THE ROLE OF INTERMEDIARIES’ POWER ON CONTRACTING DECISION BETWEEN FARMERS AND INTERMEDIARIES.

Abstract

The paper investigates the determinants of farmers’ participation in contract farming (CF) in the context of a transition country, namely Albania. The focus is on intermediaries’ bargaining power effect on farmers’ engagement in CF. Exploratory factor analysis is used to develop measures for the latent variables, while a logit regression model is employed to test the hypothesized relationship. The results show that intermediaries’ bargaining power moderates negatively the relationship between farmers’ specific investments and CF participation. Farmers’ with high specific investment are reluctant to contract with buyers who have power because contracting with such a buyer implies that they can extract higher values from farmers’ specific investments. Other strong predictors of contracting decision are farmers’ trust on the intermediary, intermediary’s advice to the farmer and intermediary’s specific investment.