TRADENET: THE MOBILE TRADE PLATFORM FOR

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1 TRADENET: THE MOBILE TRADE PLATFORM FOR SMALL FARMERS (Sri Lanka) 1 Tradenet was launched by DIALOG and the Think Tank LIRNEasia in The project aims to reduce those costs of small farmers that are related to information search during the agricultural value chain Farmers can access price information via SMS, the dedicated website or call centre and even trade their products for a fair price via this platform. The project has already shown positive impacts on farmer livelihoods including reduced price vulnerability, higher income and decreased dependency on middlemen. Project background Since the end of the armed conflict in 2009, Sri Lanka s economy has shown a growth of 8% both in 2010 and 2011 and poverty rates have decreased from 15% in to 9% in The agricultural sector is of great significance for the country, as it employs almost 33 % of all Sri Lankan employees (World Bank, 2009). However, a closer look at this sector reveals challenges: According to the Sri Lankan Department of Census and Statistics, 82% of the population living below the national poverty line lives in rural areas. De facto, the poverty headcount ratio at rural poverty line accounts for 9% of the rural population. (Word Bank, 2009). The majority of the rural poor are engaged in the agricultural sector. Around 37% of agricultural land is used by the plantation sector, covering export cash crops like tea, rubber and coconut. On the other side, a significant share of landowners are small farmers, who rarely own more than 8m 2 of land, and cultivate mainly field crops such as maize, chili, onion and other fruits and vegetables. These crops are traded at one of the eight major markets, of which the Dambulla market is the largest with the value of daily traded products attains almost 4.5 million USD. The market is divided into 144 stalls owned by middlemen and traders. These middlemen obviously take commissions from farmers for their services, which can affect negatively particularly small farmers. Furthermore, Sri Lankan markets are characterized by the absence of auction mechanisms as they exist for example in India. In Sri Lanka, prices are determined by individual negotiations, which 1 Written by Eilean von Lautz-Cauzanet (e.lautz-cauzanet@unesco.org). Project website: Contact: Sameera Wijerathna (Sameera.Wijerathna@dialog.lk)

2 leads to high information asymmetry. Furthermore, the use of forward contracts has not been very successful in Sri Lanka, despite the introduction of tri-partite forward agreements by the Central Bank in 1999 in order to reduce price volatility. Forward contracts are often broken (by both sellers and buyers) depending on the spot price on the contract's delivery date. This price volatility and information asymmetry disadvantages again particularly small farmers, who face major challenges to participate effectively in agricultural markets. In order to obtain information on crops and market prices, farmers have to visit markets or meet farmers who have been to the market before. They can also obtain information on the average prices provided by the Dambulla market, which are published in newspapers, radio and TV on a daily basis. However, these prices are not concise, given the issue of price volatility. In consequence, a majority of small farmers sell their products for smaller prices than expected. In addition they are unable to take efficient decisions regarding their crop planting and harvesting schedules or to adapt their production to market demands. Their lack of information and inability of efficient production planning restricts also their possibilities when it comes to engaging financial instruments as for example forward contracts. Subsequently, they cannot access crop insurance and working capital loans for which they use their products as collateral. In light of these challenges, the project Tradenet was developed in 2009 in order to increase price transparency by creating an online price information platform that informs farmers via SMS about market prices on a real-time basis and to permit them to trade their products via the platform. Impact of similar projects The Tradenet project is inspired by two existing projects: Firstly, the Govi Gnana Seva initiative (in English: Farmer Knowledge System), a Non-profit organization which had been developed in 2002 by the economist Harish de Silva and supported by the ICT Agency of Sri Lanka, which funded the project through World Bank funds. This initiative consisted in tackling the issue of information asymmetry through the collection of price information at the Dambulla market, conducted by dedicated investigators. These transferred than the information to a server, and prices were disseminated via local screens, newspapers, radio or television. Tradenet aimed to expand the functionalities of Govi Gnana Seva in order to offer more price information from various markets on a real time basis.

