Download Economic agents and SIPSA

Present and future of the Agricultural Sector`s Supplying and Price
Information System in Colombia- SIPSA and the interaction with the
Agricultural Statistical System: some stylized facts.
Alejandro Bernal, Elsa Hernández, Herbert Sánchez
Departamento Administrativo Nacional de Estadística (National Administrative Department of Statistics)DANE
Carrera 59 no. 26-70 Int 1 – CAN
Bogotá – Colombia
[email protected], [email protected], [email protected]
ABSTRACT
Nowadays markets are not domestic at all, but they are more globalized; therefore, it is
necessary to have quality information that enables the different commercial chain agents to make the
best decisions in order to improve the population welfare.
Key words: Food, transaction costs, Institutional Economy, Information, Prices
1
Introduction
In the modern economic theory, price structures and mainly the economic transactions in the
real world have transaction costs which the society tends to minimize through a system of laws that
regulate the interaction of the economic agents.
Transaction costs are difficult to quantify; however, they affect price levels of the economy as far as are
defined as “those which are derived from the establishment of an ex ante’s agreement, as well as from
its control and its ex posts’ fulfillment” (Arias and Caballero, 2003)1. In this respect, Coase points out
that if such costs do not exist, neither enterprises nor institutions would not exist. Some authors
conclude that: institutions disclose the formal and informal rules for the agents involved in the market
through the exchange of ownership rights; establish the ownership rights, provide information on
prices, and develop frameworks for the development of economic activities.
1
The main causes for the generation of transaction costs includes: costs for the design and execution of contracts with certain level of
complexity, and problems of asymmetric information. Such issues are currently being solved by SIPSA.
Thus, the level of prices not only involves the supply and demand interaction, additionally such levels
are embedded in a set of laws that govern them. Furthermore, it is an important information resource
for the decision-making of the economic agents. The seek of information on prices leads costs,
implying that transaction costs rise as far as actors need to make decisions based on the best available
information in order to improve their economic benefits.
In view of the above, and taking into account the changes in the globalization processes, it is necessary
to count with strong and reliable institutions which help to reduce transaction costs, especially with the
existence of a system of information on prices of the agricultural sector. In this way, Colombia –
meeting the strengthening policies- aims that information – which is relevant for the decision-makingbe formalized and therefore be produced and disseminated by only one institution i.e. the Departamento
Administrativo Nacional de Estadística (National Administrative Department of Statistics) DANE .
This paper was made based on the theories on institutional economy pointed out by Douglas Cecil
North and Ronald Harry Coase. Using such theories, it is intended to establish how the beginning of the
operation of the Agricultural Sector’s supplying and Prices System –SIPSA- by DANE, contributed to
increase the dissemination of information on market prices of agricultural products.
When SIPSA is operated by DANE, independence is assured, information bias are avoided and the
entity is focused to more specific interests, which can make the new agents incur in additional costs for
seeking reliable and timely information sources; Specially in a market economy where the
determination of the “value” of goods and services - understanding value as the qualities “valuable for
the acquirer” that all goods or services exchanged possess - is given by a system of prices which
incorporates the information that market`s actors have on the qualities and attributes of the “valuable”
good, so determining its “value” (Alfaro, 1996).
A possible alternative to reduce the costs related with the information asymmetries consists in
establishing an Information System which “effectively distributes the information in a clear, continuous
and consistent form, so providing credibility to the executives` actions, (…). This fact will reduce the
risks identified as for the agent, as for the shareholder” (Marín, 2012).
This article is divided in four sections: this first part corresponds to the introduction. The second part
presents the conceptual framework that establishes the connection between SIPSA and DANE, the
institutions and the transaction costs; explaining how SIPSA reduce the market agents `uncertainty. An
analysis regarding the DANE`s website inquires is done in the third part as well as the evolution of the
amount of individuals who access such website, taking into account this aspect as an indicator of
acceptance by the public. Finally, conclusions are outlined in the fourth part.
