Relational contracts and value chain governance: exporter approaches to overcoming transaction costs in Rwanda's coffee sector
Journal of Agribusiness in Developing and Emerging Economies
ISSN: 2044-0839
Article publication date: 30 December 2021
Issue publication date: 12 May 2023
Abstract
Purpose
In developing countries, local buyers often rely on relational contracting based on reciprocity and trust. This paper analyzes relational contracting and global value chain (GVC) governance by focusing on how domestic and foreign coffee exporters in Rwanda confront challenges.
Design/methodology/approach
Semi-structured interviews were conducted with 25 representatives of Rwandan private, Rwandan cooperative-owned and foreign exporters, and four coffee sector stakeholders.
Findings
Foreign firms export most Rwandan coffee, and local exporters express concerns about their ability to compete. Rwandan exporters face challenges accessing capital, competing with foreign firms and managing high transaction costs. They use relational contracts to reduce transaction costs, and they benefit from a monopsony zoning regulation that reduces competition. Foreign exporters face regulatory challenges: a government-set coffee price and the zoning regulation. They vertically integrate to reduce costs and lock in suppliers through prefinancing.
Research limitations/implications
Future research should analyze differences between local and foreign exporters in other contexts to advance understanding of the different challenges faced and contracting approaches used.
Originality/value
Few GVC governance studies address the role of relational contracts in contexts where enforcement is costly. Considering relational contracts within GVCs can improve value chain analysis, specifically in the developing countries where many GVCs start.
Keywords
Acknowledgements
This work was undertaken by the Feed the Future Africa Great Lakes Region Coffee Support Program as an associate award under the Innovation Lab for Food Security Policy, implemented by Michigan State University (RC105110-1000) and partners. The authors gratefully acknowledge support for this research from the United States Agency for International Development (USAID) Bureau for Resilience and Food Security (AIDOAA-LA-15-00006). During data collection and analysis, the first author was not a USAID employee; he joined USAID after completing analysis but prior to submission for publication. The views expressed in this document do not necessarily reflect those of USAID or the US Government. The authors are thankful for the assistance Bridget Vuguziga provided during data collection for this research, and Daniel C. Clay who provided assistance throughout this study, and gave detailed comments on an early version of this paper. The authors appreciate comments received by Laura Castro-Diaz, Maria Alejandra Garcia and Rachel Nanteza and are grateful to Ameet Morjaria and Pritish Behuria for their helpful responses to questions early in the writing of this paper. The authors are also thankful for help from two anonymous reviewers and the editor.
Citation
Gerard, A., Lopez, M.C., Kerr, J. and Bizoza, A.R. (2023), "Relational contracts and value chain governance: exporter approaches to overcoming transaction costs in Rwanda's coffee sector", Journal of Agribusiness in Developing and Emerging Economies, Vol. 13 No. 3, pp. 437-451. https://doi.org/10.1108/JADEE-07-2021-0176
Publisher
:Emerald Publishing Limited
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