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2 The Cross-Cutting Relevance of Transport Infrastructure

The relevance of physical infrastructure in rural areas, and how it can be financed, is an inexhaustible topic. Nevertheless, it has been neglected in the discussion around food security. Particularly, the relevance of (rural) transport systems for effective food production and efficient marketing to consumers has been tremendously underrated in the discussions. Discussing the development of agricultural production and of rural areas needs to re-address rural transport infrastructure – today more than ever in view of the changed global system of food production. Thus, the relevance of rural transport will re-appear in all sections of this chapter.[1]

2.1 Food Which Is Never Produced

Many farmers in developing countries farm for subsistence. But many more farmers are profit-oriented entrepreneurs who sell their products to markets, and there is potential for subsistence farmers to become commercial farmers. These commercial farmers will only engage in production if they expect adequate earnings from their economic activities. Price levels are typically uncertain for most agricultural goods; they cannot be controlled by the individual farmer, and this uncertainty influences the farmers' production decisions what to grow or rise. Equally, the level of production output cannot be fully controlled by the farmer because of external agricultural risks such as weather and pests, although the farmer can apply strategies to mitigate these risks to a certain extent. The farmers' micro-level decision-making process under such uncertainty remains sketchy and is difficult to analyse on a generic level.

However, what is more clearly assessable for a farmer and is certainly reflected in farmers' decisions is the cost of transport of produce from the field to the next market.[2] Transport costs are typically not that fluctuating, although changes in prices for petrol (in case of motorised transport) and sudden deterioration of road conditions (e.g. through rainfalls or earth-slides) influence transport costs. Taking the price level at the market and the farmer's production costs as given, the transport costs remain the determining (and alterable) factor for the farmers' income.[3]

Box 1: Some Examples for Evidence of the Positive Effect of Improved Road Connectivity on Agricultural Production

There is substantial evidence that investments in roads and road connectivity have a positive impact on agricultural productivity and output in developing countries.[4]

Ex-post evaluations of KfW-financed transport projects have illustrated the contribution of roads to stimulate food production. The asphalting of a road in Nepal's Dhading Besi district that connects 150,000 people to the national road system has resulted in an increase of vegetable production in the area from around 12,200 tons to almost 50,000 tons. The main, underlying reason is the reduction of price for cargo haulage by two thirds due to the road improvement.[5] A similar result is documented for a road investment in Chad where the construction and improvement of two main gravel roads that connect the regions Ouaddai and Wadi Firi to the national road network contributed to a tripling of the peanut production.[6]

An econometric study across 21 Sub-Saharan African countries has revealed that there is substantial scope for increasing agricultural production by investing in road infrastructure and thereby increasing accessibility of markets:[7] Total crop production relative to potential production turned out to be approximately 45 percent for areas within four hours travel time from a city of 100,000, whereas in contrast total crop production relative to agronomic potential is only about five percent for areas more than eight hours travel time from a city of 100,000 people.

An econometric analysis on the effects of road connectivity in Madagascar on intensity of agricultural input use, crop outputs, and household income gives evidence that geographical remoteness negatively affects agricultural productivity and incomes at the household level.[8] An econometric analysis in China also showed the positive impact on poverty reduction by public investment in roads.[9] Another econometric modeling illustrates that in DR Congo the road access to cities and ports is highly relevant for seizing the country's huge agricultural potential.[10]

With a better road infrastructure, inputs may also reach the farm more easily and stimulate production: seeds and fertilizer, agro-consulting, machinery maintenance services,[11] seasonal workers and – financial services. The authors are not aware of any empirical study on to what extent road improvements have led to an increase of financial penetration in rural areas. But the relation is obvious. A decent road connection is vital for any bank branch to work properly (cash transport to and from central branch, monitoring of credit clients, etc.). With regard to the bank-customer interaction, particularly for credit extension, physical access is crucial. Bank staff needs to visit the clients' premises for analysis, and the credit client needs to return to bank branches or other facilities to pay regular installments. The travel cost of rural bank clients – both in cash and time – typically constitutes a significant portion of the cost of taking a credit from the borrower's perspective.

The expansion of mobile banking, i.e. the use of cell phones to connect to bank accounts or to store money on the cell phone provider's account and to endorse transactions, may provide a viable alternative for some of these services and may give some relief to the transport cost issue where there is no bank branch. However, this is likely to reduce mostly the cost of money transfers (between bank and customer, and between customers). In processes between bank and client that require closer interaction, like for instance credit analysis and credit monitoring, mobile banking is not likely to move the financial frontier for too far into the rural economy.[12]

  • [1] Rural transport system does not consist of roads. The existence of transport services and the different modes of transport (including non-motorized transport) have to be taken into account. See Sieber (2011) for an introduction into the role of rural logistic chains for the integration of smallholders into emerging agricultural markets.
  • [2] This is certainly not a new insight. In the mid 19th century, Johann Heinrich von Thünen, one of the first dedicated agricultural economists in the history of economic theory, explained the type of crops chosen by farmers as a function of distance to urban markets. See von Thünen (1910). Sieber (1999) finds that the circular structures of agricultural land use around towns – with the intensity of agricultural production decreasing with further distance to the market – that have been observed by von Thünen in pre-industrialized Germany can be identified regularly in today's cropping patterns in Sub-Saharan African countries.
  • [3] Different studies have shown that farmers usually do not have bargaining power to shift the transport costs to other parties: The price at the urban buyer markets is typically a fixed reference with the transport costs to these markets being levied onto the farmers lowering the price at farm gate. See for instance Mkenda and Van Campenhout (2011) in their study about Tanzania, p. 9. The share of transport costs in the price at urban markets is often significant. Mkenda and Van Campenhout (2011), p. 16, report the traders' transport costs from a village to a nearby town (25 to 75 km distance) as around 10% of the farm-gate price (without the traders' margin). A study in the Atlantic zone of Costa Rica reports that the farm-gate prices amounts to approx 40% (papaya), between 50% and 55% (banana, cassava and young maize) and 70% to 78% (Cocoyam) of the respective selling prices at the urban farmer market, with the difference being presumably made up from transport costs and margins of traders and transport companies involved. See Hoekstra (1996).
  • [4] The strengthening of rural road systems has positive impacts that go far beyond agriculture and plays a central role in overall poverty reduction. See Faiz (2012), pp. 15-23.
  • [5] See KfW (2005), p. 22.
  • [6] See KfW (2005), p. 28. Before the investment, both named region where only connected via one earth road that was impassable during the rainy season.
  • [7] See Dorosh, et al. (2009).
  • [8] See Stifel and Minten (2008).
  • [9] See Fan et al. (2002), p. 44: “Government expenditure on rural infrastructure also made large contributions to poverty reduction. These impacts were realized through growth in both agricultural and non-agricultural production. Among the three infrastructure variables considered, the impact of roads is particularly large. For every 10,000 yuan invested, 3.2 poor are lifted above the poverty line. Roads, thus, rank third in povertyreduction impact, after education and R&D [research and development]”.
  • [10] See Ulimwengo et al. (2009).
  • [11] Dorosh et al. (2009) in a study across 21 African countries suggest that the adoption of high-input agricultural production technology is negatively correlated with travel time to urban centres (although adoption rates are generally low throughout most countries of Sub-Saharan Africa).
  • [12] Compare Westercamp (2013).
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