Edited by Johann F. Kirsten, Andrew R. Dorward, Colin Poulton, and Nick Vink




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Institutional Economics Perspectives on African Agricultural Development

Institutional Economics Perspectives on African Agricultural Development

Edited by Johann F. Kirsten, Andrew R. Dorward, Colin Poulton, and Nick Vink


Copyright © 2009 International Food Policy Research Institute. All rights reserved. Sections of this material may be reproduced for personal and not-for-profit use without the express written permission of but with acknowledgment to IFPRI. To reproduce material contained herein for profit or commercial use requires express written permission. To obtain permission, contact the Communications Division .

International Food Policy Research Institute 2033 K Street, NW Washington, D.C. 20006-1002, U.S.A. Telephone +1-202-862-5600 www.ifpri.org

Figure 3.1 adapted from E. Ostrom, R. Gardner, and J. Walker, Rules, games, and common-pool resources, Figure 2.2, p. 37, copyright © 1994 the University of Mich­igan Press, and E. Ostrom, Doing institutional analysis: Digging deeper than markets and hierarchies, in Handbook of New Institutional Economics, ed. Claude Ménard and Mary M. Shirley, Figure 2, p. 829, copyright © 2005 Springer Science and Business Media. Adapted and reproduced with kind permission of the Univer­sity of Michigan Press and Springer Science and Business Media.

DOI: 10.2499/9780896297814BK

Library of Congress Cataloging-in-Publication Data

Institutional economics perspectives on African agricultural development / edited by Johann F. Kirsten . . . [et al.].

p. cm. Includes bibliographical references and index. ISBN 978-0-89629-781-4 (alk. paper)

1. Agriculture and state—Africa. 2. Economic development—Africa.

3. Agricultural development projects—Africa.

I. Kirsten, Johann.

HD2118.I57

2009




338.1096—dc22

2009014462



Contents

List of Tables

ix

List of Figures xiii List of Boxes xv

Foreword

xvii

Acknowledgments Introduction xxi

xix

Chapter 1

Part 1 Theoretical and Conceptual Framework 1 Institutions and the Agricultural Development Challenge in Africa 3 Andrew R. Dorward, Johann F. Kirsten, S. Were Omamo, Colin Poulton, and Nick Vink

Chapter 2

Introduction to the Economics of Institutions Johann F. Kirsten, A. S. Mohammad Karaan, and Andrew R. Dorward

35

Chapter 3

A Framework for Analyzing Institutions Andrew R. Dorward and S. Were Omamo

75

Chapter 4

Part 2 Exchange in Goods and Services 111 Exchange, Contracts, and Property-Rights Enforcement Eleni Gabre-Madhin

115


Chapter 5 Coordination for Market Development 143

Colin Poulton and Michael C. Lyne

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Chapter 12

Chapter 13

Chapter 14 Chapter 15

The Role of Trust in Contract Enforcement: An Analysis of Smallholder Farmers and Sugar Millers in Swaziland 185

Micah B. Masuku

An Institutional Economic Appraisal of Worker Equity Schemes in Agriculture 201

A. S. Mohammad Karaan

From Statutory to Private Contracts: Emerging Institutional Arrangements in the Smallholder Tea Sector in Malawi 213

Ephraim W. Chirwa and Jonathan G. Kydd

Institutional Changes and Transaction Costs: Exchange Arrangements in Tanzania’s Coffee Market 227

Anna A. Temu

A Transaction-Cost Approach to Enterprise Modeling and Coordination between Small Growers and a Large Firm: The Case of Mussel Mariculture in South Africa 245

A. S. Mohammad Karaan

An Analysis of Animal Healthcare Service Delivery in Kenya 257

Leonard Oruko and Leah Ndung’u

Networks and Informal Mutual Support in 15 Ethiopian Villages 273

John Hoddinott, Stefan Dercon, and Pramila Krishnan

Part 3 Natural Resource Management 287

Understanding Property Rights in Land and Natural Resource Management 295

Esther Mwangi and Ruth S. Meinzen-Dick

Coordination in Natural Resource Management 319

Ruth S. Meinzen-Dick

What Happens during the Creation of Private Property? Subdividing Group Ranches in Kenya’s Maasailand 343

