Determinants of Transaction Costs to Farmers Participation in Groups from Mbozi District in Tanzania

Abstract

Farmers are often encouraged to form producer groups to facilitate their access to markets in an effort to overcome transaction costs and enjoy economies of scale, which is often advocated in the collective action literature. The role of transaction costs in participation of smallholder farmers groups is attempts that underpin the present paper. The study uses a cross-section data of a sample size of 310 farmers collected from Mbozi District of Tanzania. They include variables capturing transaction costs on farmers’ participation in groups. A model that can be used to
capture elements of transaction costs while explaining influences for farmers’ participation in groups is specified and used in the analysis. Variables capturing transaction costs explaining decisions costs (including information gathering, contracting and negotiating) of farmers to participate in groups are demonstrated and used in the analysis. In light of transaction cost literature only three variables that show significant effect include registration fee or cost of joining a group, distance that captures access to a group meeting place and membership to a market oriented group. Based on the findings, we conclude that policies focusing to lowering
transaction costs through improved transportation, lowering participation fee and promotion of marketing oriented farmer groups would increase farmers’ decision to participate in groups and increase group participants.

Keywords: transaction cost, farmers’ group participation, logit models