Institutional Choices in the Benguet Potato Value Chain

This study examines the value chains of Benguet potato using the transaction cost economics framework and draws policy implications from the analysis. Drawing on data from value chain actors collected through key informant interviews and focus group discussions, the study identifies two distinct chains: the longer traditional value chain and the shorter contract-farming value chain. In the traditional value chain, disposers serve as the primary marketing agents for potato farmers. Most transactions— from input provision to marketing—are highly informal, with no formal contracts governing exchanges. Relationships among players are maintained through informal mechanisms such as social networks and ties, resulting in a value chain that is functional yet characterized by dependency relationships and asymmetries in bargaining power that may disadvantage certain players. In contrast, contract farming involves farmer cooperatives or associations directly contracted by institutional buyers to supply potatoes, diminishing the role of disposers. This chain exhibits more formal characteristics, particularly during the contracting stage. Contract farming appears to reduce uncertainty and address the asset specificity and frequency requirements of both farmers and institutional buyers. More importantly, transaction cost analysis shows that the institutional arrangements observed in both value chains can be explained by the characteristics of the transactions they aim to govern. Based on these descriptive findings, the study recommends improved access to multipurpose credit for farmers, stronger market linkage programs, capacity building for farmer associations, and investment in price information systems.