Choice of Coordination Mechanism in the Kenyan Fresh Milk Supply Chain

Abstract

This paper examines the nature and determinants of coordination mechanisms used in the Kenyan fresh milk supply chains, using recent survey data of market participants from Nakuru and Nyandarua districts in Kenya. Three main contractual arrangements are observed in the fresh milk supply chain. These include spot markets, verbal contracts and written contracts. The empirical results indicate that though written contracts are sparingly used in the milk transactions, milk producers are more likely to adopt such contracts compared to traders. The results also show that location of producer, source of market information, distance to markets, travel time to buyers or suppliers, gender of operator, and presence or absence of enforceable contracts significantly influence the type of coordination mechanism used in both producer-buyer and retailer-seller transactions and travel time to milk suppliers. I n Sub-Saharan Africa, structural adjustment programs have resulted in reduced levels of activity by marketing parastatals and lower levels of intervention by the state in food markets to improve efficiency of marketing services. However, smallholders still find it difficult to participate in markets because of a range of constraints and barriers that reduce the incentives for participation. In particular, inadequate access to market information needed to enter new activities that structural change may have rendered profitable remains a major constraint for smallholders.These constraints often result in high transactions costs for farmers seeking to sell in distant markets. While an extensive body of theoretical and descriptive literature on transaction costs exists, few empirical studies have examined the role of transaction costs in market transactions in developing countries (Goetz;

Linking apple farmers to markets

“…A number of authors have also examined the nature and determinants of the choices of different types of marketing contracts (Sartwelle, James D. et al 2000;Katchova and Miranda 2004;Guo and Jolly 2008;Abdulai and Birachi 2009;Jia, Huang, and Xu 2012). For instance, Katchova & Miranda (2004) investigated farmer's choices of marketing contracts such as cash sales, forward contracts, and futures/options.…”

“…For instance, Katchova & Miranda (2004) investigated farmer's choices of marketing contracts such as cash sales, forward contracts, and futures/options. Abdulai & Birachi (2009) noted that the choice of written contracts, verbal contracts and spot market contracts used in Kenyan fresh milk supply chain are determined by location, information source, distance, travel time and gender. In addition to examining the factors that influence farmer's choices of different types of marketing contracts, understanding the linkages between different marketing contract choices and farm outcomes can also provide significant information to agro-food producers and policy makers on whether a particular choice of marketing contract is an effective option for smallholder farmers who are gradually shifting from traditional spot markets to advanced supply chains.…”

“Every Tradesman Must Also Be a Merchant”: Behavioral Ecology and Household-Level Production for Barter and Trade in Premodern Economies

“…Offer (1997, p. 454) argues that human regard for other individuals fosters trust, and trust "economizes on the 'transaction costs' of monitoring, compliance, and enforcement." Social relationships and the trust they entail may be particularly important in facilitating barter exchange (Barnes and Barnes 1989;Blikololong 2010;Kranton 1996); together they decrease uncertainty and resources spent locating appropriate trade partners in market settings (Abdulai and Birachi 2008;McMillan 2002). In a more general assessment, North (1977) argues that the socially embedded elements of exchange are better seen as means of controlling transaction costs than as noneconomic forces subverting marketing behavior.…”

The influence of uncertainty on the choice of business relationships: The case of vegetable farmers in China

“…Reduction of transaction costs plays a pronounced role in the choice of governance mechanisms for business relationships (Abdulai & Birachi, ; Berthon, Pitt, Ewing, & Bakkeland, ). Williamson () distinguished three dimensions of transaction cost: frequency, asset specificity, and uncertainty.…”