2
Conceptual Framework
The evidence of a system of information, and most importantly, the evidence of market prices
makes possible to reduce the investments of eventual acquirers in order to find a counterparty, to
measure the product`s qualities incorporated to the price with no distortions, and finally to negotiate
and draw up an agreement. Such qualities not necessarily have to be individually defined. In this sense,
the principal fail of market specifically relies on the absence of market prices, i.e. in the existence of
countless goods or rights that individuals wish to buy or sell, but there is not a market and a price that
leads the activity of such individuals, allowing them to make low-cost decisions (Álfaro, 1996 2009).
2.1
The DANE and SIPSA
The National Administrative Department of Statistics (DANE) was created in 1953, and regarding its
mission, this is the entity in charge of producing and disseminating the official statistics of the country,
enabling the decision-making for the country`s socio-economic development. Likewise, it is in charge
of coordinating and regulating the National Statistical System –NSS- comprised by all organizations
that produce statistical information at Central level and concerning all branches in the territory.
One of the main short-term DANE`s goals is to consolidate the NSS in order to generate and provide
all statistical information requested by the country, meeting the most important international standards
such as the application of good practices for official statistics, the coverage, the efficiency, the
compliance and quality.
Among the most relevant changes that DANE has experienced as statistics producer authority, these
include the changes established by three regulations: i) Decree 262 of 2004, which assigns to DANE
some responsibilities as main entity in charge of statistics in Colombia: the production of strategic
statistics, the production and dissemination of basic official statistics and the development of the
country`s national accounts; ii) Decree 3851 of 2006, which organizes DANE`s quality assurance
system, storage and consultation of basic information of the country, and iii) Decree 4178 of 2011,
which reassigns the DANE`s functions regarding the planning, standardization and certification of
statistics.
DANE is a good example in terms of the advantages of centralizing the statistical production in only
one entity, since the different statistical operations that are produced under scope of the good practices
or the international recommendations -essential for their comparability and continuous improvementcan be easily aligned. In the same way, centralization: i) makes easy the economies of scale by using a
less amount of inputs to generate basic statistics, indicators and national accounts; ii) contrasts and
improves data collection methodologies in order to fulfill the users’ needs, and iii) increases human
resources’ productivity, due to the high expertise achieved during the development of statistical
activities.
Therefore, in June of 2012 SIPSA was launched at DANE´s facilities. Such activity included the
development of a strengthening process, focused on giving this Information System the statistical,
methodological and logistic tools required to ensure the quality and the compliance of information; as
well as the daily dissemination of information on wholesale prices at DANE´s website and in printed
bulletins. Such strengthening process involved a restructure of the basket of agricultural products.
Furthermore, regular evaluations on the entry of new products are regularly carried out; additionally,
the sample that is being taken for products (such as milk) is currently under validation. Due to the
evolution of market, routines that enable the capture of changes in the schedules for the cargo entry
have been defined.
On the other hand, within DANE, the System of Information has been supported with high technology
in order to enhance errors´ detection, as well as modules for data collection have been developed,
giving such System a more versatile operation; ad this way reducing the current delay between capture
process and data dissemination. Moreover, alternative query tools have been created, allowing the
different economic agents an easier and simple access to the information.
2.2
Institutions, transaction costs and the SIPSA
Over a long period of 20th century, the economic analysis was based on neoclassic approaches;
however, in the end of this century, institutional economics gained importance and nowadays is
considered a research area which is widely accepted inside economic theory.
In this way, Rutherford (1994) defines institutions as the whole set of rules, regulations and restrictions
in a society, in which the codes of conduct and standards of behavior are expressed. Likewise,
institutions are rules and laws that govern politics and society; they also are the set of norms that
govern the contractual relations.
The concept of institution is attached to four key characteristics (Peters, 1999): i) an institution
constitutes a structural feature of the society; ii) an institution have some type of stability over time, iii)
an institution affects the behavior of individuals, and iv) certain kind of shared values should be
presented among the members of an institution.
Likewise, transactions have two stages. In the first one, cost are incurred in order to define and control
the exclusivity in the absence of exchange; whereas in the second stage, costs associated to negotiation
and fulfillment of contracts regarding transfers of rights are incurred (North, 1981).
In addition to this set of rules, institutions are also the form in which individuals are organized in order
to carry out an exchange, so encouraging the production activity which is performed when there is a
specialization (Alfaro, 1996).
