Academic journal article Agricultural Economics Review

Grower's Selling Behavior: Transaction Cost Comparison Analysis

Academic journal article Agricultural Economics Review

Grower's Selling Behavior: Transaction Cost Comparison Analysis

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1. Introduction

The fast inclination of high-value food products demand in developing countries is triggering significant changes in traditional supply chain, especially involve in small household farmers (Reardon et al., 2009). Under the background of globalization which has provided farmers different market channels and helps the farmers to look beyond the traditional spot market (Shukla and Jharkharia, 2010), the Chinese government put much effort on realizing the free trade of agricultural market and upgrading the efficiency of agricultural supply chain in the last three decades. The fruits are not allowed to be free traded in the agricultural product market until the implementation of Ten Policies on Further Active Rural Economy issued by Chinese Communist Party (CPC) Central Committee and the State Council in 1985. Since then, the country markets, and wholesales have been developed rapidly. The circulation pattern has been changed from the traditional and single trading channel to a multi-channel and multi-level circulate network. Several study results reported that the agrofood market is dominated by spot market exchanges of a larger number of small farmers, traders and wholesalers (Jia amd Huang, 2011), and the wholesalers are the major trading outlet for farmers, followed by small brokers in 2005 in North China (Huang et al., 2007).

Since the adoption of Law on Agricultural Cooperatives of People's Republic of China in 2007 (Thereafter, the Law), cooperatives experience a high speed development. It is reported that the number of registered agricultural cooperatives reached 689 thousand at the end of December 2012 (State Administration for Industry & Commerce of the People's Republic of China). Cooperatives have been treated as a trading outlet for small household farmers due to the integrated service functions and internalized transaction. Simultaneously, with the further growth of supermarket in China (Hu et al., 2004), the direct trading way between small scale farmers and supermarkets is widely promoted by Chinese government in order to reduce transaction costs caused by various sectors in the value chains (the Ministry of Agricultural of People's Republic of China).

In fact, there is growing pressure for farmers in developing countries to accelerate their efforts to commercialize production facing increasing market competition (Aubert, et al., 2004). For instance, in China, the average farm size is only 0.15 hectare per farmer (CNSB, 2012) and farmers are not well organized as well (Shen et al., 2005). The small scale trading amount of products and the poor organized situation also post fanners in a disadvantageous position when negotiating with their up- and downstream partners (Song and Qi, 2011). Given the disadvantages of small scale farm characteristic and multiple marketing channels, choosing a proper trade channel can help growers reduce transaction costs. Therefore, the growing gap between family farms and their upand downstream partners dictated an increasing need for inter-sectorial coordination within the agro-food sectors and thereby enhances the potential role that can be played by cooperatives. A large number of scientific literatures have provided sound evidence of the advantages of being a member in cooperatives theoretically and empirically (Feinerman and Falkovitz, 1991; Barton, 2000; Nilsson et al., 2012). Vandeplas et al. (2012), taking the biggest dairy company in the world (Nestle) in India as an example, find that farmers supply to cooperatives and multinationals channels are more efficient than other market channels (informal and domestic private).

According to the Law in 2007, the purpose of cooperatives is to provide various services involving in production and sales process, to generate greater profits by obtaining input factors and services at lower price than the price which they would pay elsewhere, and also by marketing their products at better prices than the price which they would sell through other marketing channels. …

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