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 Burkina Faso, 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 short-term effects of reduced costs on price formation, inter-regional cereal trade, and farmers' and traders' storage strategies. 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. The effects of a reduction of transport costs will be small. Moreover, also the unintended negative consequences on the competitive position of farmers and traders in other regions that do not profit from road construction should be taken into account. Finally, it is concluded that only if transport and transaction costs are reduced simultaneously, will both the consumers and farmers benefit significantly.