EFFECT OF TRANSACTION COSTS ON SMALLHOLDER FARMERS’ VEGETABLE MARKET PARTICIPATION AND CHANNEL CHOICE IN THE CENTRAL RIFT VALLEY OF ETHIOPIA

Abstract

This study investigates the effect of transaction cost on participation of smallholder farmers in vegetable market and on market channel choice decisions. The empirical analysis was based on primary data collected from 250 sample farm households located in the Central Rift Valley of Ethiopia in 2017. The double hurdle model estimation results show that age, total land size, and distance from asphalt road negatively influenced farmers decision to participate in vegetable marketing. However, quality of road connecting household residence to market, credit, TV ownership, and membership to cooperatives positively and significantly affected quantity of vegetables household' sold i.e. intensity of participation in vegetable market. Probit analysis on the discrete choice between selling at the market versus selling at farmgate showed that producers who had difficulty in accessing price information were more likely to sell their vegetable at the farmgate. But, producers who were aware of prevailing prices in alternative markets sell their product in retail market. Increase of knowledge of price in the alternative market by farmers increase probability of selling vegetable in market retail channel by approximately 21.9 %. Tobit regression of the effect of transaction cost on household vegetable sells through broker show that quality of road, ownership of bicycle and vegetable type are among key determinants of farmers' vegetable sell through brokers. In nutshell, the study found that transaction costs in different forms influence smallholder farmers’ decisions to participate on vegetable market, the intensity of participation, market channel choices and farmers’ use of broker to sell vegetable in the Central Rift Valley of Ethiopia. Intervention geared to minimization of transaction costs such supporting farmer organization may facilitate information exchange and increase bargaining power of smallholder farmers