External facilitation of sustainable market linkages in the agri-food supply chain: Evidence from the USDA Marketing Assistance Program in the Armenian dairy and vegetable industries

This dissertation research is motivated by the policy concerns regarding the long-term sustainability of externally facilitated supply chain linkages and by the practical implications of better understanding the appropriate business models, incentive structures, and enforcement mechanisms in the context of external facilitation of supply chain linkages. The dissertation consists of three essays.;Essay one adapts the probabilistic hold-up framework, first introduced by Klein (1996), for the analysis of third-party facilitation of self-enforcing supply chain relationships. The major emphasis is placed on the role that a third-party external facilitator can play in assisting producers and processors to develop internal private enforcement mechanisms for ensuring long-term sustainability of their business relationships. The case study evidence and the panel data from the survey of Armenian dairy farmers is used to examine the impact of participation in the USDA Marketing Assistance Program (MAP) facilitated formal marketing channel on farm-level investments. The main findings from Essay one indicate that the farms linked to the formal milk marketing channel over the period from 1999 to 2003 have invested in nearly two times more assets specific to milk production compared to farms in the informal channel. This finding supports the hypothesis that the USDA MAP facilitation strategy has stimulated investments in private enforcement capital between dairy producers and processors.;Essay two examines the long-term sustainability of the USDA MAP facilitated supply chain relationships by comparing the changes in farm-level investment in relationship-specific assets before and after the end of the USDA MAP. The analysis is based on a unique balanced panel data with observations on milk production, marketing, and household characteristics of 172 dairy farms in 2003 and 2008. The main results provide no evidence of divestment after the end of the USDA MAP facilitation and suggest that farms linked to the formal marketing channel continued to invest in improving milk production. Combined with the findings from Essay one, this indicates that the third-party facilitation strategies directed on stimulation of investments in private enforcement capital by transacting parties can lead to establishment of self-enforcing, long-term sustainable supply chain linkages.;Essay three uses case study evidence and the data from the survey of tomato farmers to examine the transferability/generalizability of the findings from essays one and two in the vegetable industry setting. It measures the impact of the USDA MAP facilitation strategy on investment in and redistribution of private enforcement capital between Armenian tomato growers and processors. The main findings indicate that farms supplying to the formal marketing channel had approximately 53.3% higher average annual proportionate increase in the tomato planting area in the period from 1999 to 2003 compared to farms in the informal marketing channel. This results are consistent with the finding from Essay one, however, due to the inherent differences in the nature of specific assets between dairy and vegetable industries, the effect of the private enforcement capital on long-term sustainability of linkages in the vegetable industry remains to be tested.