3.6.2 Factors Affecting Decision Ma

3.6.2 Factors Affecting Decision Making in Agribusiness
In literature, a very few studies satisfactorily or empirically deal with the different
transaction costs, socio-economic and psychological and demographic factors affecting
the selection of marketing channels by farmers (Hobbs, 1997; Mabuza et al., 2014;

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Ouma et al., 2010). Early researchers (Bailey et al., 1991; Bullen, 1984; Cowell &
Todd, 1980) identified price differentials, the socio economic characteristic of
producers, the distance from the sales point and transaction costs as the important
factors in explaining farmers marketing decisions in general and for livestock marketing
decisions in particular.
Shapiro & Brorsen (1988) found that the factors including years of experience, formal
education, farm management ability, farm leverage (debt position), farm size and off
farm income of the farmers significantly affected the forward pricing or hedging
decisions. However, results from this study cannot be generalized because of the small
sample size (n=42) which may not be a true representation of the population. They also
found that in order to reduce risk farmers who were in high debt condition used
hedging. Similarly McLeay & Zwart (1998) found that use of forward contracts is
considered to be the best marketing decision where products are perishable and prices
are highly variable. It was also found that use of forward contract might act as a
mechanism that reduced the risk of spoilage for both producers and agents and protect
producers against downward movements in crop prices (McLeay & Zwart, 1998).
Earlier Hobbs (1996) examined the beef processor’s supply channel choice using
conjoint analysis. He hypothesized that beef processor’s supply channel choice was
influenced by the attributes that described a particular channel. Using the postal survey
method, data was collected from 93 United Kingdom beef processing firms through
questionnaires in which respondents rated a number of hypothetical scenarios. The
attributes included in the analysis were continuity of supply, the degree to which
animals were handled while transporting from the farm to the abattoir, the method of
payment (live-weight or dead-weight) and the degree of traceability. Each attribute was
assigned two levels. The part-worth evaluations of each attribute level were estimated
using ordinary least square (OLS) analysis and the total worth of the channel was sum
of the part-worth values of each attribute level. Hobbs found that beef processors
considered, traceability of cattle, the most important factor for the selection of supply
channel in the United Kingdom.
Hobbs (1997) tested the hypothesis that a producer's (beef producer) choice of selection
of marketing channel between live-ring auctions (live weight sales) and direct-to-packer
(deadweight) sales is influenced by transaction cost and producer/farm characteristic
variables. This study was conducted across northeast Scotland using data collected from

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a survey of 100 cattle producers. Hobbs analysed a number of transaction costs and
socioeconomic and farm characteristics variables in order to find the effect of these
factors on farmer’s channel choice decision. Hobbs found that grade uncertainty,
effectiveness of packing plant buyers, risk of non-sale, and time spent at the auction
(transaction cost variables) and lot size, producing bulls for slaughtering, and
membership of Farm Assured Scotch Livestock scheme (producer’s characteristic
variables) were statistically significant in influencing the producer's choice of marketing
channel.