Does asset specificity influence transaction costs and adoption? An analysis of sugarcane farmers in the Great Barrier Reef catchments

A number of improved farming activities (IFAs) have been proven to reduce the sediment and nutrient impact of sugarcane farming on the world heritage listed Great Barrier Reef (Australia). Some of these also have the potential to improve the profitability of sugarcane farming. Despite this, sugarcane farmers remain reluctant to adopt these practices which suggest that perhaps the transaction costs of adoption are greater than the benefits. In this paper we classify IFAs as requiring investments in assets that are either highly asset-specific or of low asset specificity. Specificity relates to how transferable the investment is to other parts of the farming operation. Following a survey of sugarcane farmers we find that sugarcane farmers adopting IFAs considered to be of low asset specificity have the highest transaction costs. We provide some explanations for this result, some policy recommendations and also highlight some issues relating to the application of a theoretical construct such as asset specificity to real-world problem analysis.