Transaction costs and cattle farmers' choice of

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Transaction costs and cattle farmers’ choice of marketing channel in NorthCentral Namibia T. Shiimi, P.R. Taljaard & H. Jordaan Version of record first published: 20 Feb 2012.

To cite this article: T. Shiimi, P.R. Taljaard & H. Jordaan (2012): Transaction costs and cattle farmers’ choice of marketing channel in North-Central Namibia, Agrekon: Agricultural Economics Research, Policy and Practice in Southern Africa, 51:1, 42-58 To link to this article: http://dx.doi.org/10.1080/03031853.2012.649543

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TRANSACTION COSTS AND CATTLE FARMERS’ CHOICE OF MARKETING CHANNEL IN NORTHCENTRAL NAMIBIA T. Shiimi*, P.R. Taljaard** and H. Jordaan ***


ABSTRACT About 70 per cent of the Namibian population depends on agricultural activities for their livelihood. Moreover, agriculture remains an important sector in Namibia owing to the fact that its national economy is widely dependent on agricultural production. Cattle producers in the Northern Communal Areas (NCAs) have an option to market their cattle via the formal or informal market. Efforts have been made to encourage producers to market their cattle through the formal market; however, these proved to be futile as the strategy yielded limited improvements. In this study, a number of variables have been analysed to determine factors that influence cattle marketing decisions. Factors influencing the marketing decision on whether to sell or not sell through the formal market have been analyzed using the Probit model. Factors influencing the amount of cattle sold through the formal market, assuming that a producer uses the formal market to sell cattle, were analysed using the Truncated model. Testing the Tobit model against the alternative of a two-part model was done using Cragg’s model. Results from empirical research suggest that problems with transportation to MeatCo, marketing experience and the age of cattle producers are some of the factors that significantly influence the decision whether or not sell through the formal market. The accessibility of marketingrelated information, accessibility of new information technology, the age of respondents and a lack of improved productivity are some of the factors that influence the proportional number of cattle sold through the formal market. The results suggest that substantially more information is obtained by modelling cattle marketing behaviour as a dual decision-making framework instead of a single decision-making framework. Keywords: cattle marketing, decision making, formal markets, transaction costs JEL Classification: Q13

*

Lecturer, Department of Agricultural Economics Polytechnic of Namibia, University of the Free State, Bloemfontein. Email: WVKLLPL#polytechnic.edu.na ** Lecturer, Unit for Livestock and Wildlife Economics, Department of Agricultural Economics, University of the Free State, Bloemfontein. Email: SUWDOMDDUG#JPDLOFRP *** Lecturer, Department of Agricultural Economics, University of the Free State, Bloemfontein. Email: -RUGDDQ+#XIVDF]D Agrekon Vol. 51 (1) 2012 ISSN Print 0303-1853/Online 2078-0400 © Agricultural Economics Association of South Africa pp 42–58 DOI: 10.1080/03031853.2012.649543

Transaction costs and cattle farmers’ choice of marketing channel in North-Central Namibia


1

INTRODUCTION

Strengthening agriculture is critical in overcoming the challenges of rural poverty, food insecurity, unemployment and the sustainability of natural resources. The World Bank (2007) points out that agriculture can work in conjunction with other sectors to produce faster growth, reduce poverty and sustain the environment. However, there is a need to promote market participation to increasingly recognise the efforts of bringing about agricultural transformation in developing countries (Alene et al., 2007). Currently, about 70 per cent of Namibia’s population derive their livelihood from agriculture, either directly or indirectly (Horsthemke, 2009). Therefore, IRU 1DPLELD WR DFKLHYH D KLJKHU OHYHO RI IRRG VHFXULW\ DQG SURGXFH WR H[SRUW the development of the sector is critical in accelerating the industrialisation of agriculture. As a semi-arid country well endowed with natural pastures, Namibia LVVXLWHGWRH[WHQVLYHOLYHVWRFNUDQFKLQJ2XVHE HVSHFLDOO\FDWWOHUDQFKLQJ (Nevil, 2004). Historically, livestock from the commercial farming sector has dominated agricultural production in Namibia and this largely still holds true. Cattle, sheep and goats constituted about 80 per cent of the overall agricultural output in 2006 (Horsthemke, 2009). Moreover, beef products have long been tastepreferred meat favourites worldwide (Nevil, 2004). It has been observed that the per capita daily calorie intake from beef in Namibia is twice than that of Kenya, nine times than that of Nigeria and almost equal to that of Canada (Christian Science Monitor, 2008). The importance of the beef industry in Namibia is thus evident. According to Kruger and Lammerts-Imbuwa (2008), 61 per cent of the total cattle population can be found in communal areas, with 41 per cent being located in the NCAs. Düvel (2001) states that livestock producers in the NCAs are particularly disadvantaged as far as livestock marketing is concerned, because of the Veterinary Cordon Fence (VCF). Meat and livestock cannot pass freely through this VCF into the southern Foot and Mouth Disease (FMD) free zone. This complicates the marketing of livestock. To overcome this barrier, the government of Namibia established MeatCo in 1992 and built 11 quarantine facilities in the NCAs (FAO & NEPAD, 2005). MeatCo abattoirs in the NCAs were established with the aim of creating marketing opportunities for communal producers in the 1&$VVRWKDWWKH\FRXOGEHQH¿WIURPWKHLUOLYHVWRFNWKURXJKWKHIRUPDOPDUNHW MeatCo’s Oshakati abattoir, which is supplied with cattle by producers from the North Central Regions (NCRs), has a slaughter capacity of 280 cattle per day. However, it operates at only 40 per cent capacity (FAO & NEPAD, 2005). Thus, it would seem that farmers from the NCRs do not utilise the facility that was created for them. When investigating the marketing behaviour of cattle farmers in Namibia, Kruger and Lammerts-Imbuwa (2008) found that the off-take rate of 43


