The choice of marketing channel and farm profitability: Empirical evidence from small farmers

One longstanding research issue in agricultural marketing is the relationship between farm marketing channels and farm profitability. Due to the increasing consumer demand for food safety, direct-to-consumer marketing channels have been promoted. However, recent evidence shows that the adoption rate of farms that use direct-to-consumer marketing channels is still low, and it is not clear whether they can increase farm profitability. This study contributes to this issue in several ways. First, we examine whether the choice of different marketing channels, including sales to wholesalers, wholesale markets, and direct-to-consumer outlets by farm households affects farm profitability. Second, we discuss the mechanism behind these evident effects. We construct a large-scale sample of fruit and vegetable farms drawn from the 2015 Taiwanese Agriculture Census Survey and estimate a semiparametric multivalued treatment effect model. Although the government is promoting direct marketing, we find that wholesale markets are the most profitable marketing channel for farms in Taiwan. Furthermore, results from the quantile analysis shows that this finding is more pronounced for farms with higher profits. With respect to the mechanism behind these observed effects, we find that profit differentials between marketing channels are likely attributable to the use of pesticides and fertilizers on farm production. [EconLit Citations: Q12, Q13].