The impact of transport- and transaction-cost reductions on food markets in developing countries: evidence for tempered expectations for Burkina Faso

Reductions in transport and transaction costs are expected to have a major effect on the functioning of food markets in developing countries. For many developing countries, this is a relevant issue as it may have important consequences for the food markets in urban and rural deficit areas. A partial equilibrium model is presented to analyze the effects of reduced costs on cereal price formation, inter-regional cereal trade, and farmers’ and traders’ storage strategies for the case of Burkina Faso. Our results show that the high expectations with regard to the direct effects of cost reductions on food prices and food availability require some nuance. First, the effects of even a huge reduction of transport costs only will be small. Secondly, an element which is often neglected is that constructing a road between two cities may have unintended negative consequences on the competitive position of farmers and traders in other regions. Finally, it is concluded that only if transport and transaction costs are reduced simultaneously, both consumers and farmers will benefit significantly. JEL-codes: L11, O18, R41