Linkages in modern distribution channels formation: the study of factors affecting mountainous agricultural products consumption in Vietnam

Economic Annals-ХХI: Volume 178, Issue 7-8, Pages: 134-147

Citation information:
Ngo Chi, T., Le Hoang Ba, H., Hoang Thanh, H., Le Quang, H., & Le Van, C. (2019). Linkages in modern distribution channels formation: the study of factors affecting mountainous agricultural products consumption in Vietnam. Economic Annals-XXI, 178(7-8), 134-147. doi: https://doi.org/10.21003/ea.V178-12


Ngo Chi Thanh
PhD (Economics),
Lecturer of Economics and Business Administration;
Head of Technology and Science Management Department,
Hong Duc Uuiversity
565 Quang Trung Str., Dong Ve Ward, Thanh Hoa City, Vietnam
ngochithanh@hdu.edu.vn
ORCID ID: https://orcid.org/0000-0003-3353-583X

Le Hoang Ba Huyen
PhD (Business Administration),
Dean of Faculty of Economics and Business Administration,
Hong Duc University
565 Quang Trung Str., Dong Ve Ward, Thanh Hoa City, Vietnam
lehoangbahuyen@hdu.edu.vn
ORCID ID: https://orcid.org/0000-0002-4147-3475

Hoang Thanh Hanh
PhD (Economics),
Accounting Faculty,
Academy of Finance
58 Le Van Hien Road, Duc Thang Ward, Nam Tu Liem District, Ha Noi, Vietnam
hoangthanhhanh@hvtc.edu.vn
ORCID ID: https://orcid.org/0000-0002-4220-6125

Le Quang Hieu
PhD (Business Administration),
Vice Dean,
Faculty of Economics and Business Administration,
Hong Duc University
565 Quang Trung Str., Dong Ve Ward, Thanh Hoa City, Vietnam
lequanghieu@hdu.edu.vn
ORCID ID: https://orcid.org/0000-0002-3868-7624

Le Van Cuong
PhD (Economics Development),
Lecturer of Economics and Business Administration,
Hong Duc University
565 Quang Trung Str., Dong Ve Ward, Thanh Hoa City, Vietnam
levancuong@hdu.edu.vn
ORCID ID: https://orcid.org/0000-0002-8643-2917

Linkages in modern distribution channels formation: the study of factors affecting mountainous agricultural products consumption in Vietnam

Abstract. Food distribution system in developing countries, for instance in Vietnam, has rapidly transformed towards modern supply channels with high quality products. We observe that producers of the agricultural products at mountainous areas face significant challenges in accessing to modern distribution channels. In such condition, linkages appear as a key factor for small scale farmers connecting to markets. In this regard, the purpose of our research is to study the factors affecting linkages in the formation of modern distribution channels in view of consumption of mountainous agricultural products in Vietnam and developing countries in general.

In our research model, we tested 6 elaborated hypotheses focused on the issue of linkage in modern distribution channel formation and introduced 26 observed variables. We conducted the survey at 8 out of 11 districts of the mountainous areas of Thanh Hoa province of Vietnam in 2018 with 215 small farmers being the respondents.

The results indicates that linkages in modern distribution channels formation for mountainous agricultural consumption has strongly affected by a range of significant groups of factors, namely: natural conditions of the mountainous area; characteristics of agricultural products in the mountainous area; support of firms; government policies aimed at the formation of linkages; constraints in agricultural production; barriers to enter modern distribution channels.

The results of the undertaken regression analysis imply the following. 1) The requirements of modern distribution channels (brand name, prices, professional collecting, etc.) are big barriers for farmers in mountainous areas who want to access the market, which explains the reason why small farmers are motivated to use linkages in order to enter the modern distribution system. In fact, most agricultural products at mountainous areas are in a raw form, without packaging, labelling, and traceability, while small-scale farmers do not have enough capacity to keep to such standards. 2) Typical local products of mountainous areas tend to be formed by the linkage. This comes from the fact that popular agricultural products that are common for traditional markets or products with low value have little impact on the formation of the linkage while high-value products tend to join the linkage to reach larger markets beyond mountainous areas. From this point of view, linkages in the formation of the modern distribution system are required for typical local products in mountainous areas. 3) The role of firms in building linkages is crucial. Firms play an important role in supplying products from mountainous areas to the market. Whether the linkage becomes a success or not, depends on the level of involvement of firms. 4) It is necessary to have a strong policy (both from the part of local authorities and the government) in order to encourage firms, households and other stakeholders to be involved in the creation of linkages in mountainous areas. Since the market power is largely considered within the agricultural market, the government policy becomes very important in terms of helping small farmers to become stronger players in the market and encouraging firms to participate in the formation of linkages.

Obtained results correlate with several studies on linkages in developing countries, which are also linked to comparable cases of mountainous areas. We, therefore, propose recommendations for developing countries related to the issue of linkages in the formation of the modern distribution system. We emphasize that it is required to select products to build linkage models, to implement strong policies to attract enterprises to join linkages in mountainous areas, to build linkage models to add values to mountainous agricultural products connected to the requirements of modern distribution channels and, finally, to improve the production scale of mountainous farmers by conducting a land reform in order to create conditions for the formation of linkages and increase market power of middlemen in agricultural markets in the developing countries.

