Transaction cost analysis of raisins marketing by emerging farmers from Eksteenskuil, South Africa

Despite the existing vertically coordinated (specifications contracting) relationship between the raisin producers from Eksteenskuil and their buyer, the farmers still face relatively high transaction costs. High transaction costs may cause the farmers to lose their share in the highly profitable fair-trade market for raisins and consequently decrease the contribution of raisin production to the livelihoods of the farmers from Eksteenskuil. The aim of this paper is to investigate whether a higher degree of vertical coordination will be more appropriate to economise the transaction costs faced by the farmers in order to allow them to continue benefitting from the fair-trade initiative. Based on the application of the frameworks of Mahoney (1992) and Peterson et al. (2001), a higher degree of vertical coordination in the form of a relation-based strategic alliance will be more appropriate than specifications contracting. The complementarity between the farmers and their buyer, created by the fair- trade initiative, contribute to the viability of a more vertically coordinated strategy. Similar incentives for private sector-buyers to procure from emerging farmers may create a similar degree of complementarity, and hence an incentive for such buyers to enter into vertically coordinated relationships with emerging farmers.