In neoclassic approaches it is supposed that exchange is carried out in a natural way and there are no
costs associated to transactions. In the practice, it does not exist because there are asymmetries of
information that can be useful for some agents. According to North (1990), the basis for the formation
of institutions relies on the processing of the information obtained from actors due to the transaction
costs. If actors are partially informed, they will create subjective models as a guide for their selections
and only the correction of such models would be made in a partial way, which leads to higher prices.
Although a model of perfect competition is given by the fact that all agents have the same amount and
quality of data, there is a mixture of information asymmetries in the different markets; it means that
information has a cost and becomes an essential input. Consequently, each agent has a different type of
information. Likewise, institutions establish an interaction between them and the economic agents,
giving a certain level of imperfection in the markets.
Even in the case in which an evolution of the institutional framework leads to generate more earnings,
institutions provide mixed signals: There will always be incentives for deceiving or evading. In the
economy history, there are institutional innovations that reduce the costs of negotiations, but never at
the same level as neoclassic approach does, because there are still incentive issues in the economic
agents.
Thus, in order to satisfy the needs in a world of limited resources, individuals carry out transactionsi.e. carry out transfers of ownership rights-. In order to perform such operations, individuals incur in
transaction costs. (Allen, 1991). Thus, in terms of this hypothetic world in which negotiation is not an
expensive action, the economic reality of perfect markets with zero transaction costs does not exist.
Markets in the real world are characterized by the presence of positive transaction costs, implying that
if such costs exceed the benefits expected from the transaction, this action will not be carried out.
A reallocation of economic rights will be only undertaken when the increase in the production valueresulting from a transaction- is greater than the costs incurred in achieving this transaction. On the
contrary, when such value is lower than the transaction costs, an interruption in the economic activity
would take place. However, the transaction would be carried out provided that the market transactions
have lower costs (Coase, 1960). In this sense, the higher the transaction costs are the more difficult
will be its commercialization, due to the existing issues on knowing the remuneration that each factor
should have. Thus, the level of transaction costs will depend on both the characteristics of each of the
transactions and the institutional environment in which a transaction is carried out. In view of this, it is
necessary that society defines the different rules of the game (North 1990a), that reduce the transaction
costs` levels.
The starting point of the theory on transaction costs defines that all economic transactions leads to costs
-in various stages- prior to its concrete execution; for instance, the costs attained to the information
search and the prevention in terms of the compliance of other agents. Therefore, certain transactions
carried out in the market may lead important costs, which can be associated with the negotiation
development. Consequently, economic agents, in the practice, can be obliged or encouraged to find out
alternative institutional or personal agreements that enables to minimize or reduce such costs.
In view of the above, SIPSA, as Price Information System concerning the market of agricultural
products, enables the reduction of transaction costs since it decreases the risk in the decision-making
(transaction costs). Such system provides the enough information needed for adopting decisions made
by the economic agents; especially when an important cost that makes more expensive the exchange
processes, correspond to the determination of “value” of goods and services; understanding value as the
qualities – valuable for the acquirer- that all goods or services exchanged possess. Such determination
is given by a Price System (Alfaro, 1996).
Figure 1 explains the interaction of SIPSA with the economic agents. The advantages of counting with
a Price Information System includes the decrease of transaction costs that facilitates the decisionmaking by the economic agents; and the sense of credibility given by such System, since the
information produced and released is available for all agents, not depending on particular interests.
With the ex ante information, contracts in which transaction costs are decreased can be undertaken,
leading that economic actors from agricultural sector know exactly the prices, the characteristics and
the location of the products offered.
According with Cordella (2006), transaction costs can be reduced in all stages of the value –chain. On
one hand, producers and retail traders may reduce the searching, the intermediation and the contract
fulfillment costs by using reliable and timely information. On the other hand, such reduction in
transaction costs means a falling of all agents involved in the price chain of agricultural products,
carrying an increase of the population`s welfare. SIPSA is an essential instrument regarding the
reduction of transaction costs. Such system, being operated by the entity in charge of the production of
official statistics in the country, is methodologically strengthened; this way ensuring its suitability in
terms of the different market issues, increasing its credibility, and avoiding the presence of actors that
can distort markets.
