An Evaluation of Firm and Contract Characteristics Valued by Supply Chain Partners in Specialty Crop Marketing Channels

Abstract

Marketing methods play a vital role in the efficiency of any supply-chain relationship. The relationship between buyers and sellers in the agricultural sector is dynamic and complex. While livestock and grain markets in the U.S. are generally well studied, the price setting process, buyer-seller relationships, and factors which influence the type, duration, and timing of business relationships in the market for specialty crops (SC) are less well understood. This is particularly true in the case of buyer relationships with small-scale farms. A better understanding of the dynamic relationship between small-scale SC producers and buyers is essential in achieving efficient marketing outcomes. This issue is examined from the perspective of small-scale SC growers in Virginia (VA) and North Carolina (NC). Using a Choice Experiment (CE) approach, this study: (1) identifies key contract characteristics and buyer attributes which are valued by VA and NC small-scale SC producers; (2) quantifies tradeoffs VA and NC small-scale SC producers are willing to make between buyer attributes and contract characteristics when establishing a new contractual relationship; and (3) determines the factors influencing these tradeoffs. Mean willingness-to-pay (WTP) of contract attributes and individual-specific WTP estimates are recovered using a mixed-logit model. Using these individual-specific estimates, a random-effects model is then used to determine factors driving producer WTP. While expressing concerns about specific aspects of contracts, growers overall were found receptive to the idea of using contracts as a viable marketing channel alternative. Substantial heterogeneity is found to exist amongst growers in their attitudes towards the structural framework of produce contracts, suggesting that growers have competing marketing interests with varying preferences towards contract structure. All four non-price contract attributes are found to have significant WTP estimates at a 95% confidence interval or higher. A combination of producer demographics, farm operation characteristics, contract perceptions, and attribute processing strategies are shown to impact the overall WTP for the selected contract attributes. Additionally, growers’ preferences are found to be stable throughout the study.