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Choice of Modern Food Distribution Channels and Its Welfare Effects: Empirical Evidence from Taiwan

Yun-Cih Chang (), Min-Fang Wei () and Yir-Hueih Luh ()
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Yun-Cih Chang: Department of Agricultural Economics, National Taiwan University, Taipei 10617, Taiwan
Min-Fang Wei: Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, Champaign, IL 61820, USA
Yir-Hueih Luh: Department of Agricultural Economics, National Taiwan University, Taipei 10617, Taiwan

Agriculture, 2021, vol. 11, issue 6, 1-13

Abstract: The determinants and/or economic effects of modern food distribution channels have attracted much attention in previous research. Studies on the welfare consequences of modern channel options, however, have been sparse. Based on a broader definition of modern food distribution channels including midstream processors and downstream retailers (supermarkets, hypermarkets, brand-named retailers), this study contributes to the existing body of knowledge by exploring the distributional implications of farm households’ choice of modern food distribution channels using a large and unique farm household dataset in Taiwan. Making use of the two-step control function approach, we identify the effect of modern food distribution options on farm households’ profitability. The results reveal selling farm produce to modern food distributors does not produce a positive differential compared to the traditional outlets. Another dimension of farm household welfare affected by the choice of modern food distribution channel is income inequality. We apply the Lerman and Yitzhaki decomposition approach to gain a better understanding of the effect of the marketing channel option on the overall distribution of farm household income. The Gini decomposition of different income sources indicates that the choice of modern food distribution channels results in an inequality-equalizing effect among the farm households in Taiwan, suggesting the inclusion of smallholder farmers in the modern food distribution channels improves the overall welfare of the rural society.

Keywords: food marketing channels; welfare effects; income distribution; farm household analysis; two-step control function; Gini decomposition (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2021
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