T. Shiimi, P.R. Taljaard and H. Jordaan

cattle through formal markets in the NCA remains low, at 2 per cent, compared with an estimated 20 per cent off-take for the rest of the country. This low level of use is concerning given that the Namibian government established MeatCo VSHFL¿FDOO\ WR FUHDWH PDUNHWLQJ RSSRUWXQLWLHV IRU FRPPXQDO SURGXFHUV LQ WKH 1&$VWREHQH¿WIURPPDUNHWLQJWKHLUOLYHVWRFNWKURXJKIRUPDOPDUNHWV For producers in the NCAs to market their cattle through the formal markets (MeatCo), it is a prerequisite that their cattle be kept in quarantine camps for inspection for any disease for at least 21 days before meat products can enter the South of the Veterinary Cordon Fence (SVCF) or South African market. The problem is that these cattle often deteriorate (i.e., in weight and in grading) in the quarantine camps due to the unavailability of feeds, resulting in low prices (Kirsten, 2002; FAO & NEPAD, 2005; Doss, McPeak & Barrett, 2005; NASSP, 2005). Some farmers also have to transport their cattle over long distances to reach quarantine camps (Sartorius von Bach, 1990; Arbirk & Vigne, 2002; NOLIDEP, 2002). These problems contribute substantially to increasing the transaction costs faced by farmers from the NCRs when marketing their cattle through the formal market. Musemwa, Mushunje, Chimonyo, Frazer, Mapiye and Muchenje (2008) regard WUDQVDFWLRQFRVWVDVEDUULHUVWRWKHHI¿FLHQWSDUWLFLSDWLRQRISURGXFHUVLQGLIIHUHQW markets. Thus, producers will not use a particular channel when the value of using that channel is outweighed by the costs of using it (Musemwa et al., 2008). Pingali, Khwaja and Meijer (2005) and Alene et al. (2007) view transaction costs as embodiment of barriers to market participation by resource-poor smallholders, DQGKDYHEHHQXVHGDVDGH¿QLWLRQDOFKDUDFWHULVWLFRIVPDOOKROGHUVDQGDVIDFWRUV UHVSRQVLEOHIRUVLJQL¿FDQWPDUNHWIDLOXUHVLQGHYHORSLQJFRXQWULHV7KHWUDQVDFWLRQ FRVWLVWKXVH[SHFWHGWRKDYHDPDMRULQÀXHQFHRQWKHPDUNHWLQJEHKDYLRXURIWKH cattle farmers from the NCAs. The aim of this paper is to investigate the marketing behaviour of the farmers from the NCAs in order to get an understanding of factors that prevent them from utilising the formal market as an outlet when marketing their cattle. Special emphasis is placed upon the role of transaction costs as a hindrance to farmers using the formal market. A double-hurdle model is used to allow for different factors to LQÀXHQFH WKH GHFLVLRQ RQ ZKHWKHU RU QRW WR PDUNHW R FDWWOH WKURXJK WKH IRUPDO market (adoption) and the decision regarding the proportion (quantity) of cattle to market through the formal market. A formal test is also conducted to determine whether the marketing decision of cattle farmers from the NCAs is conducted within a single decision-making framework, or two distinct frameworks; that is, whether to sell cattle through the formal market, or the proportion the cattle to sell through the formal market. Principle Component Regression (PCR) is used to overcome the multicollinearity problem. 44