Esther Mwangi

Chapter 16

Chapter 17

Chapter 18

Chapter 19 Chapter 20

CONTENTS vii

Institutional Change to Promote a Rental Market for Cropland in the Communal Areas of KwaZulu-Natal, South Africa 359

Michael C. Lyne

Collective Action in the Management of Canal Irrigation Systems: The Doho Rice Scheme in Uganda 375

Dick Sserunkuuma, Nicholas Ochom, and John H. Ainembabazi

Gender, Resource Rights, and Wetland Rice Productivity in Burkina Faso 389

Barbara van Koppen

Part 4 An Institutional Perspective on the State: Its Role and Challenges 409

Agricultural Research 411

Colin Poulton

A New Institutional Economic Analysis of the State and Agriculture in Sub-Saharan Africa 429

Jonathan G. Kydd

Contributors 461 Index 465


Tables

2.1 The economics of institutions 57

3.1 Continuum of types of local organization by sector 98

3.2 Principal roles of individuals in farmer organizations, private companies, and NGOs 99

3.3 Institutional sectors, levels of action, and decisionmaking 100

4.1 Payoff consequences of trade game 122

4.2 Payoff consequences of merchant–agent game 133

5.1 Attributes of the contracting process 150

5.2 Coordination mechanisms for addressing service development and delivery problems 175

6.1 Survey items measuring trust 193

6.2 Sample cane growers’ trust in millers 195

6.3 Cane growers’ trust in millers and their perceptions of their relationship 195

6.4 Trust and profit making 196

6.5 Duration of relationship and farmers’ trust in millers 197

7.1 Phases of contractual evolution 207

9.1 Share of coffee deliveries to the auction by agents, northern Tanzania, 1994/95–1997/98 (percent) 231

9.2 Comparison of new and TCCCCO curing factories, northern Tanzania 234

9.3 Advantages of new technology over TCCCCO technology, 1996/97 234

9.4 Share of coffee sold through competitive bidding, northern Tanzania, 1994/95–1997/98 (percent) 240

10.1 Structure of transaction costs 248

10.2 Transaction costs in mussel farming and effects on relevant farming models 249

11.1 Average levels of investment by professional veterinarians

(U.S. dollars) 265

11.2 Items provided by the public sector 265

11.3 Significant variables influencing the probability of using a veterinarian 268

11.4 Transaction-cost variables and use of a vet (Kiambu, Nyandarua, Nakuru) 268

11.5 Estimates by the Kenya Veterinary Association of the minimum recommended costs for establishing a clinic (U.S. dollars) 269

12.1 Distribution of households in the Ethiopian Rural Household Survey, by agro-ecological zone 276

12.2 Correlates of the presence of networks and their sizes 278

12.3 Characteristics of individuals in a household’s network (percent) 279

12.4 Wealth characteristics of other individuals in networks: land and oxen (percent) 280

12.5 Characteristics of consumption loans 281

12.6 Shocks and credit constraints (percent) 282

12.7 Correlates of membership in iddirs 283

12.8 Events for which iddirs make payouts or offer loans (percent) 284

14.1 Factors affecting local organizations for natural resource management 330

15.1 Basic information on Enkaroni, Meto, Nentanai, and Torosei group ranches 346

15.2 Number of interviews by age set and gender 346

15.3 Distribution of parcel sizes on Enkaroni, Meto, and Nentanai group ranches 349

16.1 Efficiency and equity advantages of land rental, 1993–96 367

16.2 Discriminant function distinguishing between lessors and lessees, 2000 369

16.3 Regression analysis of investment in farm operating inputs 371

17.1 Benefits received by farmers in the Doho Rice Scheme and their perceptions of the benefits relative to costs 378

17.2 Farmers’ perceptions of the change in benefits and services, user-fee collection procedure, and performance of the current DRS administration (percentage of households) 379

