Effect of transaction costs on market participation among smallholder cassava farmers in Central Madagascar

Abstract

High transaction costs deter entry of small farmers into the market. With the data from 240 smallholder cassava farmers in Central Madagascar, this study identified strategies to promote successful smallholder commercialization. The coefficients for membership of cooperatives, native of community and farming experience, have a direct relationship with decision to participate in the market and which is significant at 1% level and road condition to the nearest town is good at 10% level. The coefficients for age, distance to the nearest town and distance from the farm to the market have an indirect relationship with decision to participate in the market and significant at 5, 10 and 1% levels, respectively. The results also show that the coefficients for personal means of transportation and marketing experience have a direct relationship with decision to sell cassava off-farm and at 10 and 1% level of significance, respectively, while distance to the nearest town and distance from the farm to the market had an indirect relationship with decision to sell off-farm at 5% level of significance each and cost of transportation at 1% level. The study raises policy issues which might reduce these transaction costs by providing more market outlets, better rural infrastructure and also bulking centres.

Keywords:

• rural infrastructure
• triple hurdle and Heckman selection

Public Interest Statement

Smallholder cassava farms are characterized by low levels of market participation, transaction costs are difficult to measure, understanding the impact they have on behaviour is important, as it can inform the creation of policies aimed at reducing them. Transaction costs reflect market characteristics in the study area, but are mainly embedded in household characteristics and their economic environment. This study shows how different types of transaction cost influence decisions and outcomes among farm households in Central Madagascar. Improving rural infrastructure such as access roads would help speed-up the delivery of farm products—and in particular perishable commodities such as cassava—to urban consumers. The transaction costs generated by the selling cassava could also be reduced by improving the market information available to the farmers, by deeper penetration of reputable input distributors, and promotion of institutional innovations such as production and marketing cooperatives based on the setting-up of bulking centres.

Additional information

Notes on contributors

B.C. Okoye

B.C. Okoye is an Agricultural Economist and System Analyst. His research programme spanned issues such as food security, production economics, farm management, agricultural marketing, gender productivity and efficiency, environmental and resource economics, adoption studies and applied microeconomics and econometrics.

A. Abass

A. Abass is a Food Technologist and Postharvest Specialist. He has worked as a Coordinator–Cassava Value Chain, and Leader of Small-Scale Cassava Processing Project in East and Southern Africa. His research activities have focused on generating positive impacts on smallholders’ livelihoods in West, East and Southern Africa by helping cassava value chain actors to commercialize through increased mechanization levels within the cassava processing sector, and enhanced utilization of the crop for food and in the industry. His latest research activities are focused on enhancing the competitiveness of High Quality Cassava Flour (HQCF) and developing post-harvest loss prevention strategies for maize and fresh cassava roots.