2

RELATED RESEARCH

*RQJ3DUWRQ&R[DQG=KRX H[DPLQHGWKHNH\IDFWRUVWKDWDIIHFWFDWWOH farmers’ selection of marketing channels and drew conclusions relevant to the development of China’s beef supply chain. Hobbs (1997) used the Tobit model to measure the importance of transaction costs in the marketing of cattle in the 86 ZKLOH 0DF,QQLV XVHG WKH 7RELW PRGHO WR LQYHVWLJDWH WKH LQÀXHQFH of transaction costs on the marketing of organic maize and soybeans in the US. 8VLQJWKH7RELWPRGHOVSHFL¿FDWLRQWKHVHUHVHDUFKHUVDVVXPHGWKDWWKHPDUNHWLQJ decision is made within a single decision-making framework. Such an assumption implies that there is no distinction between the decision whether or not to use a VSHFL¿F PDUNHWLQJ RXWOHW DQG WKH SURSRUWLRQ RI SURGXFH WR EH VROG WR WKH RXWOHW (given that the producer has decided to use the outlet). Bellemare and Barret (2005) presented an ordered Tobit estimator, a two-stage econometric model, determining marketing behaviour in Kenya and Ethiopia. They highlight the implications of different assumptions about households’ (discrete) participation and (continuous) volume decision. Ehui, Benin and Paulos (2009) applied a two-step procedure to provide an empirical basis for identifying options to increase smallholder producers’ participation and sales in livestock markets in Ethiopia. However, these researchers did not formally test whether it really is necessary to model the analysis as a double-hurdle model. Jordaan and Grové (2010) used Cragg’s model to formally test whether maize farmers’ use of forward SULFLQJPHWKRGVXVLQJWKH3URELWPRGHOVSHFL¿FDWLRQ DQGWKHOHYHODWZKLFKWKH\ use forward pricing methods, conditional to having decided to use forward pricing PHWKRGV XVLQJ WKH 7UXQFDWHG PRGHO VSHFL¿FDWLRQ VKRXOG EH PRGHOOHG ZLWKLQ D VLQJOH GHFLVLRQPDNLQJ IUDPHZRUN XVLQJ WKH 7RELW PRGHO VSHFL¿FDWLRQ RU whether there are two distinct decisions to be made. They found that the use of forward pricing methods and the level at which such methods are used involved WZR GLVWLQFW GHFLVLRQV WKDW DUH LQÀXHQFHG E\ GLIIHUHQW IDFWRUV &RQVHTXHQWO\ LW would be inaccurate to model the marketing decision as a single decision. Following the approach adopted by Jordaan and Grové (2010), the factors that affect the decision of farmers from the NCAs to sell or not sell their cattle WKURXJKWKHIRUPDOPDUNHWDUHPRGHOOHGXVLQJWKH3URELWPRGHOVSHFL¿FDWLRQDQG the factors that affect the decision about the proportion of their cattle to be sold WKURXJKWKHIRUPDOPDUNHWXVHWKH7UXQFDWHGPRGHOVSHFL¿FDWLRQ7KHPDUNHWLQJ GHFLVLRQLVDOVRPRGHOOHGDVDVLQJOHGHFLVLRQXVLQJWKH7RELWPRGHOVSHFL¿FDWLRQ DVXVHGE\VRPHRIWKHSUHYLRXVUHVHDUFKHUV7KH&UDJJ¶VPRGHOVSHFL¿FDWLRQLV WKHQXVHGWRIRUPDOO\WHVWWKHDOWHUQDWLYHPRGHOVSHFL¿FDWLRQV

45



3

DATA AND METHODOLOGY

3.1

Data

Four regions (Omusati, Oshana, Ohangwena and Oshikoto) were sampled and there was an average of thirty respondents per region. A random sampling method was used, provided that a producer had at least sold or bought cattle in the 12 months period prior to the survey date. The survey was conducted with the assistance RIH[WHQVLRQRI¿FHUVZKRKHOSHGLGHQWLI\UHVSRQGHQWVLQYDULRXVFRQVWLWXHQFLHV The survey was conducted between June 2009 and August 2009. A total of 121 questionnaires from the four selected regions were deemed usable for the purpose of the study. The questionnaires took the form of personal interviews. This ensured that adequate responses were obtained and accuracy was maintained. The majority of the producers were visited individually at their homestead/production area (cattle post) or at their respective business area, with appointments being made two days before the date of the interview. The remaining respondents were LQWHUYLHZHG GXULQJ PHHWLQJV RUJDQLVHG E\ H[WHQVLRQ RI¿FHUV DW WKHLU UHVSHFWLYH gathering points. Although the questionnaire was designed in English producers were asked questions in their local language (Oshiwambo) and information was directly entered onto the questionnaire form and computerised afterwards.

3.2

Methodology

The proportion of cattle that is marketed via the formal market is used as the dependent variable within a single decision-making framework. Since a number of farmers have not marketed any of their cattle via the formal market, the data is censored at a threshold of zero. Ordinary Least Squares (OLS) regression on a censored dependent variable leads to the estimated parameters being inconsistent and biased (Heij, de Boer, Hans-Franses, Kloek & van Dijk, 2004; Gujarati, 7KH 7RELW UHJUHVVLRQ PRGHO VSHFL¿FDWLRQ FDQ EH XVHG WR RYHUFRPH WKH problem associated with a censored dependent variable. Using the Tobit model VSHFL¿FDWLRQ KRZHYHU DVVXPHV WKDW D YDULDEOH WKDW LQFUHDVHV WKH SUREDELOLW\ RI using the formal market also increases the number of cattle marketed through the IRUPDOPDUNHW/LQ 6FKPLGW 9DULDEOHVWKXVLQÀXHQFHWKHWZRGHFLVLRQV in the same way in terms of both direction and magnitude. 7KH &UDJJ¶V PRGHO LV D PRUH JHQHUDO VSHFL¿FDWLRQ WKDW DOORZV YDULDEOHV WR LQÀXHQFHWKHWZRGHFLVLRQVGLIIHUHQWO\7KH&UDJJ¶VPRGHOLVVSHFL¿HGDVIROORZV (Greene, 2008):

46


Adoption equation

> >

@ I x J , @ 1 I x J ,

Pr y i* ! 0 Pr y i* d 0

, i

, i

zi = 1 if zi = 0 if

(1)

Non-limit quantity decision


(2) where: J and E are parameters to be estimated, \ is the observed use of marketing via the formal market and x represents the factors that are hypothesised to affect the marketing behaviour of the cattle farmers from the NCAs. 7KH&UDJJ¶VPRGHOVSHFL¿FDWLRQLVDFRPELQDWLRQRIWKH3URELWHTXDWLRQHTXDWLRQ 1) and the Truncated regression model (equation 2). These two models can be estimated independently. E . The restriction V can be tested by estimating the Probit, Truncated and Tobit models separately with the same variable (xi) and computing the following likelihood ratio statistic:

