketing of crops have given way to private sector participation. The report addresses the degree to which the private sector has been successful in filling the vacancy left by retreating government programs and identifies some of the institutional impediments that continue to limit the efficiency of private sector marketing arrangements by raising transaction costs. An attempt is made to organize, in a systematic way, institutional imperfections that may lead to inefficient marketing. Section 2 defines the terms -- transaction costs, marketing margins, marketing efficiency, and institutions -- used in the paper. A brief conceptual model in section 3 illustrates the importance of reduced transaction costs (or improved marketing efficiency) in achieving widespread market participation. The model shows that policies aimed at removing institutional impediments to further reductions in these costs is potentially a more cost-effective way of achieving some of the same objectives that were being pursued by government marketing schemes. The remainder of the paper analyzes the impact of the liberalization of maize and cotton marketing in Zambia and Tanzania and assesses the efficiency of prevailing marketing arrangements. Section 4 briefly describes the data that was used in this exercise, while sections 5 and 6 describe the evolution of and major characteristics of the marketing chains for maize and cotton, respectively, in Zambia. The latter sections also analyze the efficiency of the marketing structure, describe some of the most important existing marketing inefficiencies in each of the markets, and trace each inefficiency back to its fundamental institutional cause. Sections 7 and 8 assess in turn the marketing of maize and cotton in Tanzania. Concluding remarks are made in Section 9 concerning: the structure of marketing arrangements under liberalization; factors influencing transaction costs; institutional impediments to efficient marketing; and priorities for institutional change. Includes bibliography. (Author abstract, modified)