Farmers’ motivation for participating in inter-organizational relationships in Ghana

Abstract

Interests in inter-organizational relationships in the Ghanaian agri-food sector has been stimulated in recent years by policies seeking to reduce farmers' market risks while improving processors' access to required agricultural products. The decision of how to sell farm produce is an economic imperative for the farmer. The coexistence of spot markets and relationships suggests therefore that farmers must be having some gains from them. This study sought to provide an understanding of the factors that motivate farmers to participate in inter-organizational relationships and the hierarchy of such relationships in terms of incremental revenue. It was based on the hypothesis that reducing transaction costs increases the likelihood of farmers' participation and also that farmers who produce perishable crops are more likely to participate. Primary data were collected from 354 farmers producing various crops in Ghana. The study found that 55% of farmers use spot markets while about 45% were involved in formal relationships with their buyers. Nearly two-thirds of these participating farmers had direct relationships with their customers, while the remaining third engaged through their farmer association or collective. Product quality was the focus of most of the relationships, with price and quantity being lower motivators for formal relationships. Although the relationships were all formal, in the sense that both parties were cognizant of the terms of engagement, it was discovered that the majority were governed by informal arrangements. Transaction costs were defined as information availability, price, and sales certainty. The results showed that increasing information availability, price certainty, and sales certainty increased the likelihood of farmers' engaging in formal relationships with buyers. Because fruits are highly perishable, getting selling agreements in place reduces fruit farmers’ risks. Therefore, fruit farmers are more likely to participate in formal relationships. On the other hand, grains, such as maize and legumes, have long shelf lives, and therefore, farmers of these commodities have less motivation to participate in formal relationships. The results showed that the odds ratio of fruit farmers relative to non-fruit farmers choosing to participate in relationships was 4.416 times higher at the 1% significance level. The incremental revenues indicated that maize farmers were better off developing their relationships directly with the buyer however, the choice of the focus area and the governance mechanism made no difference. Cassava farmers were also better off developing their relationships directly with the buyer, focusing on price-quality or price only specifications and using formal agreements to govern their relationships. For cocoa farmers, any method they used to develop and govern their relationships made no difference in terms of incremental revenue, however, they were better off focusing their relationship on price-quality or price only specifications. This study’s results suggest that policy initiatives to support relationships between farmers and buyers must focus on promoting transparency and ascertaining sales and prices of participating farmers. It must also be focused particularly on farmers of perishable commodities like fruits. This study has provided the understanding that information availability, price, and sales certainty, as well as the perishable nature of commodities, motivate farmers to participate in formal relationships. These policy initiatives, should, therefore, enhance participation and the gains of farmers in inter-organizational relationships.