Academic journal article Agricultural and Resource Economics Review

Net Gains from 'Net Purchases? Farmers' Preferences for Online and Local Input Purchases

Academic journal article Agricultural and Resource Economics Review

Net Gains from 'Net Purchases? Farmers' Preferences for Online and Local Input Purchases

Article excerpt

E-commerce represents both threats to and opportunities for rural communities. This study addresses one element of the issue: farmers' willingness to substitute online merchants or national farm input stores for local businesses. Results of a conjoint analysis of contingent choice experiments suggest that farmers are willing to purchase from online or national stores outside their communities if compensated with lower prices or greater services. Results also demonstrate that the context of the input purchase, such as time constraints, was very important not only in valuing these services, but, more broadly, in terms of the farmer's loyalty to a local merchant.

Key Words: e-commerce, farm input purchase, willingness to pay, contingent choice, rural communities

Over the past two decades, use of computers and the Internet by farmers, rural businesses, and rural residents has changed dramatically. In 1991 less than one-third of U.S. farmers were using computers, primarily to support intra-business decision making-business financial accounting, correspondence, and crop and livestock record keeping (Batte et al. 1995). By 2005, 56 percent of Ohio farmers had access to a computer, and 29 percent used that computer for business tasks (National Agricultural Statistics Service 2005). External information collection and reporting have become much more important tasks for the farm computer user. Batte (2004) found that nearly 85 percent of commercial Ohio farmers with computers also used the Internet, and 74 percent cited an Internet application as one of the three most important tasks for which the computer was used on that farm.

While online buying and selling (electronic commerce, or "e-commerce," activities) by farm businesses significantly lag behind other Internet uses and e-commerce adoption in other industries, e-commerce offers both threats to and opportunities for rural businesses and communities. Essentially, the Internet lowers the barriers to trade between urban and rural market participants by greatly reducing search costs for product alternatives, and holds important implications for the financial well-being of rural communities and their residents in a time when rural firms of all kinds are under increasing economic pressure. Castle (1998) recognizes two types of rural communities: those within commuting distance of urban and suburban developments, and those more distant from population centers. Rural communities near urban centers typically have leakage of sales from their retailers to firms in the urban areas where commuting workers are employedopportunity costs for shopping in urban markets are decreased by their commute. The vitality of communities more distant from urban centers is more closely related to changes in agriculture and other local businesses. There was a 9.2 percent decline in the number of rural retailers between 1990 and 1995, a loss of some 40,000 businesses (U.S. Small Business Administration Office of Advocacy, 1999b). The number of the smallest firms-those with fewer than 20 employees-declined by 11.6 percent, threatening rural communities' economic stability, increasing costs of living due to the expense of obtaining goods no longer available locally, and lowering quality of life. Within the traditional farm input sales sector, continued consolidation of national franchises and declining margins brought by fewer traditional buyers has forced changes. The number of retail locations is down, thereby increasing transaction costs for remaining customers. For remaining farm input retailers, the pressure to "urbanize" their inventories and services may make them less relevant to traditional producer markets. Ohio rural retailers may be better situated than firms in other agricultural areas. With 16 Censusdesignated Metropolitan Statistical Areas (population of 50,000 or more, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties), the potential for both survival through commuting workers and high levels of invasive competition is great. …

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