Farmers’ multi-governance decisions in potato supply chains in Indonesia: key determinants from a transaction cost economics perspective

Abstract

Smallholders in Indonesia’s horticultural sector face constraints in accessing high-value markets due to limited bargaining power. This study analyses the determinants of farmers’ governance choices in potato supply chains, focusing on spot markets, contract farming, and cooperative arrangements. Using a multivariate probit model and survey data from 309 potato farmers in two major production regions, the study examines the interdependence of governance decisions. The results show that governance choices are statistically interrelated and largely substitutive, indicating that multi-governance exists only in a limited and transitional form. Experienced farmers and those facing high negotiation costs tend to rely on spot markets. Contract participation is more common among older, risk-tolerant farmers with larger farm sizes and stronger institutional support, while cooperative participation is associated with risk aversion, human asset specificity, and trust. These findings underline the importance of transaction costs and institutional conditions in shaping governance decisions.