The Cragg’s model reduces to a Tobit model if Zi ;i and J

O = 2(ln LProbit + ln LTruncated regression – ln LTobit)

(3)

where: O is a chi-square distribution with r degrees of freedom (R is the number of independent variables including a constant). The Tobit model will be rejected in favour of the Cragg’s model if O H[FHHGVWKHDSSURSULDWHFKLVTXDUHFULWLFDOYDOXH $ QXPEHU RI WKH H[SODQDWRU\ YDULDEOHV WKDW DUH K\SRWKHVLVHG WR LQÀXHQFH WKH marketing behaviour of the farmers are correlated with each other, which leads to a condition of multicollinearity. Principle Component Regression (PCR) is used to overcome the multicollinearity problem. Following the methodology of 0DJLQJ[D$OHPXDQG9DQ6FKDONZ\N 3&5LVDSSOLHGZLWKLQDPD[LPXP likelihood estimation framework. A comprehensive discussion of the procedures IROORZHGIRUWKHSXUSRVHRIWKH3&5LVSUHVHQWHGLQ$SSHQGL[

3.3

Hypothesised explanatory variables

7DEOH VXPPDULVHV WKH H[SODQDWRU\ YDULDEOHV WKDW DUH K\SRWKHVLVHG WR KDYH DQ LQÀXHQFHRQWKHGHFLVLRQZKHWKHUWRVHOORUQRWWKURXJKWKHIRUPDOPDUNHWV7DEOH 47



EHORZLQFOXGHVDEULHIGHVFULSWLRQRIHDFKYDULDEOHDQGVSHFL¿HVWKHH[SHFWHG GLUHFWLRQ RI WKH LQÀXHQFH RI WKH K\SRWKHVLVHG YDULDEOH RQ WKH FDWWOH PDUNHWLQJ EHKDYLRXU,WLVIXUWKHUK\SRWKHVLVHGWKDWWKHVDPHYDULDEOHLVH[SHFWHGWRKDYHWKH VDPHGLUHFWLRQDOLQÀXHQFHRQWKHGHFLVLRQDERXWWKHSURSRUWLRQRIFDWWOHEHLQJVROG through the formal markets, on condition that the producer has used the formal markets to sell his or her cattle. 7DEOHVKRZVDQDPELJXLW\ZLWKUHJDUGWRWKHH[SHFWHGGLUHFWLRQVRIDQXPEHU RIWKHK\SRWKHVLVHGH[SODQDWRU\YDULDEOHVIRUWKHPDUNHWLQJGHFLVLRQV Table 1:([SODQDWRU\YDULDEOHVK\SRWKHVLVHGWRLQ²XHQFHWKHPDUNHWLQJEHKDYLRXURIFDWWOH farmers in the NCRs Variable Name

Variable Description

Expected Sign

Socio-economic characteristics Age

Age of the respondent (number)

Experience

Number of years engaged in agricultural activities? (number)

+/+

Market experts

+RZGR\RXUDWHWKHDFFHVVLELOLW\RIFDWWOHPDUNHWLQJH[SHUWV" (1-5)a

+/-

Access info

+RZHDV\GLI±FXOWLVLWWRDFFHVVPDUNHWUHODWHGLQIRUPDWLRQ" (1-5)b

-

Gov info

+RZHDV\GLI±FXOWLVLWWRDFFHVVJRYHUQPHQWUHODWHGLQIRUPDtion? (1-5)b

-

1HZ,7

+RZHDV\GLI±FXOWLVLWWRDFFHVVQHZWHFKQRORJ\LQIRUPDWLRQ" (1-5)b

+/-

Market access

Rank market access in order of importance as a constraint (1-5)c

+/-

Information costs

Negotiation costs Prtrameatc

Do you have a transport problem to MeatCo? (1-0)d

-

Transport cost

+RZPXFKGR\RXSD\WRWUDQVSRUWDKHDGRIFDWWOHWRPDUket? (N$)e

-

No bargaining SRZHU

'R\RXKDYHEDUJDLQLQJSRZHUWRLQ²XHQFHWKHVHOOLQJSULFH" (1-0)d

-

Delay pay

'R\RXH[SHULHQFHGHOD\HGSD\PHQWZLWK0HDW&R" f

+

+DYH\RXH[SHULHQFHGSUREOHPVZLWKZHLJKWORVWGXULQJ transportation? (1-3)f

-

Monitoring costs Weight loss

48

Transaction costs and cattle farmers’ choice of marketing channel in North-Central Namibia Carcass hide damage

+DYH\RXH[SHULHQFHGSUREOHPVZLWKFDUFDVVKLGHGDPDJH during transportation? (1-3)f

+/-

Age quality attribute

5DWHDJHDVDTXDOLW\DWWULEXWHEX\HUVORRNDWZKHQEX\LQJ cattle (1-3)f

-


Productivity uncertainty Improved productivity

Have you experienced higher animal productivity over the last 5 years? (1-2)d

Credacces

c

a

Rank in order of importance credit access as a constraint (1-5)

