Abstract:
Vertical coordination (VC) in agriculture has received popularity in recent years. In the sorghum value chain, VC has emerged as a way to transfonn small-scale farm enterprises from subsistence to commercial orientation where they produce sorghum for industrial use. Factors motivating farm enterprise owners to engage in the different VC strategic options are not clear from the literature. Institutional arrangements have been hypothesized to play a role alongside the socio-economic and institutional factors but empirical evidence remains scarce. Moreover, cases of side-selling have been evident along different VC strategic options. This study bridged this gap by characterizing the institutional arrangements of the targeted VC strategic options. Also, the study determined the effects of institutional arrangements on the choice of VC strategic options and the extent of side-selling in the different VC strategic options. A stratified sampling technique was used to systematically select 274 sorghum fann enterprise owners in Nyando Sub-county, Kisumu County. Descriptive statistics, Multivariate probit and fractional response models were used in data analysis respectively. The majority of the sorghum producers targeted coordinated options, especially contractors and processors. Moreover, institutional arrangements such as prices that are close to expectations, bargaining power, grade certainty, quality inspection, payment delay and transportation arrangement positively influenced the choice of contractors and spot market. Besides, 71% of the contracted fanners side sold their produce due to higher prices offered in spot, lower bargaining power, sorghum experiences, contacts with extension officers and network extemalities while off farm income, land size, access to credit, neighbourhood effect and tmst reduced side—selling remarkably. Hence, the study recommends farm enterprise owners should be incorporating in setting sorghum prices increasing their bargaining powers. Also should be offered premium prices for delays and quality grade and good roads which will aid producers to utilize the new, lucrative and emerging cereal markets. Further, emphasis should be placed on trust between the buyers, higher bargaining power and monitoring of farm enterprises by use of neighbours in order to reduce side-selling. Additionally, buyers should offer better prices and advance payment on delivery in order to motivate producers to utilize coordinated markets and reduce the acts of side-selling
