The influence of uncertainty on the choice of business relationships

Li, Lin; Guo, Hongdong; Bijman, Jos; Heerink, Nico


Although uncertainly is a common feature of agricultural markets, we know little about the effect of uncertainty on farmers' choice of business relationships. This paper distinguishes production uncertainty, environmental uncertainty, and behavioral uncertainty in examining four kinds of business relationships of Chinese vegetable farmers: market exchange, cooperative membership without marketing transaction, cooperative membership with marketing transaction, and contract farming. We applied a multinomial logit model to data collected among 413 farmers in Hebei and Zhejiang provinces. The results suggested that all three types of uncertainty significantly affect the business relationships chosen by vegetable farmers. In particular, it was found that as production uncertainty increases, farmers prefer contract farming and both cooperative membership with and without marketing transaction over market exchange; while as behavioral uncertainty increases, farmers are less likely to be involved in contract farming. Environmental uncertainty does not affect the likelihood that farmers choose market exchange or contract farming, while mixed results are obtained for its effects on cooperative membership with and without marketing transaction.