+

3RVVLEOHDQVZHUVZHUH 9HU\SRRU 3RRU 0RGHUDWH *RRG 9HU\JRRG

b

3RVVLEOHDQVZHUVZHUH 9HU\HDV\ (DV\ 0RGHUDWH 'LI±FXOW 9HU\ GLI±FXOW

c

3RVVLEOHDQVZHUVZHUH 0RVWLPSRUWDQW ,PSRUWDQW 0RGHUDWH 1RW important, 5 = Least important

d

3RVVLEOHDQVZHUVZHUH \HV 1R

e

3RVVLEOHDQVZHUVZHUH,Q1DPLELDQ'ROODUV

f

4

3RVVLEOHDQVZHUVZHUH 1HYHU 6RPHWLPHV $OZD\V

RESULTS AND DISCUSSION

7KH HVWLPDWLRQ UHVXOWV RI WKH 3URELW 7UXQFDWHG DQG 7RELW VSHFL¿FDWLRQV DUH SUHVHQWHGLQ7DEOH7KHWKUHHPRGHOVDUHHVWLPDWHGZLWKWKHVDPHH[SODQDWRU\ variables. The log-likelihood of the Tobit model is then compared with the sum RIWKRVHLQWKH3URELWDQGWKH7UXQFDWHGUHJUHVVLRQPRGHOV7KHKLJKO\VLJQL¿FDQW (p < 0.0000) log-likelihood test ratio of 60.21 strongly rejects the Tobit model VSHFL¿FDWLRQLQIDYRXURIWKHPRUHJHQHUDO&UDJJPRGHOVSHFL¿FDWLRQ7KLVLPSOLHV WKDWWKHVDPHSHUVRQDODQGIDUPFKDUDFWHULVWLFVGRQRWLQÀXHQFHERWKWKHGHFLVLRQ of whether to sell or not sell to the formal markets and the decision-making of the proportion of cattle sold through the formal markets in the same way. Since the Tobit model has been rejected, only the results from the Probit and Truncated regression models are discussed further. The interpretation of the Probit FRHI¿FLHQWVGLIIHUVIURPWKDWRIW\SLFDOOLQHDUUHJUHVVLRQV%DKWD %DXHU 7KH HVWLPDWHG FRHI¿FLHQWV UHTXLUH PRUH PDQLSXODWLRQ LQ RUGHU WR FDOFXODWH WKH impact of the independent variables on the probability to decide whether to sell or not sell through the formal markets (Bahta & Bauer, 2007). For the purpose of this VWXG\FRHI¿FLHQWVDUHRQO\LQWHUSUHWHGDFFRUGLQJWRWKHGLUHFWLRQRIWKHLULQÀXHQFH on the cattle marketing behaviour. The partial effects of individual variables are thus not calculated.

49

T. Shiimi, P.R. Taljaard and H. Jordaan Table 2: 5HJUHVVLRQUHVXOWVIRUDOWHUQDWLYHPRGHOVSHFL±FDWLRQVZKHQPRGHOOLQJFDWWOH marketing behaviour Single decision

Choice decision

Quantity decision

Tobit

Probit

Truncated

Proportion of cattle sold to formal market

Dummy = 1 if used formal market

Proportion of cattle sold to formal market

Variables

&RHI±FLHQW

&RHI±FLHQW

&RHI±FLHQW

Constant

***

0.3894 (0.0223)

***

1.3488 (0.2326)

0.3755*** (0.0170)

Age

0.0326*** (0.0097)

0.1114** (0.0447)

0.0179** (0.0078)

Experience

0.0319 (0.0115)

0.1241** (0.0502)

0.0203** (0.0086)

Market experts

0.0444** (0.0196)

0.2444** (0.1107)

0.0093 (0.0081)

Access info

0.0264 (0.0186)

-0.0895** (0.0438)

-0.0103** (0.0039)

Gov nfo

0.0140** (0.0059)

0.1161** (0.0511)

-0.0053 (0.0072)

1HZ,7

-0.0161 (0.0161)

0.0839 (0.1016)

-0.0135** (0.0052)

Market access

-0.0345* (0.0206)

-0.1524 (0.1767)

-0.0189 (0.0132)

Prtrameatc

0.0002 (0.0089)

-0.0743 (0.0627)

0.0005 (0.0026)

Transport cost

-0.0322*** (0.0096)

-0.1181* (0.0610)

-0.0122** (0.0049)

1REDUJDLQLQJSRZHU

-0.0018 (0.0056)

0.0550** (0.0253)

0.0012 (0.0021)

Delay pay

0.0118 (0.0086)

0.0057 (0.0209)

-0.0084** (0.0036)

Weigh tloss

0.0019 (0.0142)

0.0674 (0.0456)

0.0062 (0.0044)

Carcass hide damage

-0.0289* (0.0157)

-0.2951** (0.1293)

-0.0181** (0.0087)

Age quality attribute

-0.0287** (0.0115)

-0.1048* (0.0613)

0.0105** (0.0049)


Dependent variable

50

Transaction costs and cattle farmers’ choice of marketing channel in North-Central Namibia Improved productivity

0.0228** (0.0099)

0.0553 (0.0346)

-0.0071** (0.0033)

Credit access

0.0181* (0.0101)

0.0839** (0.0401)

-0.0045* (0.0027)

121

121

Model summary


No. of observations Sigmaa

0.2901*** (0.0000)