Keywords: Agricultural Product; Modern Distribution System; Distribution Channels; Logistics; Linkages; Mountainous Areas; Farmers; Vietnam

JEL Classification: Q25; C61; D61

Acknowledgements and Funding: The authors received no direct funding for this research.

Contribution: in this paper, first and corresponding author is Ngo Chi Thanh. The structure and main contents are written by Ngo Chi Thanh. Data analysis, discussion and editing are made by Ngo Chi Thanh, Le Hoang Ba Huyen, Le Quang Hieu, Hoang Thanh Hanh, and Le Van Cuong.

DOI: https://doi.org/10.21003/ea.V178-12

References

  1. Aku, A., Mshenga, P., Afari-Sefa, V., & Ochieng, J. (2018). Effect of market access provided by farmer organizations on smallholder vegetable farmer’s income in Tanzania. Cogent Food & Agriculture, 4(1), 1-13.
    doi: https://doi.org/10.1080/23311932.2018.1560596
  2. Bussmann, R. W., & Sharon, D. (2009). Markets, healers, vendors, collectors: the sustainability of medicinal plant use in northern Peru. Mountain Research and Development, 29(2), 128-134.
    doi: https://doi.org/10.1659/mrd.1083
  3. Choudhary, D., Kunwar, M. S., & Rasul, G. (2015). From Farmers to Entrepreneurs – Strengthening Malta orange value chains through institutional development in Uttarakhand, India. Mountain Research and Development, 35(1), 4-15.
    doi: https://doi.org/10.1659/MRD-JOURNAL-D-14-00036.1
  4. Dannson, A., Ezedinma, C., Wambua, T. R., Bashasha, B., Kirsten, J., & Satorius, K. (2004). Strengthening farm-agribusiness linkages in Africa. Summary results of five country studies in Ghana, Nigeria, Kenya, Uganda and South Africa. A. Rottger (Ed.). Rome: Food & Agriculture Organization of the United Nations.
    Retrieved from http://www.fao.org/3/a-y5785e.pdf
  5. General Statistic Office (2018). Statistical yearbook of Vietnam 2017.
    Retrieved from https://www.gso.gov.vn/default.aspx?tabid=512&idmid=5&ItemID=18940 (in Vietnamese)
  6. Hair, J. F., Black, W. C., Babin, B. J., Anderson, R. E., & Tatham, R. L. (2006). Multivariate data analysis (6th edition).
    Retrieved from https://www.pearson.com/us/higher-education/product/Hair-Multivariate-Data-Analysis-6th-Edition/9780130329295.html?tab=order
  7. Hernández, R., Reardon, Th., & Berdegué, J. (2007). Supermarkets, wholesalers, and tomato growers in Guatemala. Agricultural Economics, 36(3), 281-290.
    doi: https://doi.org/10.1111/j.1574-0862.2007.00206.x
  8. Key, N., & Runsten, D. (1999). Contract farming, smallholders, and rural development in Latin America: the organization of agroprocessing firms and the scale of outgrower production. World development, 27(2), 381-401.
    doi: https://doi.org/10.1016/S0305-750X(98)00144-2
  9. Kirsten, J., & Sartorius, K. (2002). Linking agribusiness and small-scale farmers in developing countries: Is there a new role for contract farming? Development Southern Africa, 19(4), 503-529.
    doi: https://doi.org/10.1080/0376835022000019428
  10. Maruyama, M., & Trung, L. V. (2007). Supermarkets in Vietnam: Opportunities and obstacles. Asian Economic Journal, 21(1), 19-46. doi: https://doi.org/10.1111/j.1467-8381.2007.00245.x
  11. Maruyama, M., & Trung, L. V. (2010). The nature of informal food bazaars: Empirical results for Urban Hanoi, Vietnam. Journal of Retailing and Consumer Services, 17(1), 1-9.
    doi: https://doi.org/10.1016/j.jretconser.2009.08.006
  12. Maruyama, M., & Trung, L. V. (2012). Modern retailers in transition economies: the case of Vietnam. Journal of Macromarketing, 32(1), 31-51.
    doi: https://doi.org/10.1177/0276146711421932
  13. Masakure, O., & Henson, S. (2005). Why do small-scale producers choose to produce under contract? Lessons from nontraditional vegetable exports from Zimbabwe. World Development, 33(10), 1721-1733.
    doi: https://doi.org/10.1016/j.worlddev.2005.04.016
  14. McCorriston, S. (2002). Why should imperfect competition matter to agricultural economists? European Review of Agricultural Economics, 29(3), 349-371.
    doi: https://doi.org/10.1093/eurrag/29.3.349
  15. Mérel, P. R., Sexton, R. J., & Suzuki, A. (2009). Optimal Investment in Transportation infrastructure when middlemen have market power: a developing-country analysis. American Journal of Agricultural Economics, 91(2), 462-476.
    doi: https://doi.org/10.1111/j.1467-8276.2008.01245.x
