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Commercializing Small Farms: Reducing Transaction Costs

  • Prabhu Pingali

    (Agricultural and Development Economics Division, Food and Agriculture Organization)

  • Yasmeen Khwaja
  • Madelon Meijer

    (Agricultural and Development Economics Division, Food and Agriculture Organization)

Broad changes are taking place in agrifood systems worldwide. These changes are driven by economic development, increase in per caput incomes, changing technology and urbanization. Consumers are changing their dietary preferences and shopping habits, resulting in substantial organizational and institutional changes throughout the food marketing chain. Growing concentration at all levels is taking place, particularly in the retail sector, and private sector standards for food quality and safety are proliferating. Increasingly exchange is arranged through the use of contracts. These changes have significant implications for growth, poverty and food security. For the small farmer in particular there are difficulties to meet the standards and contractual requirements. They are faced with a new set of transaction costs that emerge from dealing with a food system characterized by different rules, regulations and players. Increased transactions costs deter entry of small farmers into the market. This paper looks at required interventions aimed at reducing transaction costs to encourage increased farmer participation in competitive markets.

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Paper provided by Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA) in its series Working Papers with number 05-08.

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Length: 42 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:fao:wpaper:0508
Contact details of provider: Postal: Agricultural Sector in Economic Development Service FAO Viale delle Terme di Caracalla 00153 Rome Italy
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  1. Priya Deshingkar & Usha Kulkarni & Laxman Rao & Sreenivas Rao, 2003. "Changing Food Systems in India: Resourcesharing and Marketing Arrangements for Vegetable Production in Andhra Pradesh," Development Policy Review, Overseas Development Institute, vol. 21(5-6), pages 627-639, December.
  2. Prabhu L. Pingali, 1997. "From Subsistence to Commercial Production Systems: The Transformation of Asian Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 628-634.
  3. Ahmed, Zia U., 1989. "Effective costs of rural loans in Bangladesh," World Development, Elsevier, vol. 17(3), pages 357-363, March.
  4. Jill E. Hobbs, 1997. "Measuring the Importance of Transaction Costs in Cattle Marketing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1083-1095.
  5. Rosegrant, Mark W. & Schleyer, Renato Gazmuri & Yadav, Satya N., 1995. "Water policy for efficient agricultural diversification: market-based approaches," Food Policy, Elsevier, vol. 20(3), pages 203-223, June.
  6. Birthal, Pratap S. & Joshi, P. K. & Gulati, Ashok, 2005. "Vertical coordination in high-value commodities," MTID discussion papers 85, International Food Policy Research Institute (IFPRI).
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