As I’ve been settling down in Ghana and struggling to find the time to start posting more often. Luckily, an invitation from the Esoko blog managed to get me to focus and write something coherent on MIS topics again. I am re-posting the sections, other than the introduction. If you are reading this, you’d know who I am.
MIS as Intermediaries?
I prefer to consider the broad topics of Market Information Systems MIS, Warehouse Receipts Systems and Commodity Exchanges in Africa within the context of the intermediation theory of the firm. According to this theory see Spulber 1999, intermediaries emerge within the space of decentralized trade due to the encountered transaction costs. Firms providing agricultural market information alongside other services exist in Africa because decentralized exchange with agricultural commodities is plagued by transaction costs. Intermediated exchange emerges as a stable form of organization because intermediaries are able to economize on transaction costs and deliver net gains from trade, in excess of the gains obtainable from direct exchange.
The Difference between MIS, Warehouse Receipt Systems, and Commodity Exchanges
In considering MISs, Warehouse Receipt Systems and Commodity Exchanges as intermediaries, it is clear that some of these services are involved in more extensive intermediation than others. MISs often define their role purely as that of alleviating market price information asymmetries. MISs deliver mobile price information to farmers, leaving the bargaining and the details of the transactions to the farmers to sort out for themselves. To say the least, in the absence of consistent grading and sorting practices in many value chains in Africa, verifying the correspondence, between the quality of the commodities the price information refers to and the quality of the commodities being traded, becomes a non-trivial matter. By certifying the quality of the commodities and the identities of the buyers and sellers, Warehouse Receipt Systems go one step further in addressing the transaction costs present due to lack of communication between producers and buyers.
Commodity Exchanges go even further by providing an auction mechanism for reaching agreement on the terms of trade. As market-making intermediaries, they determine the mechanism of exchange and institutionalize that mechanism. Commodity Exchanges provide the market microstructure for the transactions between the buyers and the sellers. The market microstructure includes the details of the process through which the exchange occurs. By contrast, the market microstructure on which MISs rely tends to be the product of recurring, customary behaviors on behalf of the buyers and the sellers. The institutions governing their transactions are informal and based on relational norms, rather than formalized.
Reducing Communication Costs
In considering MISs, Warehouse Receipt Systems and Commodity Exchanges as intermediaries, it becomes clear that the differences among these market systems stem from the different transaction costs they are aimed at alleviating. Clearly, there can be numerous sources of transaction costs. The choice of a bundle of transaction costs which to be addressed is part of the strategic positioning of an intermediary. Within the complex social-business hybrid value chains, encountered within the agriculture sector of developing countries nowadays, communication costs can form a significant part of the transaction costs. Technology platforms such as Esoko enable, for-profit and non-profit organizations interested in streamlining agricultural value chains by acting as intermediaries, to address communication costs.