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Farmers' Choice of Cattle Marketing Channels in Rural South Africa: A Transaction Cost Economics Perspective

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  • Ndoro, Jorine
  • Mudhara, Maxwell
  • Chimonyo, Michael
  • Hitayezu, Patrick

Abstract

This study empirically tests the hypotheses that information, negotiation, and monitoring costs influence the decision to sell to private buyers, speculators, or at the auction pens among smallholder farmers in KwaZulu-Natal, South Africa. Based on survey data, the results of a Multinomial Logit regression reveal that the probability of selling at the auction vs. selling at farm gate increases during the end-of-year festive season, indicating the scope of market uncertainty surrounding auctions. They also show that the probability of selling at the auction vs. selling to speculators increases with proximity to the auction marketplace and decreases with knowledge of the buyer, suggesting higher opportunity costs of time and efforts associated with selling at the auction, and considerable negotiation and monitoring costs incurred when selling to speculators. Other significant predictors of auction channel selection are volume supplied and farmer’s age. This study concludes with some policy implications.

Suggested Citation

  • Ndoro, Jorine & Mudhara, Maxwell & Chimonyo, Michael & Hitayezu, Patrick, 2015. "Farmers' Choice of Cattle Marketing Channels in Rural South Africa: A Transaction Cost Economics Perspective," 2015 Conference, August 9-14, 2015, Milan, Italy 212526, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae15:212526
    DOI: 10.22004/ag.econ.212526
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    File URL: https://ageconsearch.umn.edu/record/212526/files/Ndoro-Farmers_%20Choice%20of%20Cattle%20Marketing%20Channels%20in%20Rural%20South%20Africa-742.pdf
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    References listed on IDEAS

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    1. Ndoro, Jorine T. & Hitayezu, Patrick & Mudhara, Maxwell & Chimonyo, Michael, 2013. "Livelihood factors influencing market participation and supply volumes decisions among smallholder cattle farmers in the Okhahlamba Local Municipality, South Africa: Implications for agricultural exte," 2013 Fourth International Conference, September 22-25, 2013, Hammamet, Tunisia 160477, African Association of Agricultural Economists (AAAE).
    2. Marcel Fafchamps & Ruth Vargas Hill, 2005. "Selling at the Farmgate or Traveling to Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(3), pages 717-734.
    3. Pingali, Prabhu & Khwaja, Yasmeen & Meijer, Madelon, 2005. "Commercializing small farms: reducing transaction cost," ESA Working Papers 289070, Food and Agriculture Organization of the United Nations, Agricultural Development Economics Division (ESA).
    4. Levy, David T, 1985. "The Transactions Cost Approach to Vertical Integration: An Empirical Examination," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 438-445, August.
    5. Prabhu Pingali & Yasmeen Khwaja & Madelon Meijer, 2005. "Commercializing Small Farms: Reducing Transaction Costs," Working Papers 05-08, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
    6. Hausman, Jerry & McFadden, Daniel, 1984. "Specification Tests for the Multinomial Logit Model," Econometrica, Econometric Society, vol. 52(5), pages 1219-1240, September.
    7. Uchezuba, I.D. & Moshabele, E. & Digopo, D., 2009. "Logistical estimation of the probability of mainstream market participation among small-scale livestock farmers: a case study of the Northern Cape province," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 48(2), pages 1-13, June.
    8. Bardhan, Dwaipayan & Sharma, M.L. & Saxena, Raka, 2012. "Market Participation Behaviour of Smallholder Dairy Farmers in Uttarakhand: A Disaggregated Analysis," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 25(2).
    9. Anas, Alex, 1983. "Discrete choice theory, information theory and the multinomial logit and gravity models," Transportation Research Part B: Methodological, Elsevier, vol. 17(1), pages 13-23, February.
    10. Stuart D. Frank & Dennis R. Henderson, 1992. "Transaction Costs as Determinants of Vertical Coordination in the U.S. Food Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(4), pages 941-950.
    11. Woldie Getachew Abebe, 2010. "Optimal Farmer Choice of Marketing Channels in the Ethiopian Banana Market," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 8(1), pages 1-19, October.
    12. Jorine Tafadzwa Ndoro & Patrick Hitayezu, 2014. "Drivers of cattle commercialization in rural South Africa: A combined test of transaction cost and store-of-wealth hypotheses," Agrekon, Taylor & Francis Journals, vol. 53(3), pages 57-78, September.
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    1. Mapule Valencia Nkadimeng & Godswill Makombe & Obvious Mapiye & Cletos Mapiye & Isaac Oluwatayo & Kennedy Dzama & Cedric Mojapelo & Naftali Mollel & Jones Ngambi & Madimetja Human Mautjana, 2021. "A gross margin analysis for Nguni cattle farmers in Limpopo Province, South Africa," PLOS ONE, Public Library of Science, vol. 16(6), pages 1-13, June.
    2. Argade Aashish & Laha, A. K., 2018. "E-commerce in oligopsonistic and relational markets – An empirical investigation of transaction costs in agricultural e-markets in India from farmers’ perspective," IIMA Working Papers WP 2018-06-01, Indian Institute of Management Ahmedabad, Research and Publication Department.

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    Keywords

    Livestock Production/Industries; Marketing;

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