3 The second initiative which inspired Tradenet was the Cell Bazar project in Bangladesh. This project offered a mobile platform, able to match offers and demands from users interested in trading agricultural and nonagricultural products. The use of mobile phones for information delivery and efficient trading should be reused for the Sri Lankans Tradenet project. Planning process Involved in international research on the impact of ICT, particularly mobile phone on the efficiency of agricultural markets, the 2004 created think tank LIRNEasia elaborated in 2008 a study funded by the International Development Research Centre (IDRC) on the role of ICT in reducing those costs that were related to information search, one of the mayor challenges for small farmers. This study can be considered as the first step within the design process of Tradenet. Preparatory study on the potential of ICT to reduce costs related to information search For this study, LIRNEasia established firstly the meaning of information search costs. These costs were defined to be part of transaction costs, which in turn are part of the total costs that each farmer has to incur. Concretely, a cost that could be reduced by the use of an alternative source in order to obtain the same information, e.g. a telephone call, is an information search cost. On the contrary, costs related to a visit in view of buying for example fertilizers are defined as observable transaction costs. Then, LIRNEasia started the selection of small farmers who were all selling their products at the Dambulla market. These farmers depend all on the Farmer Knowledge Service in order to buy and sell products. It is important to mention here that a governmental distribution system offers low prices for fertilizers to rice farmers and some plantation farmers, but not vegetable farmers. This has contributed to a perverse incentive for vegetable farmers, who spent time and money to search for opportunities to purchase these fertilizers, despite their ineligibility. In order to guarantee the representativeness of the study, 314 farmers were chosen from 10 out of 89 farmer association, who cultivated tomatoes, onion, aubergine or chili. The study focused on the costs at each of the seven phases of the agricultural value chain: 1. Deciding, 2. Seeding, 3. Preparing and Planting, 4. Growing, 5.Harvesting, Packing and Storing, 7. Selling

4 Figure 1: phases of the agricultural value chain Source : Da Silva, H. Ratnadiwakara D. (2010) Enumerators recruited from the Dambulla Agriculture Technical College conducted interviews at the farmer s homes, under the supervision of the Farmer Knowledge System staff. Questions covered the whole agricultural value chain process and aimed to identify the information search related costs at each of these steps. The study revealed that 15,2% of all costs the interviewees reported to have were due to transaction costs occurring during the seven phases, and that a majority of these transaction costs were due to information research. Figure 2: Breakdown of total information search cost by stage Harvesting, Packing and Storing 2% Selling 9% Growing 53% Decision 25% Seed purchase and seed bed Land preparation 5% and planting 6% Source: De Silva, H. and Ratnadiwakara, D. (2008) (Adapted) The interviews revealed further that in terms of high information search costs, the growing phase ranks first followed by the decision phase, the selling phase and the preparation phase: During the growing phase, the high amount of costs related to

5 information search were directly linked to the costs occurred during the growing phase, because of the governmental distribution procedure of fertilizers. During the decision phase, farmers incurred costs related to information search as they had to visit farmers associations and neighbors, e.g. in order to decide which crop to grow. During this phase, farmers had also to face additional information costs as they were obliged to organize visits to banks and rural finance institutions in order to obtain information, application forms and guarantors, indispensable in view of financial support. Furthermore, information search costs during the selling phase were related to the obligation to compare prices at various markets and provided by different traders as well as the necessity to find means of transportation to the market. Finally, farmers incurred costs during the preparation phase as they had to look for agricultural equipment or search for information on seeding types. Potential impact of ICT This LIRNEasia study revealed that small farmers did hardly ever use phones to obtain the information they were looking for during the different phases of the agricultural value chain process. Only 0,2% of the total costs related to information search were related to phone calls. In comparison, it was found that farmers traveled around 24 times to markets and agricultural stakeholders in order to obtain information, fertilizers or ideal prices for their products and that these visits cost them in total around USD 52$. Assuming that around half of these visits could be replaced by phone calls, the researchers came to the conclusion that costs related to information search could indeed be considerably diminished. They based their hypothesis by referring on similar experiences and studies, which revealed that fishermen who used mobile phones for information search could diminish their costs. For example, they referred to a study (Aker, 2008) that showed how mobiles phone use reduced gain-prices dispersions of transportation costs in markets in Niger, and a further study (Soysa, 2007) on traceability within the agricultural value chain which revealed how Sri Lankan farmers could reduce their waste of agricultural products through a SMS based feedback system. Partnership with Dialog and design of Tradenet The finding that ICT could actually have a positive impact on farmer's producing and trading opportunities, convinced LIRNEasia to put the research results into practice. For this purpose, Dialog Axiata PLC, the largest mobile phone operator in Sri Lanka,

