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While smallholder market participation is seen as a catalyst for poverty alleviation, farmers in rural areas face a number of challenges in doing so. One of the most important factors is considered transaction costs related to transportation. Our study quantifies the benefits associated with improvement of rural road infrastructure by scrutinizing farm-gate prices of beans in rural Nicaragua. We find that the longer the distance and traveling time are to major commercial centers from farming communities, the less farm-gate prices producers receive. We find that a decrease in distance and traveling time by one unit is associated with an increase in farm-gate prices by 2-2.5 cents/qq. If infrastructure development can reduce travel time by 25%, an average farm would increase its annual revenue from beans by between $27.69 and $125.96 (between 4% and 18% of annual revenue today). Given that such infrastructure development affects all farmers and all crops, our findings suggest a larger implication at the sectorial level.

The objective of this paper is to understand the mechanisms by which development projects facilitate market linkage of smallholder farmers based on panel data from Nicaragua. We find that activities related to entrepreneurial practices have positive and statistically significant effect on commercialization. We also find that increased commercialization is positively correlated with total bean sales income, suggesting a positive indirect effect of the activities. Other activities demonstrate no positive and robust effect on commercialization while direct positive effects on sales income can be observed. This implies that market linkage of smallholder farmers require different sets of intervention tools than traditional farm technical assistance.