Epsilon Archive for Student Projects

Abstract

What are the key factors driving farmers' choices of whom to sell to? This study searches for an answer. Transaction costs are hypothesized as the determinant of pig producing farmers’ choice of trading partner in this study. The farmers have a choice between two types of slaughterhouse. One of these is Scan, which used to be a farmer co-operative, but is now a so-called FCB (Farmer Controlled Business). This implies that it is fully owned by the farmers who supply their animals to the slaughterhouse. The other type of firm is IOFs (Investor-Owned Firms), which are profit maximising firms. There are many IOF slaughterhouses in the Swedish pig slaugher industry, such as Ugglarps, KLD, Dahlsjöfors, and Skövde.

As it is impossible to measure transaction costs objectively focus is directed towards the farmers’ perceived transaction costs. Various socio-psychological concepts are used to interpret farmers’ perception on their transaction costs. The combination of transaction cost theory and socio-psychological theory generates a number of economic and social variables which may determine farmers’ perceived transaction cost. These variables are suggested in a series of the dependent or independent hypotheses. The hypotheses are tested by an empirical investigation which is based on a large number of quantitative data from the farmers. The data is processed by some particular statistical methods, such as chi-square test and t test.

According to the results of the statistical analysis, this study supports the initial assumption that transaction costs are essential to farmers’ choices of trading partner. The socio-psychological attibutes such as attitudes are expressions of the farmers’ perceived transaction costs. Other factors, like ownership structure, pricing strategies, and loyaly affect the farmers’ choice of trading partners as well.

The findings of this study indicate that farmers’ perceptions of their transaction costs are various. Farmers delivering to Scan perceive higher transaction costs than the farmers who are suppliers to the investor-owned slaughterhouses. Based on the findings, it concludes that Scan would have to perform more efficient to reduce farmers’ perceived transaction costs.