Marketing channel selection by cattle farmers in China: a transaction cost approach

Fundamental changes are underway in China’s food industry, changes that are altering traditional marketing relationships linking farmers, processors, retailers, wholesalers and consumers. Today’s consumer, who demands an ever-widening variety of healthy, safe and conveniently prepared food, together with new available technology is driving the changes in the food market. Thus, the development of marketing ventures in the agri-food chain is a response to the changes. Such market organisations are between the extremes of open market trading and complete vertical integration. An important feature of China’s beef cattle industry has been the emergence of the partnership between abattoirs, restaurants and supermarkets. In recent years these partnerships have extended further up the supply chain to include producers and breeders. Though these partnerships account for a small proportion of beef production (roughly 15%), the momentum behind them is gathering and there is a growing acceptance that the partnership will develop in the long term. Beef producers in China often have a number of marketing channels available when selling slaughter cattle. Typically, these include using a spot market, going directly to an abattoir, or going through a dealer. Farmers can choose to sell all, a proportion, or none of their cattle through any one of these channels. This case study aims to illustrate the factors that influence cattle farmers’ marketing channel selection. It explains the reasons behind a shift from spot market to direct marketing