Returns to Market Coordination Mechanisms and Implications for Partial Bilateral Contracts for Commodity Exchange in Central Uganda

Governance of economic exchange can be realized through various coordination mechanisms and thus, farmers must choose alternative mechanism through which to channel their primary commodity. This paper looks at two coordination mechanisms and returns accruable from farmer participation in either spot market arrangement or bilateral contract arrangement, or both. Participation in two coordination mechanisms is observed as safe-guard of expected benefits against market uncertainty. Based on survey data from 349 smallholder farmers in central Uganda, we find that farmers derive higher benefit from participation in bilateral market coordination compared to spot market coordination. It is shown that there the difference in yield among the farmer categories is insignificant and that farmers who participate in both spot market and bilateral contracts earn twice compared to farmers under only spot markets. For returns to labor, every dollar cost of labor yields US$ 1.1 under single market coordination and about US$ 1.5 under double market coordination system. The trade-off analysis showed that adoption rate for bilateral contract system is about 56.5% and there are gains in adoption of bilateral contract market coordination. Thus, promotion of bilateral contracts requires provisions that allow farmers to participate in more than one markets while limiting contract reneging.