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Abstract

This study uses two farm case studies to explore how Kenyan green bean farmers are meeting European food safety standards. For green bean farmers, the standards increase the fixed costs and the transactions costs of producing beans; the standards also alter how bean quality is assessed. Both the small and the large farm use contracts to protect their specific investments in complying with the standards. However, while the large farm invests in improved facilities using its own equity, the small farm uses a marketing group to spread investment costs and reduce the transaction cost to buyers of monitoring the performance of small units. Green bean buyers face the asymmetric information problem of creating incentives for farmers to comply voluntarily with hard-to-observe production practice requirements. The buyers have responded by using closely monitored contracts, the threat of contract termination, and variable product pricing to induce compliance with the standards. The combined result of producer and buyer behavior has been to increase the scale of green bean production in Kenya. Small farms that band together in cooperative groups have succeeded in collectively attaining the scale economies needed to remain viable.

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