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.

Analysis of profit efficiency among smallholder sheep farmers of N8 development corridor Free State, South Africa

“…Climate change especially drought and increasing production cost has slowed down sheep production in South Africa (Molotsi et al 2017). This gap between demand for and supply of sheep and sheep products has provided a great opportunity for integrating smallholder sheep farmers into the value chain (Ndoro et al 2015). However, the inability of smallholder sheep farmers to exploit the full potential is due to inadequate infrastructure, lack of management skills, inadequate feed resources, as well as inadequate techniques for genetic improvement of their livestock (Rege et al 2011).…”

“…Previous studies have examined livestock production and market participation of smallholder livestock farmers in South Africa (Rios et al 2009;Mafukata 2015;Ndoro et al 2014;Ndoro et al 2015;Ngarava et al 2019;Molotsi et al 2017;Bahta and Bauer 2012), market factors inhibiting the competitiveness or profitability of smallholder farmers (Mpandeli and Maponya, 2014;Dlamini, 2014), technical efficiency and technological gap in sheep production (Nyam et al 2019).…”

Market Awareness and Participation for Cattle Farmers in the Kaonafatso ya Dikgomo (KyD) Scheme in KwaZulu-Natal Province, South Africa

“…Only 13%, 11% and 6% of the respondents were aware of abattoirs, traders and wet markets, respectively. The higher recognition of farm gate marketing channel is due to its popularity to smallholder farmers because these take place among neighbours and between neighbouring communities, mainly in the form of barter or cash sales (5). The KyD scheme also plays a prominent role in encouraging livestock marketing [27], informing the participants into formal market channels is fundamental hence 35% of these farmers are knowledgeable of auction markets.…”

“…[2]. Approximately 3 million subsistence as well as 240,000 small-scale farmers own 5.6 million cattle relative to 50,000 commercial farmers who own 8.2 million cattle [5].…”

“…Various Livestock Development Programmes (LDPs) have been implemented in the endeavour to mainstream smallholder rural poor livestock keepers to participate in formal market economies and commercialize. In KwaZulu-Natal, it was reported that farmers in the Okhahlamba Local Cooperative (OLC) participated more in cattle marketing than those who were not partaking, and the members perceive this programme as the best solving challenges and barriers around cattle marketing [5]. In 2013, the National Agricultural Marketing Council (NAMC) cattle custom feeding program was initiated in the Eastern Cape Province where farmers are organised into marketing cooperatives.…”