6 accepted to participate in this project, and USAID and IDRC provided parts of the funds necessary for the design of the project. On the base of their research findings, the research team, composed of both Dialog and LIRNEasia personnel, decided to create an online platform that would bring farmers, enterprises of varying sizes, aggregators, and trade associations or cooperatives together. More precisely, they designed a platform that allows the delivery of spot and forward agricultural commodity price information via mobile phones and enable farmers to integrate supply and demand information for their agricultural production is a repository for price information from the three biggest markets in Sri Lanka: Dambulla, Meegoda and Narahenpita encompasses the collation, comparison, qualification and dissemination of information that is indispensable for efficient trading allows farmers and buyers to conclude both spot and forward contracts reaches a large number of stakeholders and diminish information arbitrage. Particularly small farmers who live in rural areas with a low internet penetration rate but high mobile phone penetration rate (m-readiness) are supposed to be reached by these technologies. Defining objectives Finally, the planning phase culminated with the definition of the objectives the use of the platform should achieve: Increase the financial capital of farmers by reducing their vulnerability related to price trends. Enhance their decision making capacities by offering them the possibility to leverage a large amount of adequate information Contribute to the social and functional network of farmers Increase their physical capital by reducing crop wastage resulting from their inability to sell harvested crops during periods of oversupply in the market. Project Implementation In the following section will be presented the main actors of the implementation process, their role as well as eventual difficulties they faced.

7 Implementing agencies 1. Dialog: Dialog designed, supported by LIRNEasia, the Tradenet project and provided the technical and ICT framework of the platform through which the agricultural market information was disseminated. Dialog is in charge of coordinating the platform activities. Difficulties faced: The patchy phone reception in some areas limited the use of the mobile based alert and trading system. Furthermore, LIRNEasiadesired to establish a timeline defining the moment Tradenet would come available to farmers using other operators than Tradenet. Firstly, this was not possible due to telecommunication regulations. However, even after the end of this restriction Tradenet was reluctant to offer the service to users of other operators. 2. LIRNEasia: The think tank provided research on how to improve the data collection system and expand the outreach of the platform to more markets. 3. Govi Gnana Seva (GGS): The non- profit organization GoviGnanaSeva worked together with Dialog and was in charge of collecting the price information at the three dedicated markets. Under the supervision of a manager, around eight information collectors were in charge of gathering real-time price information and transfer these via WAP enabled mobile phones to the Tradenet server. 4. IDRC and USAID: both funded the research conducted by LIRNEasiain view of expanding the platform to three other markets than those involved during the pilot phase. They launched also the idea to charge a small fee for the use of the platform and funded the survey (see Action Research Project) in which this possibility was assessed. Implementation process In December 2009, the Tradenet was officially launched during an opening ceremony at the launched at the Meegoda market. The same month, famers start to benefit from the following services: Information and trade services The portal offered farmers three different possibilities to obtain information on prices. Firstly, they could connect on the TradeNet internet portal and access real time information on agricultural products. These were collected by the initiative Farmer

