Farmers' marketing preferences in local coffee markets: Evidence from a choice experiment in Ethiopia
This study investigates transactions in the local coffee markets in Ethiopia. While the Ethiopian Commodity Exchange, which was established in 2008, introduced regulatory, institutional, and organizational innovations in the coffee market, informal norms and conventions remain the primary institutions governing transactions in the local markets. Based on a choice experiment, we found that for coffee farmers the characteristics of the traders are more important than the price offered when anchoring their transactions into personal relationships. This can be explained as the institutional response of farsighted calculative farmers to poorly organized coffee markets and to lacking credit and insurance markets. Contrary to the concept of embeddedness, which claims that economic transactions are embedded into social relationships, social relationships are observed to be embedded into economic relationships. One of the perverse effects of these personal relationship based transactions is that farmers are insufficiently incentivized to maintain and improve coffee quality.