Agricultural marketing channels : determinants of contract choice

Abstract

Although the use of various of forms of marketing contracts is increasing within agricultural marketing channels, there has been only a limited number of research efforts which investigate the factors influencing the structure of agricultural marketing channels and individual firms selection decisions. In this paper, issues relating to why a number of standardised marketing channels may exist within an industry, why alternative marketing channels may predominate in different industries, and how the marketing competencies of individual firms influence the channel selected by a business are examined. The theoretical model illustrates why it is possible for multiple marketing channels to exist in an industry by measuring how the expected returns and variations in returns change for different marketing channels. The optimal choice for a farmer will depend on the risk aversion parameters of individual firm, the information balance between producers and agents, and the degree to which an agent’s marketing margin varies over channels. The results of a more encompassing empirical model indicate that for an individual farmer, marketing channel choice is influenced by marketing competencies and strategy, farm and farm manager characteristics and the structural characteristics of the industry in which the transaction is taking place.