Farmer preferences in contracting with modern retail in Indonesia: A choice experiment

Abstract

AbstractUnderstanding the preferences of smallholder farmers for contracting can help in making contracts more sustainable. This paper presents the results of a choice experiment (CE) among smallholder farmers in Indonesia to assess their preferences for accepting contracts with modern retail. The CE was based on attributes of actual sales transactions in modern retail and traditional retail channels. A total of 301 vegetable smallholder farmers participated, consisting of 173 farmers participating in traditional markets and 128 in modern retail markets. A random parameter logit model estimates that, in general, smallholders do not prefer contracting with modern retail over spot market selling in traditional retail channels. Most contract attributes are perceived as negative by smallholders. A willingness‐to‐accept analysis shows that farmers are critical of most contract attributes, particularly those related to quality requirements. Producer organizations (POs) reduce transaction costs and increase smallholders' preference toward contracts. Contract designs that reduce transaction cost, mitigate risks for farmers, provide fair prices, and involve POs are more likely to attract smallholders to modern retail channels. [EconLit Citations: D23, O13, Q13].