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Transaction costs magnitudes, market participation, and smallholder profitability in rural-urban vegetable supply chain

ABSTRACT Transaction costs are pervasive barriers in agricultural supply chains as they exclude farmers from profitable markets. Identification of these costs without reliance on proxy variables and their effects on smallholder profitability has not been empirically analyzed. The Heckman 2-step model was used to assess the effects of magnitudes of these costs on farmer profitability. Indirect monitoring and negotiation-related transaction costs had significant, positive, association with selling vegetables directly from urban markets; indirect information transaction costs had a negative association. A positive association between higher indirect information transaction costs and profitability was observed. Better market information systems will improve farmer profitability.