17.3 Adequacy of irrigation water received by household and its correlation with rice yield in the first and second seasons, 2001 380

17.4 Land ownership and methods of land acquisition by DRS farmers 381

17.5 Determinants of participation in collective action 383

20.1 Models of economic and social coordination 441

20.2 Functions and scope of the state 446

20.3 Two approaches to incentives in the reform of public-service delivery 454

20.4 Conditions favorable and unfavorable to incentives based on performance 455


Figures

1.1 Changes in supply and demand during economic development 21

1.2 Changes in supply and demand during technical and institutional development 22

3.1 The IAD framework 77

3.2 A conceptual framework for institutional analysis 79

3.3 Institutions and their attributes 84

3.4 Frequency of exchange, transaction risk/return ratio, and contractual forms 96

3.5 Technology, institutional environment, and contractual arrangements in economic development 105

3.6 The low-cost financial service frontier and institutional innovation 106

4.1 Spectrum of enforcement and market exchange 121

4.2 Typology of contract enforcement 129

5.1 Conceptualizing asset specificity 149

5.2 Vertical and horizontal coordination 151

5.3 Integrated conceptual framework 178

9.1 Auction deliveries by marketing month 233

9.2 Tanzania coffee auction: Price-discovery paths 239

11.1 Market intermediaries and delivery channels for veterinary products 263

11.2 Sources of animal healthcare services 264

P3.1 Role of collective action and property rights in natural resource management 289

13.1 Coexisting multiple legal orders (legal pluralism) 302

14.1 Devolution in the context of decentralization and other institutional reforms 323

20.1 Stateness and efficiency 446

20.2 Possible reform paths under structural adjustment 447

20.3 Processes and conditions for agricultural transformation 452

20.4 Analyzing the role of the public, the private, and the third sectors (in extension) 452


Boxes

1.1 If economists are so smart, why is Africa so poor? 4

2.1 Adverse selection and moral hazard 39

2.2 Transaction costs versus transaction risks 41

2.3 Private, merit, toll, public, and common pool goods and resources 46

2.4 Origins and meanings of “embeddedness” 58

3.1 Action domains 81

3.2 Examples of the boundaries of action domains used for institutional analysis 82

4.1 Contract failure in agricultural trade in Malawi and Benin 118

4.2 Middlemen of the middlemen: Grain traders and brokers in Ethiopia 126

4.3 Enforcement of commercial contracts in Ghana: An example of clientelism at work 131

4.4 eBay.com 134

5.1 Equity-share schemes in South Africa 169

14.1 State, private, or collective action? 326

14.2 Kenya Dairy Goat Association 335

19.1 Poor uptake of past agricultural research 420

19.2 An integrated approach to agricultural research 422

19.3 An example of private agricultural research: Quton Seed Company in Zimbabwe 425

20.1 Public goods, market failure, merit goods, and redistribution 430

20.2 The politics of neopatrimonialism and clientelism 434

20.3 Rent seeking 443


Foreword

he economics professions have been paying increasing attention to institu­tional issues, and they have developed strong concepts and analytical tools that are particularly relevant to the problems of agricultural change in Africa. This book represents an effort to consolidate lessons learned from applying an “institu­tional lens” to these challenges. It presents a framework for thinking about the insti­tutional challenges facing African agriculture and identifies the tools of economic analysis that can be used to address them. The combination of theoretical chapters on core themes, supported by case studies from a wide range of countries, makes an important contribution to existing literature. Through an accessible synthesis of new institutional economics theory and research, the authors develop a better under­standing of African agriculture and how to improve it.

