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External Transaction Costs and Large-scale Farming in Moscow Oblast

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  • Nikolai Svetlov

Abstract

The article addresses the reasons for the domination of large-scale corporate farms in the Moscow oblast of Russia and concludes that high external transaction costs are likely to be an important determining factor. Over the nine year period studied, larger farms are shown to achieve higher performance. Increasing returns to scale, however, were not significant in explaining the superior performance of the larger farms. It is hypothesised that high external transaction costs due to lack of transparency in the milk market, typical of underdeveloped markets, give the larger farms a competitive advantage. Their search costs per unit of output are relatively low and they are able therefore to achieve higher farm-gate prices for milk as a result. The results confirm the dependence of the farm-gate milk price on farm size due to the presence of high transaction costs in the market of milk, the major output of the studied farms. The high performance farms were able to grow during the study period whereas the lower performing farms had limited growth capacity. A more competitive and transparent market environment along with improved infrastructure could lower transaction costs and entry barriers and provide opportunities for smaller scale corporate farms to compete more effectively. Copyright (c) 2010 The Author. Journal compilation (c) The Agricultural Ecomomics Society and the European Association of Agricultural Economists 2010.

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Bibliographic Info

Article provided by The Agricultural Economics Society in its journal EuroChoices.

Volume (Year): 9 (2010)
Issue (Month): 2 (08)
Pages: 40-46

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Handle: RePEc:bla:eurcho:v:9:y:2010:i:2:p:40-46

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