Farmers’ choice of cattle marketing channels under transaction cost in rural South Africa: a multinomial logit model

Abstract

This study applied a transaction cost approach to the analysis of cattle marketing behaviour among smallholder farmers in communal land areas of KwaZulu-Natal, South Africa. The objective was to test the effects of information, negotiation, and monitoring costs on the decision to sell to private buyers, speculators or at auction. The theoretical predictions of transaction cost economics were tested based on primary data collected from 230 cattle farm households in 13 communities of the Okhahlamba Local Municipality. The results of a multinomial logit regression revealed some unique insights. They showed that the probability of selling at auction vs selling at the farm gate increased during the end-of-year festive season, indicating the scope of market uncertainty surrounding auctions. They also showed that the probability of selling at auction vs selling to speculators increased with proximity to the auction marketplace and decreased with knowledge of the buyer, suggesting higher opportunity costs of time and efforts associated with selling at auction, and considerable negotiation and monitoring costs incurred when selling to speculators. Other significant predictors of auction channel selection were volume supplied and farmer’s age. This study concludes with some implications for the livestock marketing policy in South Africa.

Keywords: cattle marketing channels, South Africa, transaction cost economics, vertical coordination