Abstracts Business

Robustness of agribusiness supply chains from a smallholder perspective: case studies in Nepal

by Salil Bhattarai

This study aims to identify effective ways of improving chain robustness from a smallholder perspective. The study developed a model based primarily on theories of New Institutional Economics. This model was used to identify factors that constrain choices in modes of engagement available to smallholders, limiting the chain???s robustness from their perspective. A qualitative, multiple case study method was used to gather and analyse data on four agribusiness chains in Nepal; organic and conventional vegetable chains, and ginger and large cardamom spice chains. The analysis followed the approach of searching for patterns in the data and comparing or contrasting observed patterns with those predicted by theory. Individual case studies were analysed separately to identify transaction specific determinants of the observed modes of engagement. Cross-case comparisons within the vegetable and spice chains were then made to identify the effects of external attributes on the observed modes of engagement. The organic vegetable chain was characterised mainly by relational contracting and informal markets. There was also evidence of vertical integration. The conventional vegetable chain was characterised mainly by spot markets and informal markets. Informal market trading was the only form of smallholder engagement in the large cardamom and ginger chains. However, smallholders had previously engaged in relational contracts in the ginger chain, and in ???captive??? relational contracts in the large cardamom chain. There was no evidence that smallholders had ever engaged in conventional contracts in any of these chains. The ???captive??? relational contract observed in the large cardamom chain was unanticipated, and hence informed a revision of the conceptual model. Among the external attributes, market product attributes, market structure, access to information and credit, and collective action were found to alter the modes of engagement available to smallholders. Extension services and the formal legal system had little impact on modes of engagement, possibly reflecting inadequacies in the extension system and high costs of using the legal system to enforce small contracts. The study showed that products possessing only search attributes were traded in either spot or informal markets, whereas products with both search and credence attributes were exchanged via relational contracts. The long export chains with many intermediaries did not favour spot markets or contractual arrangements because farmers??? perceptions of asymmetric information discouraged investment in value-adding assets and deterred efforts to establish and comply with grades and standards. The case studies also demonstrated that the expansion of mobile telephone services and the emergence of rural financial institutions opened more beneficial modes of engagement to smallholders. While traditional cooperatives can and do help smallholders to acquire more bargaining power, and to address high unit transaction costs, the study revealed that the traditional…