8 Knowledge System, which assimilates the real-time market prices through WAP (Wireless Application Protocol) enabled mobile handsets. Thanks to this system, Tradenet provided information on prices of over 200 agricultural products, all sold at these three markets: The Dambulla Market, covering almost 80% of the wholesale trades in the country, and the Meegoda and Narahenpita markets. Farmers who subscribed to the information alert service could obtained up to five SMS per day either on a daily or hour basis - with real time price alerts for five fruits and vegetables traded at one of these three markets. Phones handling the so called Unicode system allow users to choose if he / she wishes to receive the SMS in English, Sinhala or Tamil. Furthermore, phones without the Unicode system obtained the SMS in Singlish 2. Figure 3: An employee of GGS captures the price at the market Figure 4: A SMS market price alert Source : Lokanathan, S. (2011) Source : Lokanathan, S. (2011) The online platform aims to establish a fair environment for trade that offers opportunities for efficient and inclusive trade. For this purpose, the project offered three main possibilities to access the platform in order to post offers or demands: Firstly, buyers and sellers can use their mobiles phones and register via WAP and USSD (Unstructured Supplementary Service Data) to the platform s services and start posting their offers. The functioning of these services can be compared to the access to a website, as users had to start and end the Tradenet session on their mobile phone. The second possibility to access the Tradenet platform is via an internet connected computer: Farmers could connect directly on the website, register, post offers or demands and access price information. Finally, they had also the possibility to call 2 Singlish is an English-based creole language

9 directly the Tradenet call-centre, where a (human) operator registered their offers and transferred them to the website. Figure 5: Process and use of the Tradenet portal Source: Lokanathan S., de Silva H., Fernando I. (2011) All offers and demands were than analyzed by an intelligent supply and demand matching system which takes into consideration the preferences of each profile (e.g. price, quantity, category, geographical location). Once the respective offers and demands had been matched, the system alerted the respective users via SMS. These SMS contained also the contact details of each trade partner in view of facilitating their offline interaction. Then, farmers could also trade agricultural products they plan to harvest in the future for a fixed price. Here, the platform acted similar to a forward exchange market of agricultural products. In contrast to formal forward contracts, which have to be concluded prior to cultivation, the platform allowed farmers to establish quasi forward contracts prior to the harvesting phase. At this stage farmers have a high degree of certainty concerning the amount of products they are able to sell. This system is supposed to stabilize the prices as each of these quasi forward contracts appears in the Tradenet platform, within a publicly accessible section on forward prices. Finally, buyers and sellers proceed to the actual transaction offline.

10 The Infomediary In order to ensure the efficient functioning of the online trade cycle, it appeared for the project coordinators essential that farmers trust and understand the functioning and potential benefits of Tradenet. For this purpose, a last mile approach was adopted and a network of so called Infomediaries was created. His / her task is to explain and present the various ICT based services and functionalities of the project. Infomediaries are social entrepreneurs convinced of the potential of the project and who act in their local community. This network is supposed to contribute to the adoption of the project within small farmer communities. Dialog and the International Finance Corporation conducted workshops and training sessions in all region of Sri Lanka. These Entrepreneurship empowerment workshops trained 5000 entrepreneurs for their role within the Infomediary network. For example, they were given training on social etiquettes, public speaking and community engagement. Furthermore, Infomediaries were provided with a distinctive branding that brings prominence in the community to his or her role as a digital services evangelist. The GSMA s m-women initiative collaborated with Dialog for this purpose in order to sensitize Infomediaries on female farmer s needs. Conduction of an Action Research Project In order to test the impacts of the online platform on the farmer s livelihood, LIRNEAsia organized an Action Research Project from December 2009 to September The experience involved farmers from similar socio-economic conditions: Participants had a monthly income which was below 200 USD, owned lass than 6m 2 of cultivated land and cultivated the similar crops as their peers. Furthermore, they were Figure 6: Information session for ARP participants Source : Lokanathan, S. (2011) all around km away from the Dambulla market. Participants were subdivided into two groups. The first group was composed of 61 farmers who would use the Tradenet platform for their decision-making regarding the cultivation and trade of crops. The second group was composed of 31 farmers who were supposed to not use Tradenet for decision making or trade. This group served as

