Technology adoption is an essential condition for improving agricultural productivity in low-income countries. However, productive technologies are often embodied in large capital inputs, such as tractors, that the majority of farmers are unable to purchase due to their low scale of production. While equipment rental markets and hiring services offer a powerful strategy to circumvent these indivisibilities, access remains limited due to considerable transaction costs (e.g. search costs, coordination failures and moral hazard problems). In this context, the use of modern digital tools may help to facilitate transactions and increase mechanization overall. This project studies the impacts of a digital platform connecting smallholder farmers with tractor owners for the provision of mechanization services in Ghana.
In particular, the project seeks to obtain transaction-level records of tractor ploughing services provided by the platform over the entire farming season to analyse patterns of mechanization. Combining the administrative data with existing pre-entry household survey data, the project first attempts to outline potential efficiency improvements by comparing outcomes on the private informal hiring market along key dimensions (e.g. farm size and area ploughed, wait times, distances travelled etc.), potentially aided by a structural model. In addition, the project is exploring the use of other data sources to gain further insights. For example, satellite data could be used to test whether neighbouring farmers coordinate crop choices in order to jointly request a tractor or whether reducing transaction costs on rental markets may also resolve frictions on land markets as evidenced by plot consolidation. The future development of the project aims to identify relevant mechanisms and specific features of the platform that improve access (e.g. centralized coordination, demand aggregation, GPS tracking etc.) using a (quasi-) experimental approach.
Agricultural mechanization is a long-standing priority of governments in the developing world. In recent decades, policies mainly relied on heavy subsidies for new capital purchases, but take-up remains slow, likely because this strategy fails to address efficient utilization of machines through the coordination of supply and demand. The findings from this project provide policymakers with a better understanding of the relevant constraints to mechanization and demonstrate how digital technology can be leveraged to increase mechanization using an easily scalable intervention. In terms of the academic literature, the project relates to a renewed interest in the functioning and organization of capital rental markets in developing economies, focusing on peer-to-peer matching and the role of digital technology in reducing transaction costs.