Log-likelihood

-37.2271

-32.8195

McFadden R2b

0.1163

Model chi-squarec

7.6363

0RGHOVLJQL±FDQWOHYHO

0.3658

LR test for Tobit vs. Truncated regression

,

*** **

121 0.1735*** (0.0000) 36.5224

89.4963d (0.0000)e

and * =DQGVLJQL±FDQFHOHYHOUHVSHFWLYHO\DQGQXPEHUVLQSDUHQWKHVHVDUH standard errors

a

= the percentage of variation in the dependent variable explained by the independent variables in the model

b

= McFadden R2, given by one minus the ratio of the unrestricted to restricted log-likelihood function value

c

WKHFKLVTXDUHWHVWZKLFKHYDOXDWHVWKHQXOOK\SRWKHVLVWKDWDOOFRHI±FLHQWVQRWLQFOXGLQJ WKHFRQVWDQW DUHMRLQWO\]HUR

d e

= the likelihood ratio test, given by ɉ = 2(ln LProbit + ln LTruncated regression - ln LTobit) QXPEHULQSDUHQWKHVHVDVVRFLDWHGZLWKFKLVTXDUHSUREDELOLWLHV

7DEOHVKRZVWKDWYDULDEOHVVLJQL¿FDQWO\DWSHUFHQWDQGSHUFHQWOHYHORI VLJQL¿FDQFH LQÀXHQFHWKHIDUPHUV¶GHFLVLRQRQZKHWKHURUQRWWRVHOOWKHLUFDWWOH through the formal market. The probability of the farmers having used the formal PDUNHWZKHQVHOOLQJWKHLUFDWWOHLVSRVLWLYHO\LQÀXHQFHGE\WKHLUHDVHRIDFFHVVWR PDUNHWLQJH[SHUWVp < 0.05), the age of the farmers (p < 0.05), their marketing H[SHULHQFHp < 0.05) and their ease of access to credit (p < 0.05). All four of these YDULDEOHVFDQEHFRQVLGHUHGDVSUR[\YDULDEOHVWRUHSUHVHQWWUDQVDFWLRQFRVWV7KHVH results thus suggest that the formal market for cattle in Namibia is associated with a higher transaction cost than the informal market. $FFRUGLQJ WR WKH PDJQLWXGH RI VWDQGDUGLVHG FRHI¿FLHQWV ease of access to marketing experts (p < 0.05) has the biggest impact on the decision of whether to sell or not sell cattle through the formal markets. This variable is found to SRVLWLYHO\ LQÀXHQFH GHFLVLRQPDNLQJ RQ ZKHWKHU WR VHOO RU QRW VHOO WKURXJK WKH 51



formal market. The study revealed that cattle producers have formed marketing committees with chairpersons who advise producers on cattle marketing aspects. ,QDGGLWLRQ0HDW&RKDVUHFUXLWHGSURFXUHPHQWRI¿FLDOVWRDGYLVHFDWWOHSURGXFHUV on the type of cattle they need to market through the formal market to net a high price. This process is believed to have encouraged the cattle producers to sell their cattle through the formal market because they are assured they are marketing good TXDOLW\FDWWOHWKURXJKWKHIRUPDOPDUNHWDQGFRQ¿GHQWWKDWWKH\ZLOOJHWDJRRG price for them. Age (p < 0.05) SRVLWLYHO\ LQÀXHQFHV WKH GHFLVLRQ ZKHWKHU WR VHOO RU QRW VHOO through the formal market. Older cattle producers are known to have used different PDUNHWLQJFKDQQHOVIRUDORQJWLPHDQGWKHUHIRUHNQRZZKLFKRQHEHQH¿WVWKHP the most. As age increases, cattle producers lose interest in negotiating with buyers in the informal market as it takes time to secure a buyer in the informal market. Making a decision to sell cattle through the formal market is a relief to older cattle producers because there are no lengthy negotiations when selling to MeatCo. The same reasoning goes with experience (p < 0.05) that a study revealed that as the cattle producer engaged in the marketing of cattle for long they are likely to make a decision of selling through formal market. Access to credit (p < 0.05) LV IRXQG WR SRVLWLYHO\ LQÀXHQFH WKH GHFLVLRQ WR sell through the formal market because, as cattle producers get access to credit, they are likely to invest in the production of their cattle. Access to credit makes capital available– thus producers are likely to produce breeds of high quality that the formal industry is looking for and ready to pay a fair and reasonable price for. This encourages cattle producers to market their cattle through the formal market EHFDXVHWKH\DUHFRQ¿GHQWWKDWWKH\ZLOOJHWKLJKUHWXUQV 8QOLNHWKHDERYHYDULDEOHVWKDWSRVLWLYHO\LQÀXHQFHWKHGHFLVLRQWRVHOOWKURXJK the formal market, carcass and hide damage (p < 0.05 QHJDWLYHO\LQÀXHQFHVWKH decision on whether to sell or not sell cattle through the formal markets due to the fact that producers are scared that their cattle will be discarded from the production OLQH,IDFDUFDVVLVIRXQGWREHXQ¿WIRUKXPDQFRQVXPSWLRQLWLVUHPRYHGIURP the production line and no compensation is offered for the destroyed carcass. Cattle farmers are thus discouraged from marketing their animals in the formal market if there are bruises or cuts on the animals’ skin. The transport cost (p < 0.10) LVIRXQGWRQHJDWLYHO\LQÀXHQFHWKHGHFLVLRQRQ whether to sell or not through the formal market. As transport costs increase, cattle producers are deterred from selling their cattle through the formal market due to the act that their income will be spent on paying for transport. The study revealed that some cattle producers from Omusati and North West of Oshikoto travel ±300 km to access the formal market abattoir in Oshakati. The greater the distance, the higher the transport cost and the more discouraged cattle producers will be to sell their cattle through the formal market. 52



