Institutional adjustment and transaction costs: product and inputs markets in the Tanzanian coffee system

Commodity market liberalization can improve incentives for production of export crops by reducing the total costs of transforming products through space, form and time, or by reducing the costs of arranging and completing transactions. While liberalization often leads to reduced costs in output exchange, it can remove opportunities for linked input--output transactions that sometimes lowered the costs of providing finance in state-controlled markets. Assessments of liberalization that focus on output exchange alone obscure the impact of rising transaction costs in finance. This study of liberalization in the Tanzanian coffee market documents declining costs in output marketing, rising transaction costs for financing farm activities, and differential, but generally positive, net impacts on growers. Key words--Africa, Tanzania, agricultural markets, institutions, liberalization, transaction costs