Transaction Cost Effects on Maize Spatial Price Differences in Njombe Market, Tanzania

Previous studies have demonstrated that tangible and intangible transaction costs influence spatial price differences. The difference between the prices at which producers sell their goods, and the prices at which consumers purchase them is exacerbated by transaction costs. This indicates that farmers receive a lower price from buyers, who then charge consumers a greater price at urban marketplaces. However, existing documentation provides limited information on the relationship between spatial price differences and their drivers. Most research focused primarily on the co-movement of prices and the co-integration test, with little attention paid to the effects of transaction costs on spatial price differences. Thus, the paucity of information in the literature motivated the undertaking of this specific study. Therefore, this study assessed the impact of transaction costs on spatial price differences of maize in the Njombe District of Tanzania. A semi-structured questionnaire was developed and employed to collect information from maize traders. Also, checklists were used to collect information from market leaders. Both descriptive and quantitative analyses were undertaken. In the descriptive analysis, means and percentages were generated. On the other hand, in the quantitative analyses, the Ravalion model which is based on the co-movement of prices, was modified to fit the study in question and estimated. The outputs generated from the modified model were used for inferences. The estimated model results showed that transaction costs (transportation costs, years of schooling, bribery, and the number of maize bags carried in one trip) have significant effects on spatial price differences. Moreover, market leaders revealed that because of the poor quality of the roads, individual farmers find it challenging to deliver their produce to the Njombe market. Consequently, they obtain a low price when they sell their produce at the farm level. The study recommends deliberate measures to reduce transaction costs, such as improving urban and rural infrastructure, simplifying bureaucratic procedures that provide room for corruption, and, finally, promoting large-scale production or collective actions to reduce transaction costs.