Heterogeneous demand for soybean quality

Edward Martey & Peter Goldsmith

Abstract
Agricultural commercialisation is a critical pathway for economic development in Sub-Saharan Africa (SSA). However, the lack of market information may impede this development. To the best of the authors’ knowledge, this is the first paper to examine market information and preferences for soybean quality in a developing-world context. We seek to understand the nature of information markets associated with the nascent soybean trade in Sub-Saharan Africa in order to inform the market and policy of previously unknown key marketing information. The research involves a discrete choice experiment with 228 buyers of soybean involving five key soybean quality attributes. The sample represents three distinct classes of buyer/traders: wholesalers, processors and retailers. Traders significantly discount the price of soybean attributes such as off-colour, small grain size, low oil levels and high contamination with foreign material, such as stones. Foreign material ranks highest of the attributes that we examined, in terms of the discount level, at 22%. The study finds significant preference heterogeneity among traders, explained partly by the socioeconomic and trade characteristics of the respondents. We identified three distinct classes of traders per the latent class logit (LCL) results, namely ‘high price discounters’, ‘big bean supporters’, and ‘oil sceptics’. Our findings improve soybean market information, transparency and signalling. This will lead farmers to be more efficient and allow policymakers to understand better how the market actually prices grain at the farm gate.