Characteristics of potato contract producers in the South African potato processing industry

Abstract

ABSTRACTImports in the South African processing and frozen fries industry are on the increase. Thus, procurement for processing companies becomes more complex and the competition for local producers is increased. Local processors need to find adequate supplies at the lowest price whereas producers need to deliver at the best price. In order for processing companies to ensure sufficient quality and quantity, a good procurement strategy such as contract marketing is required. However, the characteristics of producers willing to adopt contract marketing must be identified. In order to do so, characteristics of contract producers in the Eastern Free State who used two different governance structures (contract and spot-market) were interviewed. A questionnaire was used and data were analysed with a Principal Component Regression combined with a Logit model. Out of 26 possible characteristics, nine were identified as significant (P < 0.1 or P < 0.5). The characteristics included less marketing cost, market information, only channel, less quality penalties, transport, price certainty, negotiation period, number of contacts, and less risk. Processing companies wanting to establish marketing strategies, target producers, and improve current contracts can use the nine characteristics. The characteristics can also be used to negotiate long-term contracts with producers.