Differential Transaction Costs in Vertically Integrated Greenleaf Tea Market in Southern Highlands, Tanzania

Abstract

This paper quantified differential transaction costs associated with farmers' participation in a vertically integrated green leaf tea market in Tanzania. The study used descriptive research design, and employed a cross-sectional survey to collect data from 393 smallholder tea producers from three districts in Southern Highlands Tanzania. A structured close ended questionnaire was used to collect data. Data analysis was done using the IBM SPSS Statistics Version 26. Reliability and validity test resulted in acceptable threshold of average of 0.882 Cronbach’s Alpha and above 0.7 factor loading for transaction cost indicators. Paired samples t-test was used to test the null hypothesis. The results show that downward transaction cost is statistically higher than upward transaction cost (p=0.000). The higher downward transaction cost indicates that smallholder tea growers may face substantial constraints while participating in vertical integration, specifically in contracting farming and predominantly in the lower node of the tea value chain. This, entails activities linked to pre-harvest practices like land preparation and tea agronomic practices. To enhance Greenleaf tea vertical integrated market participation, production output, income and farmers' livelihood, the study recommends that policymakers and practitioners evaluate differential impact of transaction costs at various levels of the tea value chain, focusing on downward transaction cost variables experienced by contract farmers and subsequently devise mechanisms, strategies and policies to reduce those costs.