11 control group, and was not informed about the existence of Tradenet. They were only approached by the research team during the three assessments. However, around six farmers left the control group after having heard from the project via hearsay or advertisement. Both groups took part in an initial baseline study - which started before the official launch of Tradenet as well as an interim assessment for both groups after the sale of the crops from the first crop cycle, and a final assessment after the sale of the crops of the second crop cycle. Each assessment was composed of surveys, conducted in order to identify income and expenditure changes, as well as behavioral changes during the entire agricultural value chain process. The group using Tradenet participated in an in-depth training workshop right after the baseline study. During this workshop, they were explained how to use properly the website withtheir mobile phones, the internet or the call centre. They also received a phone credit of 200 Sri Lankan Rupees (around USD 1,80$) per month in order to be able to call the call centre, and 14 farmers whose mobile phone were working with another provider than DIALOG received a DIALOG simcard. As the baseline study revealed that some farmers were selling only a small amount of their productions at weekly fairs instead of selling at the Dambulla market, the field staff of GGS decided to collect and disseminate the prices of these fairs on a regular basis via phone calls, even though they were not displayed via Tradenet. The survey were also used in order to evaluate the willingness of farmers to pay a small fee for use of Tradenet and which amount they were willing to disburse. For this purpose, farmers were asked to indicate the highest amount (between LKR 0 and LKR 5) they would pay for each price alert. Distribution of funds The project was partly funded by the Sri Lankan government, USAID and parts of the research by IDRC. The total cost of the project design was around LKR 8 Million (~ USD) and mainly spent on technology development. The total costs include further the research conducted during the planning phase, as well as the employment of eight price collectors and a manger within the Govi Gnana Seva initiative, and the costs related to the mobile handsets used for the price collection. (Around LKR 1 Million / 8000 USD per year) Operational costs were financed by DIALOG via an exclusive content provision agreement.

12 Post pilot phase Since July 2010, the data collection system has been improved and the introduction of more markets is planned to be realized soon. This would also extend the number of farmers who can benefit from the platform. Furthermore, the platform started to offer the possibility to trade all goods and services, not only agricultural products. Since 2011, The Tradenet project charges subscribers for using m-ard apps based on the number of transactions conducted and shares some features with the freemium model. Achievement and impact The interim and final assessment conducted by LIRNEasia in cooperation with DIALOG revealed positive impact of the use of Tradenet in the following areas: Higher income: Farmers who used during the ten months of the Action Research Project Tradenet could increase obtain prices for their products that were approximately 23.4 % higher than the daily average kilo price. Extended social networks: Around 81% of the group reported that had used Tradenet reported also that they had increased their interactions with traders, other groups of farmers (26,4%), relatives (17,1%) and neighbors (34%). Increased knowledge: According to the surveys, farmers could increase their knowledge and understanding of price trends by over 131% during these ten months. Around 50% of the participating farmers had subscribed to SMS alerts concerning vegetables they were not cultivating but wished to extend their knowledge on other crops. This lead to the demand of crop advisory and extension services. Another unexpected effect was the learning of vegetable names in English, as some farmers had subscribed accidentally to receive their SMS alerts in English and decided finally to keep this configuration. 5 farmers decided to buy mobile phones in order to benefit from this service. Reduced vulnerability: The surveys revealed also that the use of Tradenet contributed to a lower vulnerability regarding price volatility, as farmers were able to monitor prices in real time. Impact on decision-making: Tradenet users could take into consideration the real-time price information to choose when to cultivate, harvest, and sell their products, as well as decide which crops to cultivate. They reported further that

13 their bargaining power had increased as traders were aware that they were receiving accurate price information and had therefore fewer incentives to offer low prices. Impact on structures and procedures: As farmers depend often from traders in order to obtain emergency and working capital loans without interests, they rarely try to bargain with them in view of obtaining better prices. The survey revealed that traders used the price information received via the SMS system as benchmark price when they determined their price the next day, which allowed farmers to obtain fair prices for their products. Given the short duration of the Action Research project, only 14 quasi forward contracts had been concluded, as many farmer reported to be afraid of price volatility. Subsequently, they were reluctant to determine a price for future productions on the platform, even though the price was further negotiable offline. Furthermore, evaluations conducted by LIRNEAsia and DIALOG revealed that the amount of farmers who registered on the platform was steadily increasing. In late 2011, the amount of farmers registered on the Tradenet platform attained around So far nearly 1,500 farmers have subscribed for the agricultural market information service via SMS and the call center receives nearly 50 calls per day of farmers willing to trade products or obtain price information. Assessments revealed also challenges, particularly regarding to the use of forward contracts. The evaluation showed that farmers needed to increase their trust in price stability and transparence before actively using this option. Awards The projects achievements have been recognized by the following awards: Mobile Global Awards (2010) M-billionth award in the m-inclusion category for innovation excellence in using mobiles and ICT s for development (2010) Conclusion The Tradenet project proves the significant impact that ICT in this case a platform based on WAP, USSD, telephony and internet can have on the agricultural value chain process of farmers. Indeed, the platform which offers small farmers the

