Transaction Costs And Organic Marketing: Evidence From U.S. Organic Produce Farmers
We develop a conceptual framework that integrates quality of output and transaction costs in the choice of marketing channels. We estimate a reduced-form Tobit model and a semi-reduced logit model using a farm-level cross-sectional dataset to measure the effects of transaction costs in farming ability to make sales to indirect markets (retailers and wholesalers). We find strong empirical evidence that existing organic retail and wholesale markets impose considerable barriers to entry on individual organic farmers. The effects of transaction costs are asymmetric between farmers, those who transitioned from conventional farming and those who did not. Those who did are overall favored, and those who did not are constrained by more types of transaction costs and are constrained more severely than those who did. We argue that an effective policy should target the least favored farmers by encouraging or mandating distributors and retailers have a more transparent and objective process in selecting organic suppliers, such that all farmers would have an equal opportunity to be successful in selling to indirect markets.
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