Microeconometric analysis of wine grape supply contracts in Australia*

This paper examines wine grape supply contracts used in the main grape growing regions of Australia. An empirical analysis provides insight into specific aspects of contract design and implementation. Statistical analyses of sample data reveal differences between regions in contract specifications. Lower quality grape growing regions place a greater reliance on grape quality assessment to determine bonus/penalty payments compared to higher quality regions. Contracts in higher quality regions place greater emphasis on explicit winery involvement and direction in vineyard management. Results indicate that longer duration contracts are more inclusive in terms of the number of clauses included. Evidence of risk shifting (i.e., winery to grower) for high quality grapes is reported, where the price received by growers is determined by the bottle price of the wine produced.     

Supermarkets, wholesalers, and tomato growers in Guatemala

The article shows the asset‐related determinants and the impacts of the participation of small farmers in supermarkets versus traditional market channels in Guatemala. Compared to farmers selling only to the traditional market channels, farmers selling to supermarket channels are larger (but are in the upper tier of the “small farmer” category), have more capital, and are much more specialized in commercial horticulture in general and in tomatoes in particular. While they have higher yields, they also have higher input use, including use of chemicals. In fact, they severely overuse pesticides and fungicides. Moreover, these greater input expenditures mean that their profit rates are roughly similar to those of farmers in the traditional market channel. Supermarket‐channel farmers prefer the more demanding wholesale‐supermarket channel because it offers lower risks and lower transaction costs to market, a variety of quality grades of tomatoes, all year long. In turn, the supermarkets, who do not buy direct but rather source from a few specialized‐dedicated wholesalers, rely on this year‐round supply, lower transaction costs, and consistency of quality.     

Time‐varying Hedge Ratios: A Principal‐agent Approach

We use the classic agency model to derive a time‐varying optimal hedge ratio for low‐frequency time‐series data: the type of data used by crop farmers when deciding about production and about their hedging strategy. Rooted in the classic agency framework, the proposed hedge ratio reflects the context of both the crop farmer's decision and the crop farmer's contractual relationships in the marketing channel. An empirical illustration of the Dutch ware potato sector and its futures market in Amsterdam over the period 1971–2003 reveals that the time‐varying optimal hedge ratio decreased from 0.34 in 1971 to 0.24 in 2003. The hedging effectiveness, according to this ratio, is 39%. These estimates conform better with farmers’ interest in using futures contracts for hedging purposes than the much higher estimates obtained when price risk minimisation is the only objective considered.     

The impacts of multiperil crop insurance on Indonesian rice farmers and production

This article analyzes the effect of multiperil crop insurance policy for risk‐averse Indonesian rice farmers located in Tuban and Gresik Regencies of the East Java Province. Based on the model, comparative static analysis of a change in policy variables (coverage levels and premium subsidies) on input use through the coupling, wealth, and insurance effects are presented. The comparative static results are largely ambiguous and left as empirical questions. Consequently, the model is numerically simulated to quantify the effects of different coverage levels and subsidy rates on input use, expected net insurance payments, and certainty equivalents. The empirical analysis shows that MPCI crop insurance results in a decline in expected yield for coverage levels above about 82.5% for both regencies. Furthermore, higher subsidy rates amplify the reduction in input use and yield. Therefore, incomplete coverage with relatively low premium subsidies is the best policy to minimize the impact on input use and yield. However, from the farmers’ perspective, the optimal policy combination results from the highest coverage level and subsidy, which offer the largest expected net insurance payments and certainty equivalent.     

