Influence of Neighbor Experience and Exit on Small Farmer Market Participation

Abstract This research analyzes the motivations and dynamics of small farmer participation in supermarket supply chains in developing countries: why some small farmers join these new markets and continue their participation; why others drop out or decline the relationship from the outset. Drawing on insights from the technology‐adoption literature on learning and experimentation, and also on findings from a simple two‐period Bayesian model of farmer decisions to participate in a new market, we incorporate measures of neighboring farmers’ experience into the decision model. Results suggest that farmers delay entry to observe their neighbors’ outcomes; we find a negative relationship between the number of neighbor participants in a given period and a farmer's own decision to enter the supply chain. We find evidence that farmers delay entry for strategic reasons, allowing neighbors to bear the costs associated with a first wave of adjustment to the market, including higher product rejection rates and lower initial annual transactions with supermarkets, compared to revenues from marketing in the traditional way. Results are robust to definitions of neighbors using both administrative and geographic designations. Our results raise questions about the optimal sequence and level of farmers' market participation and exit, which remain largely unexplored in the literature.