Figure 1. Relation between SIPSA and economic agents
SIPSA
Economic
agents
DANE
Transaction
costs
reduced
Credibility
Source: Figure made by the authors
3
3.1
Economic agents and SIPSA
Evolution of queries in the WEB site
Google Analytics enables the analysis, in real time, of the queries of individuals who visit the website
of any enterprise. This information corresponds to the main input to work with.
In May 2013, DANE´s website reported 450,339 queries, from which the 1% corresponded to
searching of information on SIPSA regarding its three components. Between June 2012 and May 2013,
the Information System reported an increase of 56% in queries, improving from 1.990 to 3.099.
However, this evolution is not constant since there is a reduction in the visits between October and
December 2012, being this last month, the one that reported the lowest number of visitors, with 1.615,
a situation clearly influenced by the Christmas and New year celebrations ( see graph 1).
Having overcome this period, the rhythm of visits became once again continuously growing, this time
reporting an average of 10% as from January 2013. The highest point in the history of SIPSA’s
consultation at DANE´s website was reported in April 2013, with a total of 3.241 queries.
Graph 1. Evolution of SIPSA’s consultations at DANE´s website.
Source: DANE
Specifically for the component of wholesale prices, it was reported 20.909 visitors during the complete
research period. It represents an evolution with similar behavior compared with the whole System, in
special when such component represents the 70% of the total. Participation percentage did not abruptly
changed in the twelve months studied, reporting its maximum value in December 2012 with an 82%
(see graph 2).
Between April and May 2013, the number of visits was considered stable. This fact generated a
difference with the total number of SIPSA´s site visits which reported a reduction of 4%.
Graph 2. Evolution of consultations of the wholesale prices ‘component at DANE’s website.
Source: DANE
3.2
Presence of SIPSA in written media
The evolution of mentions of SIPSA in the different national written media is particularly interesting.
As mentioned above, the System was launched in June 2012; therefore, this month had a wide number
of references. In the following month, it was only reported three of such mentions, a trend that
continued until the beginning of 2013 year (see graph 3).
In January, 64 mentions were reported, value that continued in February. However, on March were
reported 115 references nationwide - fact that contributed to increase in almost 80% the mentions in
comparison with the preceding month (see graph 3) - becoming SIPSA the referent system for making
decisions in terms of the commercialization of products. Such percentage was generated due to the
coffee strike that affected the normal supplying of food in some of the country´s zones. This influenced
in the increase of consultations by the economic agents who were interested in knowing the changing
dynamic of wholesale prices.
Graph 3. Number of mentions in written media.
Source: DANE
4
Conclusions
In an ideal world, transaction costs do not exist, specially taking into account an approach such as the
perfectly competitive market where no participant can influence in prices, merchandise are
homogeneous, buyers and sellers are conglomerated in a physical place, consumers are perfectly
informed, the rights over goods are perfectly defined and exchanges are simultaneously undertaken.
Concerning this approach, there is nothing to worry about the costs for exchanging, simply because
such costs do not exist (Alfaro, 1996). However, in the real world, many transactions are not longer
performed because transaction costs exceed the benefits that agents obtain in the exchanging of the
ownership right.
An important instrument which reduces the transaction costs is the information. Likewise, taking into
account the evolution of markets, one of the main attributes of information is the reliability and
timeliness. For achieving both features, it is important that the institution in charge of generating
information do not respond to particular interests. In Colombia, the Agricultural Sector’s Supply and
Pricing Information System was granted to DANE, whose objective is to produce and provide statistical
information from the entire country; a fact that apart of ensuring the independence of information, also
strengthens it by means of different processes that contribute to its development, analysis and dissemination,
through the pursuant of the good practices and the international quality standards.
The SIPSA, having the institutional support from DANE, has great possibilities of development in their
methodologies and especially in the dissemination of the information produced to the economic agents;
by means of virtual communication channels and text messages to mobile phones, reaching a wider
range of population, having benefited in the decrease of transaction costs, and in the generation of
agreements and contracts regarding the agricultural sector.
5
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