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Measuring the value of African smallholder grain protection: Two essays on storage economics and market valuation of maize attributes in Malawi

By Michael S Jones

Abstract

In two distinct essays, we seek to achieve one overarching objective: establishment of the potential profitability of hermetic Purdue Improved Crop Storage (PICS) technology for small producers in Sub-Saharan Africa. We first present a simple methodology, targeted to a non-economist storage research audience, to measure the profitability of storage protection for marketing producers in developing countries. We examine the relationship between the value of a stored commodity and required price seasonality for profitable storage under a range of possible fixed costs of storage and opportunity costs of capital. The cost of storage protection has a larger relative effect on profitability with low-value commodities such as maize, while the opportunity cost of capital has a larger effect on profitability with high-value commodities such as beans and cowpeas. An example is drawn with maize in Malawi, contrasting the profitability of storage protection with hermetic PICS bags versus government-subsidized chemical protectants. Results show that while PICS bags economically outperform chemical protectants, price seasonality and thus profitability varies greatly both by year and region of the country. We secondly seek to analyze current storage practices and investment in Malawi, while also understanding the economic consequences of insect and mold damage for a marketing producer. For marketing maize producers in Africa, economic losses in storage can result from both dry weight losses and price discounts for damaged grain. While weight loss ranges under various storage treatments are widely recorded in East and Southern Africa, price discounts for insect and mold damage are undocumented in informal markets. We use a choice model with physical samples of maize to estimate preferences of Malawian maize traders in the immediate post-harvest season of relative maize abundance and then repeat the experiment in the lean season of relative maize scarcity. Severe discounting for insect damage is present for most traders. In the lean season, this discounting logically increases in magnitude as traders store longer before resale. However, discounts measured by traditional metrics may be exaggerated in intensity, as demonstrated by the Equality Constrained Latent Class (ECLC) method for identifying and correcting for attribute non-attendance bias. Price non-attendance was identified in a majority of the sample population and correcting coefficients results in reductions of WTP estimates by about 75%. To supplement CE analysis, we cross-reference these methods with a more simple contingent valuation approach. All methods employed indicate price discounts for insect grain damage are much more severe than researchers have found in West Africa, indicating the value of maize storage protection in Malawi may be greater than first determined through meta-analysis. Maintaining demonstrated efficacy, there is thus reasonable economic evidence to suggest that PICS bags can be profitable for Malawian maize producers

Topics: Agricultural economics
Publisher: 'Purdue University (bepress)'
Year: 2012
OAI identifier: oai:docs.lib.purdue.edu:dissertations-17375
Provided by: Purdue E-Pubs
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