LIRNEasia is a regional ICT policy and regulation think tank active across the Asia Pacific

ICTs, Transaction Costs & Traceability in Agricultural Markets

ICTs are not ends in themselves. People use ICTs to improve their life conditions, either in terms of providing supportive communication for loved ones or enhancing abilities to better coordinate and conduct economic activities. Economic theory suggests that existing markets, especially those in poor countries, are riddled with imperfections. It is postulated that ICTs can make markets more efficient by reducing transaction costs. This project seeks to examine the contribution that ICTs can make to improve the life conditions of small-scale farmers through the conduct of baseline studies, the implementation of two related pilot projects and their assessment.

This project consisted of two components: the establishment of baseline regarding ICT use and transaction costs in relation to farmers, collectors and traders participating in agricultural markets; an assessment of the potential for improving farmer livelihoods through a last-mile traceability system enabled by ICTs also centered on the DDEC.

ICT use and transaction costs

In this study LIRNEasia looked at the information-related transaction costs of selected small-holder farmers who sell their produce at Sri Lanka’s largest wholesale agriculture market and analyzed the potential reduction of these costs if they were to use ICT in obtaining such information.

In this regard, LIRNEasia is collaborating with a USAID-funded initiative called Govi Gnana Seva (GGS) or Farmer Knowledge Service specifically conceived to address the information asymmetry problem faced by rural farmers in Sri Lanka.

For this purpose LIRNEasia conducted a survey and gathered data on the four crops that are most traded in the DDEC. This survey used a structured questionnaire which contains questions relating to the entire agricultural value chain starting from the point of making the decision to grow the crop to the point of selling and receiving money.

This study revealed that information related transaction costs form a considerable share of the total costs incurred by these farmers.  Therefore, it can be argued that simple mobile phones can significantly reduce currently expended costs to obtain information making markets more efficient.  Such information can help farmers not only in deciding where and at what price to sell their produce, but also in reducing the high search costs associated with locating outlets that has (subsidized) fertilizer available for distribution on a given day.  Overall, it is postulated that benefits to farmers can become much greater if a phone-based ICT platform could tie the selling decision with that of the decision to grow a particular produce while incorporating information needs of the farmer throughout the value chain.

The results of the study were first released at a Workshop on Transaction Costs and Traceability from 21 – 23 February 2008 at Kandalama Hotel, Sri Lanka.



Using ICT to reduce transaction costs in agriculture through better communication: A case-study from Sri Lanka


Presentations made at the Workshop of Transaction Costs and Traceability from 21 – 23 February 2008 at Kandalama Hotel, Sri Lanka.

  1. Benefits of ICT applications to farmers with emphasis on transaction costs: experiences from India – Prof. Subhash Bhatnagar
  2. Cost of information in agriculture markets – Dimuthu Ratnadiwakara
  3. Using ICTs to create efficient agricultural markets – Dr. Harsha de Silva

Presentations made at the Public lecture on ICT's in Agriculture on 25th February 2008 in Colombo, Sri Lanka

  1. Benefits from rural ICT applications in India: Reducing transaction costs and enhancing transparency? – Prof. Subhash Bhatnagar
  2. Cost of Information – Ms. Helani Galpaya
  3. Role of ICT in creating efficient agriculture market in Sri Lanka : a value-chain approach – Dr. Harsha de Silva

Improving farmer livelihoods through a last-mile traceability system enabled by ICTs

In general “farm-to-table” traceability in agriculture means the ability to trace and follow a given produce through all stages of production, processing and distribution. Traceability concerns are being addressed at both the national policy level as well as the private enterprise level in the developed world.

LIRNEasia’s interest is in understanding how ICTs can be used to help poor farmers in emerging Asia integrate with the global food chain by adhering to traceability requirements and benefit from the otherwise unavailable and lucrative opportunities in the export market. LIRNEasia will conduct research on the potential of ICTs in implementing traceability programs among small farmers.

In terms of methodology, LIRNEasia, in collaboration with a partner company, has introduced local language enabled mobile phones to a small sample of gherkin farmers in order to capture traceability information throughout an entire crop cycle, approximately three months. The farmers are required to enter information through a pre-designed phone application from the initial stage of sowing the seeds throughout the entire production process when raw materials such as fertilizers and pesticides are applied to the crop.

During the harvesting period, the farmers will receive a daily sms about the quantity of gherkins that passed the initial quality tests and were accepted, the daily income for these gherkins and the reason for rejection if any. A second similar sms may also be sent to certain farmers from the factory if there are any further quality issues.

At the end of the crop cycle, focus groups with the farmers and interviews with other members along the supply chain will be held to answer the following questions:
– Did the participants in the supply chain receive any benefit from the intervention? If so what are those benefits?
– Did traceability “improve” (or was made easier) due to having the ICT intervention?
– What was the value of the availability of up-to-date information to the farmer? Did this enable him to ultimately increase his productivity (i.e. reduce the number of rejected gherkins?)?

This project was funded by IDRC of Canada

Project Team: Harsha de Silva, Helani Galpaya, Shamistra Soysa and Dimuthu Ratnadiwakara


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