An assssment of the efficiency of the groundnut seed market in Lusaka Province, Zambia

Abstract

This study looked at the efficiency of the groundnut seed market in Lusaka Province. A structural conduct and performance model as well as a regression model was used to generate data discussed in this report. In most Sub-Saharan African countries, there is presence of a formal seed market and the informal seed market. The formal market is characterized by improved varieties of seeds as compared to the informal seed sector. The formal sector comprised of seed companies and retailers. It was analyzed in terms of its structure and conduct. There was strong indication of factors favoring imperfect competition, one of the factors being the concentration ratio of 57%. This showed that the formal groundnut seed market was oligopolistic. Further evidence of imperfect competition was seen through product differentiation. The formal market was characterized by difference in packaging as well as difference in varieties. There were four barriers to entry identified in the formal market; large capital, lack of credit facilities, government policy/regulation and large already established companies. The major barrier to entry into the formal seed market was found to be large already established seed companies. This was in terms of obtaining a market share from these companies. Other factors favoring imperfect competition were imperfect competition and market integration. There was evidence of horizontal market integration, as observed by the retailers having more than one shop in the same area. The conduct of the market also supported imperfect competition as there was found to be evidence of promotions carried on so as to compete for customers. The informal market on the other hand was found to be relatively competitive. Factors favoring perfect competition included; a low concentration ratio of 22%, no barriers to entry, availability of information (although 70% was informal information), no promotions, lack of product differentiation as well as non-collusive setting of prices and quantity. The informal market was found to be inefficient based on the low profit margins as well as low farmer share. The factors found to affect marketing margins were; transport cost (p= 0.001), quantity traded (p=0.002), sex (p=0.032) and education (p=0.043). Age was found not to have an effect on marketing margins.