7KHODVWYDULDEOHIRXQGWRQHJDWLYHO\LQÀXHQFHWKHGHFLVLRQWRVHOOWKURXJKWKH formal market is age quality attributes (p < 0.10). Cattle producers have a culture of selling older cattle through the informal market and when they take similar cattle to the formal market, they are disappointed with the returns (price offered). This discourages cattle producers who always feel cheated by the grading system. This means that cattle producers consider the physical appearance of their cattle more important than the quality of the carcasses. The problem with the informal PDUNHWLVWKDWLWLVQRWUHJXODWHGDQGRQHLVOLNHO\WR¿QGDSURGXFHUVHOOLQJDQR[ that is older than 10 years. This is because the buyer in the informal market does not use any grading system; he or she only buys according to physical observation. ,QWHUHVWLQJO\ WZR RI WKH VLJQL¿FDQW YDULDEOHV DFFHVV WR JRYHUQPHQWUHODWHG information and the bargaining power to negotiate the selling price) have opposite VLJQVWRWKHK\SRWKHVLVHGLQÀXHQFHWKXVWKH\DUHQRWLQWHUSUHWHG 7KH UHVXOWV RI WKH7UXQFDWHG VSHFL¿FDWLRQ1 are presented in Table 2. Based on the results2 shown in Table 2, 10 factors (age, experience, information accessibility, accessibility to new information technology, transport cost, payment delay, carcass and hide damage, age quality attributes, improved productivity and credit access KDYHVLJQL¿FDQWO\LQÀXHQFHGWKHSURSRUWLRQRI cattle sold through the formal market. *LYHQ WKH VWDQGDUGLVHG FRHI¿FLHQWV RI WKH VLJQL¿FDQW IDFWRUV marketing experience (p < 0.05) LV IRXQG WR SRVLWLYHO\ LQÀXHQFH WKH SURSRUWLRQ RI FDWWOH sold through the formal market. This indicates that cattle producers who have H[SHULHQFHLQWKHPDUNHWDUHHQFRXUDJHGWRPDUNHWDODUJHSURSRUWLRQRIWKHLUFDWWOH through the formal market. Selling a large amount of cattle at a time is believed WRUHGXFHWKHWUDQVSRUWFRVWDQGWREHOHVVH[SHQVLYHWKDQVHOOLQJDIHZFDWWOHRQ many occasions. There is a relationship between the age (p < 0.05) of the cattle producers and their herd size, as the older cattle producers are likely to sell a large quantity of cattle at a time. In most cases, a good breed (hybrid) can be found in their herds and this encourages them to sell through the formal market, as they are assured that their cattle will meet the quality attributes that buyers consider when buying cattle. 8QOLNH WZR YDULDEOHV WKDW WKH VWXG\ IRXQG WR KDYH D SRVLWLYH LQÀXHQFH WKH IROORZLQJYDULDEOHVZHUHDOOIRXQGWRKDYHDQHJDWLYHLQÀXHQFHRQWKHGHFLVLRQ about the proportion of cattle to sell through the formal market. Carcass and hide damage (p < 0.05) KDVDQHJDWLYHLQÀXHQFHRQWKHSURSRUWLRQRIFDWWOHVROGWKURXJK the formal market. This is problematic in the sense that when a number of cattle that are ready for market become bruised or wounded, the cattle producer starts to fear that he or she will receive low returns. Bruises and wounds are common in cattle in the NCRs due to the fact that most of the cattle are not de-horned, and are 53



thus likely to hurt each other. This threatens cattle producers as they end up only marketing cattle that have no bruises or wounds. 7KHLQÀXHQFHRIWKHaccessibility to new information technology (p < 0.05) is negative, which implies that although new technology can increase the number of animals in a herd, it does not necessarily increase the number of cattle with the same qualities. Thus, producers only choose the best quality cattle to sell through the formal market and discard the rest for domestic consumption or for selling through the informal market3. This could be attributed to the fact that producers do not receive the necessary technologies to improve the quality of their breed to the level demanded by the formal market; or they may not have enough information about the type of qualities that this market demands. Accessibility to market-related information (p < 0.05) has been shown as a major constraint in the decision-making process with respect to the proportion of cattle to be sold through the formal market in the NCRs– this results in producers being unable to make mainstream market-related decisions4. It needs immediate attention. If cattle producers have no access to information about the following slaughter date at the abattoirs, they do not have enough time to gather5 the cattle WREHORDGHGRQDQ\JLYHQGDWH7KHGHOD\LQLQIRUPDWLRQÀRZLVGXHWRWKHIDFW that most production areas (cattle posts) are situated deep in the bushes. In many cases, these areas have no communication infrastructure in place such as a cellular QHWZRUNVWHOHSKRQHOLQHVRULQWHUQHWFRQQHFWLRQV,WLVWKHUHIRUHYHU\GLI¿FXOWIRU cattle producers to keep up with the current market-related information. The transport cost (p < 0.05) is considered a hindrance to the proportion of cattle being sold through the formal market, owing to the fact that for cattle producers to sell more cattle at one time, they require big, articulated vehicles (trucks). Some cattle producers’ production areas are located more than 300 km away from the Oshakati abattoirs, and MeatCo charges ±N$24/km to transport these cattle. This discourages cattle producers from ordering an articulated vehicle to accommodate a large number of cattle and instead, they use privately owned, lighter trucks, which cannot transport many cattle per trip. The lack of improved productivity (p < 0.05) QHJDWLYHO\ LQÀXHQFHV WKH decision-making about the proportion of cattle to sell through the formal market. A lack of improved productivity among animals in the NCRs is believed to discourage producers from marketing a large proportion of cattle through the formal market, as cattle producers always retain a large amount of stock as a buffer mechanism against potential drought or an outbreak of diseases. Possible reason could be that producers KDYHKLJKH[SHFWDWLRQWRUHFHLYHJRRGUHWXUQVZKHQWDNLQJWKHLUFDWWOHWRWKHIRUPDO market without considering the productivity values of their cattle. After the cattle have been slaughtered and graded, producers often feel they have been deceived and thus are deterred from continuing to supply cattle to MeatCo. 54