14 possibility to access price information via SMS and to trade their products has enabled them to increase their income and reinforce their position towards middlemen. In addition, the project impacted also on their overall behavior during the agricultural value chain process. The fact that farmers started to show interest in other crops and associated seeding and harvesting techniques, shows that the project did not only achieve to optimize farmer's market participation, but were able to stimulate their decision-making and to offer them new opportunities to develop their production. There are multiple factors that contributed to the success of Tradenet. Firstly, the combination of expertise from the private sector (Dialog) and the research sector (LIRNEasia) is certainly one of the key success factors of the project. The large-scale mobile operator s ownership of the project made it possible to implement a project capable to reach a high amount of beneficiaries through the existing network of Tradenet subscribers. Furthermore, it allowed further to offer farmers a platform accessible through a range of technologies and this at low charge. Secondly, the fact that the project was founded and accompanied by a strong research component contributed to a planning and implementation process which took into consideration the reality and needs of farmers. This effort in turn allowed the design of a realistic and efficient platform. In addition, the research component is essential for the project's sustainability as it allowed to identify needs for adjustments, as for example the necessity to offer price information on products sold at smaller markets than the three main markets of the platform. More generally, this partnership proves that despite some disagreements that can occur between private enterprise and a research entity, an efficient cooperation with clear role distribution can generate a win-win situation. Another success factor is the involvement of GGS, which had been on the markets for years in view of collecting price information. This involvement did certainly strengthen the pilot project from the beginning. The added value of building on existing projects instead of recreating entirely new ones appears here clearly. Finally, another reason of Tradenet's success is the effort spent on explaining the functioning and benefits of the platform to farmers: The work done by the intermediaries allowed to create a climate of trust and receptivity, indispensable for the smooth functioning of the project. On the long term, the project may have to adapt and enlarge services due to new demands, as for example crop advisory or to cover more markets. Other challenges may be the above mentioned restriction of the platform of users without a Dialog simcard.

15 However, the successful adaption to these demands should contribute to the project's longevity. Furthermore, the project s chances of sustainability appears to be relatively good thanks to the significant support provided by DIALOG, the fact that users have to pay a small fee (LKR 3) to access the callcentre, and in light of future plans to charge SMS price alerts on a monthly basis. Given the importance of the agricultural sector and the high amount of small independent farmers in many developing countries, it seems that there is a strong demand to adopt the lessons learned from the Tradenet project for similar projects in developing countries. Projects as for example Lima Links in Zambia, seam to prove the replicability of Tradenet in countries facing the same challenges as Sri Lanka s small farmers. However, particularly rural areas in developing countries are still unconnected to mobile networks. This reminds us that offering access to mobile networks is the first and most crucial step when it comes to use mobile technologies for the development of rural areas. Reference Da Silva, H., Ratnadiwakara D Using ICT to reduce transaction costs in agriculture through better communication: A case-study from Sri Lanka. LIRNE Asia / IDRC. Colombo. (Accessed February 6 th 2013) The World Bank Mobile Applications for Agriculture and Rural Development. ONANDTECHNOLOGIES/Resources/MobileApplications_for_ARD.pdf (Accessed February 6 th 2013) Wijayasuriya H., De Soyza M.,2012. Dialog Tradenet and Creating Shared Value - Bridging Divides with Inclusive mcommerce. Entrepreneurial solutions to global challenges - MIT Press. Vol.7. Nr.4. p Dialog Tradenet GGS Partnership set to RevolutioniseAgri Market Access -market-access (Accessed February 5th 2013)

16 2011. Strengthening Rural Livelihoods The impact of information and communication technologies in Asia. mpact-of-information-and-communication-technologies-in-asia. IDRC (Accessed February 5 th 2013) Important websites: Tradenet portal: Data on Sri Lanka / World Bank: