ICT to substantially reduce agricultural costs to farmers

Studies on information and communication technologies (ICT) has provided evidence on how transaction costs in agriculture could be reduced by simple mobile phone applications.

A study conducted by Lirneasia in November 2007 at the Dambulla Dedicated Economic Centre (DDEC), the largest wholesale distribution centre in the country, shows that 15 percent of costs incurred by farmers are transaction costs which can be reduced in all stages of the agricultural cycle including the decision on which crops to growth, the actual growth process and selling once the crops are harvested.

Lead Economist at Lirneasia, Dr. Harsha De Silva, addressing a seminar on the benefits of ICT applications to farmers with an emphasis on transaction costs, this week said the role of ICT in creating an efficient agricultural market in Sri Lanka is a value chain approach. If markets are designed to function properly, both sides stand to gain. However, information is costly and markets are not always efficient, leading to high transaction costs.

De Silva explained that the problem is farmers are poor and food is expensive, therefore bringing about the need to create efficiencies in the agricultural market where there is a higher income to farmers and lower prices to consumers. The DDEC, contained in a sprawling 12 acres of land with a turnover of between Rs.30 and Rs.50 million a day had no bidding mechanism and no display. The dispersion in prices of wholesale items was at times between Rs.5 and Rs.10.

De Silva said the Govi Ghana System (GGS) programme established display screens at the DDEC in order to display live transaction prices of products including the highest and lowest prices and the times in which the price hit as well as the last traded price, time and stall number. This information on product pricing was also made available through the telephone and Internet where traders, farmers, buyers and sellers could view up to the minute transaction prices in their own market as well as prices in other parts of the country. The GGS objectives were to help farmers get the best possible prices, help farmers decide on whether to go to the DDEC as well as provide forward contracting.

De Silva said the continued volatility in prices is due to the lack of information. He said the country needs an integrated system that addresses individual needs from the decision making process of the farmers to the selling of the final product. Mobile phone and fixed phone ownership amongst farmers is currently around 72 percent while Internet usage is at the bottom. Therefore, Sri Lanka should move towards an agricultural commodity exchange, primarily mobile phone driven, supported by the Internet.

Lirneasia's Director of Strategic Development, Helani Galpaya, explained that in transaction costs which can account for up to 15 percent of a vegetable farmer's costs, 70 percent of that is the cost of information including travel to obtain that information. She said that if farmers were able to replace half of those trips with phone calls, the cost of information could be reduced by 33 percent. If other methods such as SMS are used, the cost of information could be further reduced.

Professor Subhash Bhatnagar, a lecturer at the Indian Institute of Management in Ahmedabad spoke on the benefits of ICT applications to farmers in India. The eChoupal model, an initiative by Indian Tobacco Company, is a good case study on how ICT's can reduce transaction costs for farmers. Electronic market places or Internet kiosks are set up in houses of trained farmers within walking distance of target farmers which they can use to sell their produce. In addition, they can receive services such as obtaining information about local weather conditions, farm management and insurance. This model is enabling higher incomes for farmers through improved quality and reduction in transaction costs. Around 6,400 eChoupals are operational in five Indian states covering 38,000 villages, servicing four million farmers and sourcing 13 agri commodities including oilseeds, coffee, grains and aquaculture products. Overall, eChoupals have reduced the transaction costs to Indian Rs.335 (LKR 1,000) per one metric ton of vegetables from the previous figure which was more than double.

The e-Sagu system, another collaborative effort of agriculture research institutions, currently tested among 5,000 farmers among 40 villages in Andhra Pradesh in India has shown providing information at the right time can result in a net reduction in the farmer transaction costs by Indian Rs.2,620 (LKR 7,900) per acre. Implementers say farmers do not even have to be literate to enjoy the benefits of the e-Sagu system.