Investment responses to third-party market facilitation in Armenia

The purpose of this paper is to assess the role of a third-party market facilitation strategy in creating sustainable market linkages and revitalizing an important agri-food sector in a developing country setting. More specifically, this study evaluates a third-party facilitator’s ability to assist producers and processors in developing internal private enforcement mechanisms through stimulating investments in relationship-specific assets.

This paper uses mixed methods approach. The research is grounded by a case study of the USDA Marketing Assistance Program (MAP) in the Armenian dairy industry. Qualitative evidence from the case study is combined with data from a survey of 745 Armenian dairy farmers to examine the impact of participation in the USDA MAP-facilitated marketing channel on farm-level investments.

The main results indicate that over the four-year period of the USDA MAP facilitation of dairy supply chain, farms linked to the formal milk marketing channel have invested in approximately twice as many assets specific to milk production compared to farms in the informal channel. This finding supports the hypothesis that third-party market facilitation strategy pursued by the USDA MAP has stimulated investments in private enforcement capital between dairy producers and processors and implies that an external third-party market facilitator can play an important role in enhancing performance of supply chain linkages.

These findings and the lessons from the case of USDA MAP contribute to better understanding of third-party market linkage facilitation strategies and will be useful for the development community and agribusiness decision makers.