Abstract
The paper investigates the determinants of farmers’ participation in contract farming (CF) in the context of a transition country, namely Albania. The focus is on intermediaries’ bargaining power effect on farmers’ engagement in CF. Exploratory factor analysis is used to develop measures for the latent variables, while a logit regression model is employed to test the hypothesized relationship. The results show that intermediaries’ bargaining power moderates negatively the relationship between farmers’ specific investments and CF participation. Farmers’ with high specific investment are reluctant to contract with buyers who have power because contracting with such a buyer implies that they can extract higher values from farmers’ specific investments. Other strong predictors of contracting decision are farmers’ trust on the intermediary, intermediary’s advice to the farmer and intermediary’s specific investment.
Highlights
Contract farming (CF) in the context of developing countries has received considerable attention both from practitioners and researchers
The main objective of this study is to investigate how the intermediaries’ bargaining power affects CF in the greenhouse tomatoes sector in Albania, which is characterized by small scale farming
This study attempts to fill this gap by providing insight on the effect of intermediaries’ power on contracting decision from the tomatoes greenhouse sector in Albania
Summary
Contract farming (CF) in the context of developing countries has received considerable attention both from practitioners and researchers. A number of authors (Grosh, 1994; Key and Runsten, 1999; Katchova and Miranda, 2004) have argued that CF is an institutional solution to problems of market failures in the markets of insurance, information and credit. As a result, this form of relationship governance solves a number of productivity constrains for small farmers including reduced market risks, access to credit, inputs and information. Considering the ex-ante and expost transaction cost (i.e. searching, negotiating, monitoring, etc.) that a buyer incurs to contract with a farmer, the buyer will have a strong in-
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