The focus throughout is on Sub-Saharan Africa (especially Eastern and Southern Africa), and on policies and institutions affecting smallholder agriculture, the pre­dominant livelihood in the region. The book’s focus on institutional issues is by no means at the expense of essential complementary issues such as infrastructural development or technical change, but the emphasis on institutions is warranted, for two reasons. First, too little analysis of institutional processes and constraints in agricultural development has been done in the past. Second, institutional change is often a prerequisite for effective investment in infrastructural and technical change.

The International Food Policy Research Institute (IFPRI) has in recent years paid increased attention to capacity strengthening of higher education in agricul­tural economics for improved policymaking. For instance, IFPRI was an important partner in the development of the collaborative master’s degree in Agricultural and Applied Economics in Eastern and Southern Africa. This book can serve as a key resource for the core course in such degree programs, and we hope that it will make an important contribution to helping students apply institutional analysis to many of Africa’s agricultural development challenges.

Joachim von Braun Director General, IFPRI


Acknowledgments

he idea for this book emerged from two concurrent initiatives. First, in 2003 a group of African universities initiated a process to establish a new collaborative master’s degree in Agricultural and Applied Economics, for which the par­ticipating universities would share resources to teach a relevant, cutting-edge degree program to train agricultural economic professionals on the African continent. In designing the degree program, the participating departments agreed that this degree should have a strong focus on institutional economics. The book is therefore directly related to this initiative, because no core textbook was available to support the pre­sentation of the Institutional Economics module, one of the foundation modules of this degree program. In this regard we acknowledge the support and leadership of Willis Oluoch-Kosura, the program director of the African Agricultural Economics Education Network (AAEEN), and of all other members of the Network. At the same time we also appreciate the efforts of the International Development Research Centre (IDRC) and the Rockefeller Foundation’s Africa office, in particular Akin Adesina, for providing the moral and financial support to AAEEN during the plan­ning phase of the master’s program. Another important partner in the design process was the International Food Policy Research Institute (IFPRI), which has a particular interest in capacity building in developing countries for improved policymaking. This interest made IFPRI a natural partner to the AAEEN initiative and thus pro­vided intellectual support for developing the collaborative master’s degree and the writing of this book.

The second initiative running parallel to the AAEEN process was the agreement between the University of Pretoria (one of the participating universities in AAEEN) and the Agrarian Development Group at the Wye campus of Imperial College, England (the group has recently joined the School of African and Oriental Studies, at the University of London) to jointly develop a module on institutional economics for the Distance Learning Programmes in agricultural and rural development and poverty reduction offered by the University of London and co-tutored by staff at the University of Pretoria.

These two initiatives came to together when the Rockefeller Foundation granted the core team of authors a residency period at the Rockefeller Study and Conference Centre at Bellagio, Italy, to draft the text for this book. A group of African academics, colleagues from Imperial College at Wye, and colleagues from IFPRI who all work on the institutional economic aspects of African agriculture spent July 6–15, 2005, at Bellagio working on the draft text for this book.

We thank the Rockefeller Foundation for allowing us to use the beautiful and inspiring facilities at Bellagio and for funding the travels of our colleagues from Africa. Thanks also go to IFPRI and to Imperial College at Wye for supporting their staff members’ travel costs to Bellagio.

Following the residency period at Bellagio one member of the editorial team, Johann Kirsten, spent two months at the French Agricultural Research Centre for International Development (CIRAD) in Montpellier, France, and four months at the Agricultural and Development Economics Division (ESA) of the Food and Agricultural Organization of the United Nations (FAO) in Rome, where he worked on the draft text generated at Bellagio. Thus we also thank Rolland Guis, director of the Territories, Environment, and People Department (TERA) at CIRAD; Prabhu Pingali, director of ESA at FAO; and Randy Stringer, service chief of ESAC; for providing the financial support, office infrastructure, and the peace and tranquillity necessary to accomplish this task.

