Uncertainty and Incentives for Quality Upgrading: Evidence from Uganda Cassava

Growth and structural transformation in low-income countries, particularly in sub-Saharan Africa, depend heavily on value chains for food staples. Such value chains often offer large price premiums over local spot markets but have more stringent quality requirements, which many producers fail to meet. It has been a longstanding puzzle why supply responses to these price incentives have been so weak, even where quality upgrading is technically feasible. We focus on a relatively understudied channel: market risk. In imperfectly competitive markets with limited contract enforceability, farmers or traders who invest in quality upgrading may fail to find a buyer willing to pay a sufficient premium. We aim to estimate how much relaxing technological constraints alone induces quality upgrading and commercialization as well as how reducing exposure market risk augments these effects. To do so, we propose a cluster randomized control trial in Teso sub-region, Uganda, that provides access to small-scale processing technology (a mechanical chipper and solar dryer) to cassava farmers contracted with a large agro-processor. As demonstrated in a pilot study, the technology facilitates quality upgrading, which allows farmers to earn a substantial price premium. However, the technology is locally available and relatively affordable for a farmer group or individual trader, raising the question of why adoption has been limited. Our intervention, most of which has already been funded by the International Growth Centre, tests both how the technology affects the supply of high-quality cassava and its adoption depends on contracts that vary the exposure to market risk.