WHY TRANSACTION COSTS IMPEDE SMALLHOLDER FARMERS’ PARTICIPATION INTO EXPORT ORGANIC MARKETS

Abstracts There have been growing trends of exports from countries dominated by smallholder agriculture to many of developed world (Kledal and Kwai, 2010). This shows that smallholders’ farmers development perspectives have gained interests in global markets and Value chain Approaches. However, apart from standard constraints in economics that impede participation of smallholder farmers in value chains at production and marketing, transaction costs do also constrain smallholder farmers in participating in value chains. To understand transaction costs effects on smallholder farmers’ participation in global value chains a study on governance of global value chains for organic ginger exports was conducted in Tanzania. The study employed a case study method, using transaction cost theory in a value chain approach. General characteristics that describe the smallholder farmers (such as small acreage size, proximities to and status of markets infrastructures, the levels of dependence on agriculture farming, household business structure) and the institutions they operate in were found to be the main reasons for high transaction cost proxies, hence the main reason for failure of smallholders to participate in global markets. This is because they cause high frequency of transaction, high asset specificity, high uncertainty, opportunism and bounded rationality. When developing global value chain these characteristics of Smallholders should be taken care of apart from the other measures that describe the trading between countries and those which determines production and productivity