It is doubtful having three of the variables (payment delay, age quality attributes DQGDFFHVVLELOLW\RIFUHGLW ZLWKRSSRVLWHVLJQWKDQWKHH[SHFWHG


5.

CONCLUSION AND RECOMMENDATIONS

The paper concludes that Probit6 and Truncated7 UHJUHVVLRQ LGHQWL¿HG GLIIHUHQW WUDQVDFWLRQFRVWIDFWRUVWKDWLQÀXHQFHWKHFDWWOHPDUNHWLQJEHKDYLRXULQWKH1&5V 7KH GLIIHUHQW WUDQVDFWLRQ FRVW IDFWRUV LGHQWL¿HG E\ WKH 7UXQFDWHG DQG 3URELW DQDO\VHVLQGLFDWHWKDWGLIIHUHQWIDFWRUVPXVWEHFRQVLGHUHGZKHQRSWLQJWRLQÀXHQFH marketing behaviour; that is when one advises producers to market their cattle through the formal market and when one advises producers on the proportion of cattle to sell through the formal market. Given the results of this study and the conclusions drawn above, the following recommendations are made. It is assumed that improving on some factors will UHPRYHRUUHGXFHWKHLGHQWL¿HGWUDQVDFWLRQFRVWVDQGKHQFHVWLPXODWHSURGXFHUV to choose the formal market in the NCRs. Transportation costs can be cut if producers from one production area are organised and make use of the same transport to markets. By transporting in bulk, they stand a better chance of getting good basic consent of economies of scale compared with transporting individually and small quantities of cattle. Producers should work collectively to procure production inputs, manage all shared grazing land and infrastructure, obtain all required production and marketing-related information and collectively market their livestock. Of prime importance are the roll-out of a phased approach to disseminating new technologies (which should be coupled with substantial capacity building VXSSRUW DW WKH ¿HOG OHYHO IRU WKHP WR EH VXFFHVVIXOO\ DGRSWHG E\ SURGXFHUV marketing development and information support, the development of private service providers in essential areas for livestock production and marketing about sustainable and effective livestock development. The development of training programmes for producers that will assist them in improving their farm PDQDJHPHQWVNLOOVIDUPLQJHI¿FLHQF\DVZHOODVFRUUHFWXVDJHDQGPDQDJHPHQW of livestock veterinary technologies are hereby recommended. Educating cattle producers on the grading system will reduce transaction costs for some producers, who feel they are being cheated due to the fact that they do not know how the prevailing grading system works.

NOTES 1

The Truncated model is used to attain the second secondary objective of identifying factors LQÀXHQFLQJ WKH SURSRUWLRQ RI FDWWOH VROG WKURXJK WKH IRUPDO PDUNHWV FRQGLWLRQDO WR WKH producer having used the formal markets.

55



2

As with the Probit regression, the marginal effect of the independent variables is not FDOFXODWHGWKHFRHI¿FLHQWVZLOOEHLQWHUSUHWHGRQO\EDVHGRQWKHGLUHFWLRQRIWKHLULQÀXHQFH on the dependent variable. ,QIRUPDOPDUNHWVKDYHQRVSHFL¿HGTXDOLW\UHTXLUHPHQWVRUJUDGLQJV\VWHP 4 A lack of information results in producers being unable to receive information for the purpose of adopting new and relevant technologies at the right time. 5 In the NCRs, cattle are not kept in enclosures as the production areas are not fenced off. Cattle can only be gathered at a water point and if cattle producers do not know when the truck is coming, they are likely to load only the few cattle that happen to be around the cattle post. 3URYLVLRQRIPDUNHWLQJH[SHUWLVHJRYHUQPHQWUHODWHGLQIRUPDWLRQDJHPDUNHWLQJH[SHULHQFH DQGFUHGLWDFFHVVDUHSRVLWLYHO\LQÀXHQFLQJWKHGHFLVLRQRIZKHWKHUWRVHOORUQRWVHOOWKURXJK the formal market. The transport cost, access to market-related information, carcass and hide GDPDJHDVZHOODVDJHTXDOLW\DWWULEXWHVIDFWRUVDUHLGHQWL¿HGDVQHJDWLYHO\LQÀXHQFLQJWKH decision-making on selling cattle through the formal market. $JH DQG PDUNHWLQJ H[SHULHQFH DUH SRVLWLYHO\ LQÀXHQFLQJ WKH SURSRUWLRQ RI FDWWOH VROG through the formal market, assuming that the cattle producer used the formal market. The government-related information, accessibility of new information technology, transport cost, ODFNRILPSURYHGSURGXFWLYLW\DQGPDUNHWUHODWHGLQIRUPDWLRQIDFWRUVQHJDWLYHO\LQÀXHQFH the proportion of cattle sold through the formal market.

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