Effect of transaction costs on choice of mango marketing channel and income of small-scale farmers in Makueni County, Kenya

Abstract

Makueni County in Kenya is one of the leading producers of mango fruits. The County experiences surplus mango production that ends up being wasted or sold at throw away prices due to imperfect marketing. The marketing of fruits is liberalized giving rise to multiple channels. Given the freedom to select a channel, different transaction costs such as information cost, negotiation and contract enforcement have not been evaluated in relation to farmer‟s choice of marketing channel. This study evaluates what influences choice of a particular channel and the gain from trading in the channel in terms of revenue. Specifically, the study analyzed the effect of transaction costs on choice of mango marketing channel, mango revenues obtained in different marketing channels and the effect of marketing channels on farmers‟ income. A simple random sampling was used to select 277 households where primary data was collected using semi-structured questionnaire. Data was analyzed using descriptive statistic, multinomial Logit regression model (MNL), gross margin analysis (GMA) and Ordinary Least squares (OLS). MNL results indicated that extension visit, age, education, experience, extension, gender, trust level, search in market price, information cost, transport cost, negotiation time, group membership and market distance significantly influenced the choice of marketing channel. GMA results showed that there exist significant differences in the gross margins in all the channels as a result of variation in prices in the four channels and also the difference in transaction costs. Reducing transactions cost and improving information symmetry can be enhanced through improving social networking among the farmers. The study recommends that the stakeholders should re-evaluate the existing information dissemination pathway, and promote farmer awareness of the available technologies such as SMS services, radio, television and internet where they can access price information and formal markets for mangoes. The government should invest in rural infrastructure in order to reduce high transport cost incurred by the farmer due to bad roads accessed when transporting mango to the market. Policy implementers should promote gender awareness by empowering more women to engage in mango farming. In developing market linkages, policies in support of promoting formation of mango marketing group should be enhanced in order to promote knowledge dissemination, improve farmers bargaining power, reduce the transaction cost and increase the income of the farmers.