The book would not have been possible without the dedication and long hours of debate and writing provided by all volume contributors. The enthusiasm during the meeting at Bellagio and afterward through various email exchanges showed a true commitment from the contributors to assist in improving our tools and approaches to analyze economic phenomena in developing-country agriculture. We hope that this volume will make a difference for tomorrow’s generation of analysts, managers, and policymakers and that it will help lead to improved decisionmaking in govern­ment and agribusiness, which will ensure sustainable agricultural growth in Africa and in other parts of the developing world.


Introduction

rofessionals in economics and agricultural economics have been paying increasing attention to institutional issues and have developed strong concepts and analytical tools to do so. The core message of this book is that this new focus is particularly relevant to the problems of agricultural development in Africa. As a result, there is a need to consolidate the lessons learned into a textbook to illus­trate the relevance and application of these concepts and tools. The core purpose of the book is, therefore, to provide an accessible text on the economics of institutions relevant to agricultural development in the African context. However, the book cannot be regarded as exhaustive: it should be used by the discerning student as a text to be supplemented by the reading lists and the large volume of literature cited throughout the volume.

The book is divided into four parts. The first part provides a conceptual frame­work for looking at the problems of agricultural development in Africa from an institutional perspective, and the next three parts address the institutional aspects of problems of exchange, natural resource management, and the state, respectively. The analysis in each of the latter three parts is supplemented by case studies.

The focus throughout the book is on Sub-Saharan Africa and on policies and institutions affecting smallholder agriculture, reflecting the predominance of smallholder farming in the subcontinent and long-standing arguments that in poor agrarian economies smallholder agricultural development has a critical role to play in poverty-reducing economic growth (for example, Hazell 2005). Although the issues raised in the book apply to large parts of Sub-Saharan Africa, the geographic coverage of the case studies is not uniform (with a bias toward East and Southern Africa, and away from central and West Africa), as the studies were selected to illustrate specific themes arising from the conceptual analysis. It is important, therefore, to recognize that there are significant modes of agricultural production and regions not repre­sented in the case studies. The book’s focus on institutional issues should also not be taken to imply that other issues (such as infrastructural development or technical change) are not important; indeed it is reiterated throughout the book that infra­structural and technical changes are essential complements to institutional change. Explicit attention to institutions is warranted, however, for two reasons. First, there has in the past been too little analysis of institutional processes and constraints on agricultural development, and greater understanding of institutions is needed to remedy this shortcoming. Second, institutional change is often a prerequisite for effective investment in infrastructural and technical changes.

Our consideration of the challenges facing agricultural development in Africa emerges from the recognition that criticisms of the market-liberalization policies pursued in many African countries over the past 20 years are growing and that pres­sures are rising for governments and international agencies to do more for agriculture, do it differently, and do it fast. The resultant calls for increased government spending on agricultural development suggest a more active role for the state, but this trend sits uneasily with both the dominant market-liberalization paradigm and the generally negative African experience with earlier state-led development. As a result, there is growing interest in the development of new institutional frameworks involving the state, the private sector, and stakeholder groups in agricultural development.1

This new trend in turn requires, as we argue in this volume, a sound applica­tion of economics and other social sciences. However, two difficulties facing both theorists and policy analysts are first, identifying appropriate theoretical frameworks for analysis, and second, striking the appropriate trade-off between identification of generalizable causal relationships on the one hand and, on the other, context-specific analysis of the complex web of variables and relationships that are important in particular cases. The latter dilemma, which might be parodied as the choice between generally right but precisely wrong on the one hand or precisely right but generally wrong on the other, requires greater attention to both detailed analysis of specific cases and theoretical synthesis of findings from these cases. The theoretical tools that graduate students in agricultural economics usually study are necessary but insufficient for these tasks. This book therefore aims to supplement the traditional core training of agricultural economics students with additional perspectives and disciplines necessary for them to undertake these tasks in their professional careers.

Note

1. The meaning of the term “institutions” as used in this book is discussed in Chapter 2, where it is defined as the rules of society that provide a framework of incentives that shape economic, political, and social organization and behavior.

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