Contract farming,contract design and smallholder livelihoods*

Contract farming has gained in importance in many developing countries. Previous studies analysed effects of contracts on smallholder farmers’ welfare, yet mostly without considering that different types of contractual relationships exist. Here, we examine associations between contract farming and farm household income in the oil palm sector of Ghana, explicitly differentiating between two types of contracts, namely simple marketing contracts and more comprehensive resource-providing contracts. Moreover, we look at different income sources to better understand how both contracts are linked to farmers’ livelihood strategies. We use cross-sectional survey data and regression models. Issues of endogeneity are addressed through measuring farmers' willingness-to-participate in contracts and using this indicator as an additional covariate. Farmers with both types of contracts have significantly higher household incomes than farmers without a contract, yet with notable differences in terms of the income sources. Farmers with a marketing contract allocate more household labour to off-farm activities and thus have higher off-farm income. In contrast, farmers with a resource-providing contract have larger oil palm plantations and thus higher farm incomes. The findings suggest that the two contract types are associated with different livelihood strategies and that disaggregated analysis of different income sources is important to better understand possible underlying mechanisms.     

Agricultural diversification and integrated pest management in Bangladesh

We study factors associated with a shift toward diversified, high‐valued vegetable crops and the incentives associated with the use of IPM methods for vegetable producers in Bangladesh. The primary objective is to measure how IPM technologies affect the crop and technology choices of low‐income rice farmers. A three‐season household optimisation model is used to study crop and technology choice under price and yield uncertainty. The model is parameterised using data from vegetable farms and experimental IPM trials conducted in Bangladesh. Simulation results show that access to IPM technology and IPM availability combined with access to credit increase household welfare and lead to higher rates of vegetable adoption. Off‐farm employment opportunities work against vegetable cultivation and IPM use by risk‐averse farmers. Implications for policy and extension efforts are highlighted.     

The Role of Non‐Use Values in Dairy Farmers’ Willingness to Accept a Farm Animal Welfare Programme

Choice experiments about a hypothetical farm animal welfare (FAW) programme were presented to a sample of randomly selected German dairy farmers. Based on the theory of social interactions, it was hypothesised that the probability of participating in the programme would increase with (i) the ease of implementing programme attributes on the farm, (ii) perceived use values such as increased milk yield, and (iii) stated levels of non‐use existence values derived from improved animal welfare conditions and extrinsically motivated non‐use values from enhanced prestige among relevant peer groups. It was found that non‐use existence values were negatively related to programme acceptance because relatively high personal standards may not be in line with the programme design and may make the programme seem unnecessary. In addition, the intention of enhancing public acceptance of dairy farming appeared to have an influence on some farmers’ willingness to accept the programme, which can be explained by the relevance of social interactions among peers in the context of farmers’ provision of FAW.     

What Do Farmers Want From Agri‐Environmental Scheme Design? A Choice Experiment Approach

Agri‐environmental schemes (AES) have had a limited effect on European agriculture due to farmers’ reluctance to participate. Information on how farmers react when AES characteristics are modified can be an important input to the design of such policies. This article investigates farmers’ preferences for different design options in a specific AES aimed at encouraging nitrogen fixing crops in marginal dry‐land areas in Spain. We use a choice experiment survey conducted in two regions (Aragón and Andalusia). The analysis employs an error component random parameter logit model allowing for preference heterogeneity and correlation amongst the non‐status quo alternatives. Farmers show a strong preference for maintaining their current management strategies; however, significant savings in cost or increased participation can be obtained by modifying some AES attributes.     

The impact of grain self‐sufficiency regime on regional welfare and agricultural productivity in China

The nineties’ agricultural reforms in China that were aimed at deregulating the agricultural market eventually resulted in a huge drop in agricultural production and a high rate of inflation in agricultural input prices; this apparently motivated the government to introduce the grain self‐sufficiency regime in 1998. We examine how and to what extent this reform affected the productivity and welfare of grain farmers in China at the regional level. We find that the price regulations that destroyed the incentive to exert more effort adversely affected the growth in agricultural productivity but contributed to the growth in farmers’ welfare. Although the price regulations resulted in short‐term improvement in welfare across all the regions, in the long run such regulations can potentially result in larger drop in agricultural production because of its negative impact on the incentives to produce more.     

