Agriculture is considered a critical sector in attaining economic growth for mosteconomies in Africa. However, for the sector to play its role, it needs to becommercialised to enable smallholder farmers to participate in markets and, hence,improve their incomes and livelihoods. In most developing economies, smallholderfarmers find it difficult to participate in markets because of the numerous constraints andbarriers mostly reflected in the transaction costs that make access to input and outputmarkets difficult. When analysing the effects of transaction costs on market participation,much attention has been accorded to farmers while ignoring middlemen/traders who arealso part of the marketing system. Furthermore, studies on the effect of transaction costson market participation tend to focus on grains and cereals while ignoring agrocommoditiesthat are more perishable. The purpose of this study was to holisticallyexamine the effects of transaction costs on participation of smallholder farmers andmiddlemen in banana markets of the Great Lakes region in central Africa.
The study adopted a non-separable household model which incorporated fixed andproportional transaction costs in the function of maximising utility subject to resourceconstraints. The Heckman procedure was used to determine the factors affecting thediscrete choice of smallholder farmers on whether to sell and quantities to sell whilecatering for selection biases. Probit analysis was used to determine the farmers choice ofselling point while the ordinary least squares method was used to analyse the extent ofparticipation of traders. Variables capturing transaction costs in regards to informationgathering, negotiating, contracting, monitoring and enforcing of contracts were used inthe analyses. The empirical analyses were based on secondary data availed for 2666farming households and 494 traders located in Burundi, Democratic Republic of Congoand Rwanda.
The results of the study indicate that fixed and proportional transaction costs distinctlyaffect the participation of smallholder farmers in markets. Belonging to farmer groupsfacilitates information exchange which reduces fixed transaction costs and, hence,increases the likelihood of farmers to participate in markets. The size of a household,distance to markets and ownership of transport means, which is linked to proportionaltransaction costs, influence the extent of farmer participation in markets. The choice ofselling point was significantly influenced by household size, the gender of the householdhead, off farm revenue, access to price information and the extent of remoteness ofhousehold. The effects of transaction costs on market participation of smallholder farmerswere more evident in the analyses for bananas than in the one for beans. The participationof traders was significantly influenced by gender, trading experience and supply distancewhich relate to the bargaining prowess, business networks and per unit transport cost,respectively.
Interventions geared towards supporting associations for farmers may facilitateinformation exchange and enhance bargaining and contracting skills which subsequentlyreduce transaction costs. Policies aimed at supporting investment in rural infrastructure,in terms of feeder road networks and market places, can lead to reduction in transactioncosts and thereby enhance participation of farmers and traders in markets.
© 2011 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria.
Please cite as follows:
Jagwe, JN 2011, The impact of transaction costs on the participation of smallholder farmers and intermediaries in the banana markets of Burundi, Democratic Republic of Congo and Rwanda, PhD thesis, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-06162011-064112/ >
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