Macedonian dairy farmers and their choice of buyers : a transaction cost approach

Abstract: The dairy farming in the Republic of Macedonia operates under high uncertainties, where the not well regulated institutional environment creates unsuccessful governance structures. The study aims to indentify the transaction cost factors and household characteristics that influence the farmers' choice of milk marketing channel. The prime focus is to present a theoretically structured framework of the contractual arrangements between milk producers and dairy processors based on Transaction Costs Economics' predictions. The empirical approach consists in surveying the farmers from three regions within the country. The collected data is presented by using descriptive statistics, but also by applying complex analytical tools, such as ANOVA, correlation and regression analyses (specifically, the general linear and the logit model). The analysis of the transaction costs in the dairy farming, aided to detect the different factors which influence the farmers' choice between types of dairy. Generally, the entrance costs are high for farmers engaged with large dairy processors. These farmers also face difficulties in negotiation process and enforcement of contracts. Whereby, farmers who have chosen to sell to a small dairy, experience high costs of coordination and maintenance of contracts. The monitoring and control costs are high for all farmers involved in arrangements with either small or large dairy. Nonetheless, the transaction cost levels in both channels differ fairly much regarding the farms' sizes mainly due to the specific investments employed on the farm. Assessing the milk marketing in this manner is considered to have a good potential for contribution to the process of development of the dairy industry.