The impact of transaction costs on the choice of cattle markets in Mahalapye district, Botswana

Abstract

The objective of this study is to identify the transaction costs factors and household characteristics that influence the farmers’ choice of cattle marketing channels in Mahalapye district, Botswana. The marketing channels are, typically, the Botswana Meat Commission and the local butchers. The study also identifies transaction costs influencing the level of cattle sales. It is expected that the identification of these transaction cost factors and the extent to which they influence farmers’ choice of particular marketing channels could assist in the formulation of policy interventions. Transaction costs emanate from several sources such as information asymmetries, negotiations and monitoring and enforcement of trade agreements. The hypothesis of the study is that farmers’ choice of cattle marketing channels is influenced by transaction costs and household characteristics. Households facing higher transaction costs and other inhibitive market conditions are excluded from using certain marketing channels. In order to test the hypothesis that transaction costs affect households’ decisions to choose marketing channels, a probit model was estimated to identify these transaction costs factors. The model was applied to a survey of 100 households selected using simple random sampling. A structured questionnaire was designed to capture the required data. The results show that the herd sizes owned by households and access to market information positively and significantly increased the probability of households to sell to Botswana Meat Commission. On the other hand the speed of payment, grade uncertainty and distance to the market were negatively associated with the probability of selling to the BMC. That is, they decreased the probability of households to sell to BMC. The level of cattle sales to BMC was positively and significantly influenced by cattle herd sizes, age of the head of the household and distance to the market, while stock theft and animal diseases negatively and insignificantly influenced the level of sales. The study provides recommendations, which might reduce the transaction costs, particularly by enhancing access to market information, and provision of farmer training (and cattle agents training) on marketing activities.