Farmers' Choice of Cattle Marketing Channels in Rural South Africa: A Transaction Cost Economics Perspective
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This study empirically tests the hypotheses that information, negotiation, and
monitoring costs influence the decision to sell to private buyers, speculators, or at the
auction pens among smallholder farmers in KwaZulu-Natal, South Africa. Based on
survey data, the results of a Multinomial Logit regression reveal that the probability
of selling at the auction vs. selling at farm gate increases during the end-of-year
festive season, indicating the scope of market uncertainty surrounding auctions. They
also show that the probability of selling at the auction vs. selling to speculators
increases with proximity to the auction marketplace and decreases with knowledge of
the buyer, suggesting higher opportunity costs of time and efforts associated with
selling at the auction, and considerable negotiation and monitoring costs incurred
when selling to speculators. Other significant predictors of auction channel selection
are volume supplied and farmer’s age. This study concludes with some policy
implications.