Selling Coffee through Information Flows

Coffee information

December 3rd, 2015 - Posted by Mark Presser

It’s pretty clear that information barriers between buyers and sellers have always caused inefficiencies in markets, especially in rural areas. When sellers lack information, they’re exposed to risk because they can’t see the full picture. This is particularly true for developing regions such as Sub-Saharan Africa, Southeast Asia or Latin America, where isolation and lack of resources inhibit information flows.

Think about a farmer growing coffee for sale in a marketplace. They have no way to verify a fair price for the beans, so they usually end up getting less for their crop than the market rate. They lack crucial information that could help negotiate a fair price. This may also stop the farmer from making key decisions on whether to expand their crop or not, whether to change varieties, etc. Our farmer is limited by a poor information flow.

Unfortunately, the farmer is also likely to have limited access to traditional banking services due to low bank branch penetration in most rural areas within emerging regions. Access to traditional banking would enable the farmer to make bill payments or transfer money directly to the buyer’s account.

Mobile networks help significantly improve information flow for the farmer as a seller as well as possible buyers, improving reach and extending market knowledge. This has a clear and plain benefit to both buyers and sellers in developing markets as it increases the amount of players at the table and improves decision-making capabilities. We know that greater competition promotes higher quality, volumes of trade and living standards. Essentially, mobile technology is helping alleviate poverty in developing nations.

Improved affordability of mobile phones and prevalence of mobile network infrastructure has drastically transformed the flow of information. No longer are sellers constrained by geographical limitations when searching for information such as market or retail prices, and no longer are there as many physical barriers to basic financial services. Mobile money systems are being more widely accepted.

Through mobile networks, the telecommunication industry has empowered a huge portion of the unbanked population that traditional financial institutions have found infeasible to serve. Furthermore, the convenience benefits of mobile money systems have leapfrogged the dated paradigm of bank branches, long queues, and tellers.

As smartphones become increasingly affordable and replace feature phones, faster information access, and smarter mobile payment systems will continue to enrich growing markets. With superior processing capability, smartphones can go beyond simple transfers and provide a more complex financial toolkit including microfinance services or alternative currencies. This facilitates more nuanced financial activity, further increasing the supplier power of those previously restricted by physical barriers.

When there is greater transparency in markets, the capacity to trade increases dramatically. The farmer no longer has to rely on information from their wholesaler – they can stay up-to-date with market prices and negotiate a wider range of buyers for their crop. The welfare benefits of this digitization are self-evident.

Mobile technology is one of the keys towards digitizing an economy. The scope of markets increases as more economies embrace digitization to empower buyers and sellers. A more complete information flow is the underlying consequence of this development. Digital economies present challenges for governments in their regulation, however, they also provide them with the opportunity to enrich and develop a modern economy.

This is why mobile technology has been so liberating in many emerging regions; it has created a vast, visible platform for mutually beneficial trade that continues to optimise social benefits.

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Mark Presser

Economist at Novatti

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