  16. Minot, N. (2007). Contract Farming in Developing Countries: Patterns, Impact, and Policy Implications. In Per Pinstrup-Andersen & Fuzhi Cheng (Eds.), Case Studies in Food Policy for Developing Countries: Volume 2. Domestic Policies for Markets, Production, and Environment (pp. 37-51), (1st ed.). Cornell University Press.
    Retrieved from https://ecommons.cornell.edu/handle/1813/55689
  17. Moustier, P., Tam, P. T. G., Anh, D. T., Binh, V. T., & Loc, N. T. T. (2010). The role of farmer organizations in supplying supermarkets with quality food in Vietnam. Food Policy, 35(1), 69-78.
    doi: https://doi.org/10.1016/j.foodpol.2009.08.003
  18. Myers, R. J., Sexton, R. J., & Tomek, W. G. (2010). A century of research on agricultural markets. American Journal of Agricultural Economics, 92(2), 376-403.
    doi: https://doi.org/10.1093/ajae/aaq014
  19. Nourse, E. G. (1922). The economic philosophy of co-operation. The American Economic Review, 12(4), 577-597.
    Retrieved from https://www.jstor.org/stable/1804796
  20. Parasuraman, A. P., Zeithaml, V. A., & Berry, L. L. (1988). Servqual: A multiple-item scale for measuring consumer perceptions of service Quality. Journal of Retailing, 64(1), 12-40.
    Retrieved from https://www.researchgate.net/publication/200827786_SERVQUAL_A_Multiple-item_Scale_for_Measuring_Consumer_Perceptions_of_Service_Quality
  21. Reardon, Th., Timmer, C. P., & Minten, B. (2012). Supermarket revolution in Asia and emerging development strategies to include small farmers. Proceedings of the National Academy of Sciences, 109(31), 12332-12337.
    doi: https://doi.org/10.1073/pnas.1003160108
  22. Reardon, Th., Timmer, C. P., Barrett, Ch. B., & Berdegué, J. (2003). The rise of supermarkets in Africa, Asia, and Latin America. American Journal of Agricultural Economics, 85(5), 1140-1146.
    doi: https://doi.org/10.1111/j.0092-5853.2003.00520.x
  23. Rogers, R. T., & Sexton, R. J. (1994). Assessing the importance of oligopsony power in agricultural markets. American Journal of Agricultural Economics, 76(5), 1143-1150.
    doi: https://doi.org/10.2307/1243407
  24. Sexton, R. J., & Lavoie, N. (2001). Food processing and distribution: an industrial organization approach. In Gardner, B. & Rausser, G. (Eds.), Handbook of Agricultural Economics, Volume 1, Part B (pp. 863-932). Amsterdam, Netherlands, United States: Elsevier Science & Technology.
    doi: https://doi.org/10.1016/S1574-0072(01)10023-X
  25. Spies, M. (2018). Changing Food Systems and Their Resilience in the Karakoram Mountains of Northern Pakistan: A Case Study of Nagar. Mountain Research and Development, 38(4), 299-309.
    doi: https://doi.org/10.1659/MRD-JOURNAL-D-18-00013.1
  26. Thanh, N. C. (2018). Middlemen Market Power and Land Reform Policy Implication: An Imperfect Competition Analysis for the Traditional Food Market of Vietnam. International Journal of Economics and Finance, 10(5), 31-40.
    doi: https://doi.org/10.5539/ijef.v10n5p31
  27. Tien, D. L. (2015). Efficiency of economics linkage between enterprise and farmers in the Southeast region: the current situation and affecting factors. In Trajectories of the Green Revolution: Adaptation and Innovation in Management and Industry: proceedings of the 13rd International Federation of East Asian Management Associations (IFEAMA) conference, July 16-18, 2015. (pp. 1-16). Ulabantar, Mongolia: Business School of National University of Mongolia, 2015, volume 2.
    doi: https://doi.org/10.13140/RG.2.1.4417.2009
  28. Wehrli, A. (2014). Why mountains matter for sustainable development. Mountain Research and Development, 34(4), 405-409.
    doi: https://doi.org/10.1659/MRD-JOURNAL-D-14-00096.1
  29. Wymann von Dach, S., Romeo, R., Vita, A., Wurzinger, M., & Kohler, T. (Eds.) (2013). Mountain farming is family farming: a contribution from mountain areas to the International Year of Family Farming 2014. Rome, Italy: The Food and Agriculture Organization of the United Nations (FAO), the Centre for Development and Environment of the University of Bern (CDE), the Centre for Development Research of the University of Natural Resources and Life Sciences, Vienna (BOKU).
    doi: http://www.fao.org/docrep/019/i3480e/i3480e.pdf
  30. Yen, B. T., Visser, S. M., Hoanh, Ch. T., & Stroosnijder, L. (2013). Constraints on agricultural production in the northern uplands of Vietnam. Mountain Research and Development, 33(4), 404-415.
    doi: https://doi.org/10.1659/MRD-JOURNAL-D-13-00015.1