Abstract
The determinants and/or economic effects of modern food distribution channels have attracted much attention in previous research. Studies on the welfare consequences of modern channel options, however, have been sparse. Based on a broader definition of modern food distribution channels including midstream processors and downstream retailers (supermarkets, hypermarkets, brand-named retailers), this study contributes to the existing body of knowledge by exploring the distributional implications of farm households’ choice of modern food distribution channels using a large and unique farm household dataset in Taiwan. Making use of the two-step control function approach, we identify the effect of modern food distribution options on farm households’ profitability. The results reveal selling farm produce to modern food distributors does not produce a positive differential compared to the traditional outlets. Another dimension of farm household welfare affected by the choice of modern food distribution channel is income inequality. We apply the Lerman and Yitzhaki decomposition approach to gain a better understanding of the effect of the marketing channel option on the overall distribution of farm household income. The Gini decomposition of different income sources indicates that the choice of modern food distribution channels results in an inequality-equalizing effect among the farm households in Taiwan, suggesting the inclusion of smallholder farmers in the modern food distribution channels improves the overall welfare of the rural society.
Highlights
The development of modern food supply chains, especially that of supermarkets and/or hypermarkets, has attracted much attention in past research of developing countries [1,2,3,4,5]
The first track concerns the identification of the factors determining the choice of modern marketing channels
The second track focuses on examining the economic outcomes for farmers selling farm produce to modern food distributors
Summary
The development of modern food supply chains, especially that of supermarkets and/or hypermarkets, has attracted much attention in past research of developing countries [1,2,3,4,5]. The second track focuses on examining the economic outcomes (farm income, profitability, farm household income) for farmers selling farm produce to modern food distributors. In the identification of the key factors driving the choice of modern food retailers over traditional marketing channels, Indian vegetable growers who are younger and more experienced and have a higher educational level were found to be more likely to choose to sell their farm produce to supermarkets [6]. Motivated by the emerging expansion and/or growth of food processing and service industries, this study intends to examine if farm households’ choice of the modern food distribution channel contributes positively to farm household welfare from two dimensions—farm income and income inequality—based on a broader definition of modern marketing channels. This study provides more general and comprehensive insights into the inequality-reducing or inequality-enlarging effects of modern food supply chains
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