Research On Transaction Cost Obstacles Faced By Smallholders On Their Way To The Markets Of High Value-added Agriculture Prducts

"The World Development Report2008",(World Bank), presented that promoting thedevelopment of high value-added agricultural production in developing countries is a way forpoor smallholders to raise their income. As the world's biggest developing country, thanks toopen and reform policy, China has experienced up to30years of stable and rapid growth invarious aspects of the national economy after1978. Urbanization, uprising per capita netincome, agricultural commercialization and market-oriented economy arouse Chinesesmallholders' enthusiasm for high value-added agricultural products, and the total highvalue-added agricultural output in last three decades has been growing significantly.According to FAO statistics, compared with1978, China's fruit, vegetable, pork, and muttonproduction increased by13.78,8.09,5.38, and11.3times. The most obvious one is beefproduction which increased by21.8times, chicken production has increased by10.26times,egg production increased by10.11times, followed by milk, chicken and egg porductsincreased by14.28,10.26and10.11times. Although in the past three decades the highvalue-added markets has achieved considerable development, and provided smallholders anew revenue growth path except off-farming work. However, both foreign experience anddomestic realities presented that smallholders still confront some obstacles to participate inhigh value-added markets, and even are being squeezed out of the markets. Therefore, thosesmallholders need some help to overcome these obstacles.Based on the former relative research on the high value-added agricultural products andtransaction cost economic theory, the research starts from definition and property of highvalue-added agricultural products; followed by review of the development of highvalue-added markets in worldwide and in China, and the obstacles faced by smallholders when they intend to participate in the markets. Thirdly, with transaction cost economics theory,and the nature properties and Production properties,we analyzed the transaction cost barrierssmallholders are facing when they plan to produce high value-added agricultural products. Wealso focused on the markets barriers caused by features of supply chain which is affected bythe Processing attributes and market attributes of high value-added agricultural products.After the above analyses we reviewed and analyzed feasible strategies which can be used tocut down transaction cost barriers faced by smallholders. And then we conducted a case studyon effective strategies and measures which can be use to help smallholders, especially poorsmallholders, to participate in the markets of high value-added agricultural productsThe main conclusions are as follows:(1) In the past three decades, markets of high value-added for agricultural products have madeconsiderable development and contribution to the increase of farmers' income. And thedevelopment of high value-added markets does not affect the development of the urbanizationprocess, and on the contrary,is conducive to promoting the level of urbanization achieve adynamic equilibrium state as soon as possible. Meanwhile, the development of urbanizationprocess can in turn provide high value-added agricultural product market more developmentspace. Thus, the development the urbanization process and the high value-added agriculturalproduct market can mutually reinforce each other.(2) Compared with traditional food crops, high value-added agricultural products havefeatures of higher input needed, technical complexity, and market risk, so when smallholdersintend to carry on productions on high value-added agricultural products, they may face manybarriers such as financial barriers, technological barriers and so on. And according to caseanalysis, smallholders' decision on participating production of high value-added agriculturalproducts or not are based on their rational choice made after weighing the objectiveconditions of agricultural production and the existing opportunities for revenue growth.(3) Comparing the process of high value-added agricultural products with traditional foodcrops production process, we find that: firstly, when smallholders intend to carry on newproduction, they need to pay some cost to find proper varieties and production technology.Secondly, the productions of high value-added agricultural products contains much moretechnical steps and are more Input factors needed, so in the whole production processsmallholders need to make more transactions with outside which may increase the transaction cost in smallholders' production. Thirdly, due to the high input of high value-addedagricultural products, farmers usually need to seek external financial support. In the processof seeking external funding smallholders may need to pay some cost. Fourthly, after harvestsmallholders need to pay some cost to acquire market information and profitable way to sellproducts. Last but not least, although smallholders may face higher transaction cost when theyturn to the production of high value-added agricultural products from traditional food crops,after several production season the transaction cost may decrease because smallholdersgradually fix their channels to acquire inputs, technologies and sell their productions. But thetransaction cost faced by smallholders in the production of high value-added agriculturalproducts may not decrease to less than the transaction cost faced by smallholders in theirformer production of traditional food crops.(4) Market characteristics, natural attributes and processing properties of the high value-addedagricultural products may affect its distribution channels, especially may affect Thepurchasing behavior of the agricultural products processing enterprises which may indirectlyimpact on whether smallholders can effectively participate in high value-added agriculturalproduct market or not.(5) Integration strategies can be used in the production of high value-added products to reducethe transaction costs in the supply chain of the products. Both vertical integration strategy ofprocessing enterprises and horizon integration between smallholders can reduce transactioncost in the purchasing process of processing enterprises and further lower barriers onsmallholders', especially poor smallholders', way to high value-added market. However, theexisting single integrated strategies are still defective which you can not maximally reduce thebarriers on smallholders' way to high value-added agricultural products markets.(6) Empirical study showed that the combination of vertical integration strategy of theenterprise and horizontal integration and cooperation of the farmers can minimize thetransaction costs faced by enterprises and farmers in agricultural production and tradingprocess. Meanwhile, we found that using proper stakeholder can further reduce transactioncost so that can provide poor smallholders opportunities to participate in the new markets.