Baseline for an Information Intervention in the Agro-inputs Market in Kenya

This project investigates the existence of a ‘market for lemons’, i.e. markets sell only low quality products since sellers are not able to signal high quality products to consumers, for agro-inputs in rural Kenya.

Discerning quality can be a difficult task for consumers due to the ease with which suppliers can manipulate relatively unobservable quality characteristics. As Akerlof (1970) firstly pointed out, the economic consequence of this market failure - known as asymmetric information, since sellers and buyers have different knowledge on the product - consists in the market selling only bad quality products (lemons). This exploratory study aims to document the quality of fertilizer (as the key characteristic for fertilizers – its nutrient content – fall squarely in the difficult-to-observe category) among firms that sell agricultural inputs in rural Kenya, and to explore whether some firms consistently sell higher-quality inputs, or whether certain types of stores or localities sell higher-quality products on average. If a pattern emerges with some firms selling a higher quality product, have these firms found a way to signal high-quality inputs to consumers? The data collected will serve as a baseline for an information intervention, in which smallholder farmers who source from these suppliers will receive information on the quality of the fertilizers in their local stores. The results from this baseline will shape the exact design of the information intervention.

The researchers will construct a list of potential agro-dealers based on two key sources: the Alliance for a Green Revolution in Africa (for expert advice), which maintains a directory of certified agro-dealers, and a phone panel survey of farmers, covering large parts of western and central Kenya. The survey will elicit all the retail shops selling agro-inputs to the farmers in the sample in the last two years, as well as perceived trustworthiness of the different retailers that the farmers purchased from. After combining these two lists, i.e. certified agro-dealers and retail shops, the researchers will construct a sampling frame that will form the basis for collecting and testing 500 fertilizers samples (obtained through a mystery shopping method). The samples will be tested in the World Agroforestry Centre’s laboratories and compared with the stated nutrients on the bag. If results from this experiment are promising, a future broader study will try to understand farmers’ response to information about the quality of agro-inputs in their local stores.

Many countries in eastern Africa lack regulations to police counterfeit inputs and to protect genuine seeds’ producers and farmers. Although current regulatory policies prohibit informal fertilizer suppliers in Kenya, fraudulent inputs kept entering the supply-chain and distorting the market. By determining whether certain types of stores or localities sell higher-quality products on average, this project can document the extent of low-quality inputs, as well as the patterns of its occurrence. In addition, by designing an intervention to study consumers’ responses to information about supplier quality, the researchers will shed light on ways in which high-quality firms can signal their quality to consumers. By identifying where in the supply chain the deterioration of quality occurs, they inform policymakers regarding the types of measures that they can adopt to improve the information available in the market.