Transaction Cost Factors Influencing Choice of Market Outlets Among Smallholder Peach Farmers in Lesotho

Abstract

Most peach farmers in Lesotho fail to reap the benefits that are in line with peach commercialization due to high transaction costs. These costs vary along different marketing outlets. This study was geared towards bridging the knowledge gap on the influence of transaction costs along the different marketing outlets of peaches. The study sought to contribute towards improved incomes of smallholder peach farmers in Lesotho through proper selection of marketing outlets. Specifically, the study intended to characterize the transaction costs incurred by smallholder peach farmers, determine how transaction costs factors influence the choice of marketing outlets as well as to assess the marketing margins of different peach marketing outlets in Lesotho. A multistage sampling technique was used to select 90 respondents in the study. Cross-sectional data were then collected from peach farmers in Leribe district of Lesotho using the semi-structured interview schedule. Data were processed using Ms. Excel, Statistical Package for Social Sciences (SPSS), and STATA packages. Data were analyzed using descriptive and inferential statistics, multivariate probit as well as the price spread analysis. The households which sold at the farm gate and export market had about 4 acres of land while those who sold at the local market had roughly 3 acres. Farmers who sold at export market outlets had attained tertiary education. Extension services were limited for all farmers in the study. Market fees, contractual arrangement fees, storage and transportation costs, communication costs, sorting and grading costs as well as negotiating hours were transaction costs incurred by peach farmers in Lesotho. The study revealed that communication costs positively influenced the choice of the farm gate outlet. Sorting, grading, and communication costs negatively impacted the local market choice while household size influenced farmers’ export market outlet choice negatively. Gross Marketing Margin increased with the level of marketing outlet: from 0.03 $/kg of farm gate, and 0.05 $/kg of the local market then 0.80 $/kg of the export market outlet. In terms of transaction costs incurred, farmers sold at farm gate incurred more on communication costs relative to farmers who sold in other outlets. Evidence from the results, suggests the need for improvement of roads and communication infrastructure. Access to market information regarding both distance and the time taken to reach each of the outlets should also be improved. There is need to implement collective instruments such as collective marketing as a key to increase margins