Applicability of Transaction Cost Economics to Understanding Organizational Structures in Solidarity-Based Food Systems in Germany

In response to consumer concerns about sustainability of food production and distribution systems, and the difficulties many agricultural producers face to self-sustain while providing the quality of products consumers desire, alternatives to market-based exchange are developing. Solidarity-based food systems (SFS) based on relationships of mutual trust, dependency and support between consumers and producers are an example. SFS are designed to insulate producers from market pressures and alleviate consumers’ mistrust in market-based mechanisms. A network of SFS has formed in Germany under the name Solidarische Landwirtschaft (Solawi). Theories based on economic principles that help explain the way alternatives to market-based transactions in agriculture are organized are still lacking. The article suggests Transaction Cost Economics (TCE) as helpful to gain a better understanding of how these organizations form and function. The governance structures Solawis create are considered hybrid organizations according to TCE. Qualitative research methods are used to generate detailed accounts of the governance structures of four Solawis and the reasons behind the decisions of individual actors to participate. Effectiveness of TCE in evaluating these structures is analyzed. Based on the results, the concept of transaction benefits is suggested as a potential augmentation of TCE to improve its applicability to SFS.