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Decision Making in the Presence of Transaction Costs –evidence from Smallholder Banana Farmers in Murang’a County, Kenya

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  • Wanjiru, Rebeccah
  • George, Owuor
  • Lagat, Job

Abstract

Agricultural marketing in Kenya, just like other developing countries, is characterised by long transaction chains, poor access to appropriate and timely information, high transport and transaction costs. In Murang’a County the banana is an important horticultural crop in terms of its present and potential contribution to income enhancement of smallholder farmers. Farmers can opt to sell their bananas through various marketing outlets. The main outlets include sales to local traders and brokers at the farm gate, direct marketing to consumers and to a lesser degree, through producer marketing groups. Among the factors influencing choice of marketing outlet used to sell bananas by a farmer, are the transaction costs embedded in each outlet. However, the effect of transaction costs on choice of marketing outlet for bananas has not been extensively explored in Kenya, thus the purpose of this study. Primary data was obtained from a survey of 120 smallholder farmers in Murang’a County. A multinomial logit analysis was used to analyse the factors influencing choice of marketing outlet. The study draws imperative findings that could guide policy towards reducing transaction costs in banana marketing. Particularly, results indicate that farmers make a decision on choice of outlet based on the market information cost, hours of information search, road condition, trust in buyer, negotiation time, distance to the market and transport costs associated with that outlet. Encouraging group marketing and provision of timely and reliable market information are some of the key recommendations from this study which could help to improve banana marketing, so that smallholder farmers can benefit from high value markets.

Suggested Citation

  • Wanjiru, Rebeccah & George, Owuor & Lagat, Job, 2012. "Decision Making in the Presence of Transaction Costs –evidence from Smallholder Banana Farmers in Murang’a County, Kenya," 2012 Eighth AFMA Congress, November 25-29, 2012, Nairobi, Kenya 159391, African Farm Management Association (AFMA).
  • Handle: RePEc:ags:afma12:159391
    DOI: 10.22004/ag.econ.159391
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    References listed on IDEAS

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    1. Nigel Key & Elisabeth Sadoulet & Alain De Janvry, 2000. "Transactions Costs and Agricultural Household Supply Response," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 245-259.
    2. Marcel Fafchamps & Ruth Vargas Hill, 2005. "Selling at the Farmgate or Traveling to Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(3), pages 717-734.
    3. Ohajianya, D.O. & Ugochukwu, Albert I., 2011. "An Ordered Probit Model Analysis of Transaction costs and Market Participation by Sweet Potato Farmers in South Eastern Nigeria," 85th Annual Conference, April 18-20, 2011, Warwick University, Coventry, UK 108936, Agricultural Economics Society.
    4. Okoye, B.C & Onyenweaku, C.E & Ukoha, O.O, 2010. "Effect of Transaction Costs on Seller Decisions among Small-Holder Cassava Farmers in South-Eastern Nigeria," MPRA Paper 26120, University Library of Munich, Germany.
    5. Jill E. Hobbs, 1997. "Measuring the Importance of Transaction Costs in Cattle Marketing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1083-1095.
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    Cited by:

    1. Apind, Benard Owino, 2015. "Determinants Of Smallholder Farmers Market Participation; A Case Study Of Rice Marketing In Ahero Irrigation Scheme," Research Theses 265572, Collaborative Masters Program in Agricultural and Applied Economics.

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