Transaction Cost Determinants of Farmers’ Participation in Contract Farming in Tanzania

Dogeje, Finias (2023) Transaction Cost Determinants of Farmers’ Participation in Contract Farming in Tanzania. Doctoral thesis, The Open University of Tanzania.

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Abstract

Contract farming is recognised for its potential to improve agricultural productivity, market integration, and farmers' access to inputs, extension services and technology. Transaction costs are vital in defining success and sustainability of such arrangements. Besides, gaps remain in understanding the association between transaction costs and participation of farmers' in contract farming, with a focus on entire agri-value chain continuum. This study examines transaction cost determinants on farmers’ participation in contract farming in Tanzania's tea subsector, focusing on downward and upward nodes of the value chain. A cross-sectional survey was conducted, collecting quantitative data from 393 smallholder tea farmers in three districts of the Southern highlands Tanzania; Rungwe and Busokelo in Mbeya region and Njombe District Council in Njombe region. Paired samples t-tests assessed differential transaction costs related to participation of farmers in contract farming across the tea value chain nodes, while Binary Logistic Regression Analysis (BLR) explored the effect of transaction cost determinants on farmers’ participation in contract farming. This study concludes that, there is higher perceived downward transaction costs compared to upward transaction costs (P=0.000). Relatedly, downward transaction costs negatively significantly influence participation (P=0.015), while upward transaction costs had positive significant effect (P=0.005). Furthermore, farmer quality have insignificant impact on transaction costs or participation (P=0.127). It is recommended that, to enhance farmers’ participation in contract farming stakeholders should focus on reducing transaction costs through nuanced classification, prioritising downward transaction costs while creating supportive policy environment.

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