Motivations to grow energy crops: the role of crop and contract attributes

Perennial energy crops are a promising source of bioenergy whose production involves production risks, long‐term commitment of land and need for crop‐specific investments without the coverage of crop insurance potentially available for conventional crops. We conduct a choice experiment in five states in the Midwestern and South‐central regions of the U.S. to examine the effect of crop‐contract attributes on the joint discrete‐continuous choice decisions to adopt an energy crop and convert acres to it from a status quo use, while controlling for the effect of various farmers’ risk and time preferences, sociodemographic characteristics, and availability of crop insurance for conventional crops. We find robust evidence that high discount rates, high upfront establishment costs and need for crop‐specific investments create disincentives for adoption and allocation of land to energy crop production. The effects of riskiness of returns and risk aversion are less robust across specifications. The effect of conventional crop insurance on the energy crop adoption decision differs across types of insurance; in particular, farmers with revenue insurance are statistically significantly less likely to adopt an energy crop. Our results have implications for the design of effective contracts and policy incentives to induce the production of energy crops.     

Do vouchers improve government fertilizer distribution? Evidence from Nigeria

Government distribution of subsidized fertilizer in Sub‐Saharan Africa is often characterized by cumbersome administrative processes and diversion of the product from the proclaimed beneficiaries. This study uses propensity score matching techniques to analyze an input voucher program in Nigeria that was meant to demonstrate an alternative and more efficient distribution mechanism for subsidized fertilizer. We find that participants in the 2009 voucher program received more bags of subsidized fertilizer than nonparticipants and also paid significantly lower prices compared to those who purchased directly from the market. On average, however, participating in the voucher program did not improve the timeliness of fertilizer receipt or the quality of the product. Where statistically significant, participating in the program increased the likelihood that the product was received late and that some complaint about the product's quality was made. As many developing countries; particularly in Sub‐Saharan Africa adopt the use of input vouchers or scale up already existing programs, this study demonstrates when the distribution of subsidized fertilizer via vouchers improves farmers’ timely access to good and more affordable fertilizer. It highlights some key issues to be considered in order to expand the dimensions of success of well‐targeted input voucher programs     

New evidence regarding the effects of contract farming on agricultural labor use

Contractual agreements between smallholder farmers and agribusiness companies have gained in importance in many developing countries. While productivity and income effects of contracting in the small farm sector were analyzed in many previous studies, labor market and employment effects are not yet well understood. This is an important research gap, especially against the background of continued population growth and structural transformation. Here, we investigate the effects of two types of contractual agreements between large international processing companies and smallholder farmers on agricultural labor use, household labor allocation, and hired labor demand in Ghana's palm oil sector. We use cross‐sectional survey data and a willingness‐to‐pay approach to control for unobserved heterogeneity between farmers with and without contracts. We find that agricultural labor intensity is substantially reduced through the contracts, because contracting in Ghana is associated with the adoption of labor‐saving procedures and technologies. Simple marketing contracts lead to reallocation of the saved household labor to off‐farm employment, whereas resource‐providing contracts lead to a stronger reallocation of labor within the farming enterprise. Household labor is more affected by labor savings than hired labor.     

The contribution of genetics to milk composition: evidence from Spain

This article focuses on the role that genetic progress may play in improving milk quality. Despite important genetic advances in dairy production, the absence of genetic records in farm management databases has precluded empirical production models from explicitly accounting for differences in genetics across herds. The influence of genetics on milk composition is analyzed by splitting milk production into protein, fat, and other components. The article explores some modeling issues associated with the specification of the effect of genetics in this multi‐output technology framework. In particular, genetic indexes are considered as allocable inputs and the remaining inputs as nonallocable. Our results show that genetics have a significant impact on milk composition. In particular, we find that farmers’ income increases by 6.6% when genetic indexes are augmented by one sample standard deviation.     

Farmers’ Income and Production Responses to Rural Taxation Reform in Three Regions in China

The relationship between agricultural taxation and production efficiency has been thoroughly explored for many countries. Recently, China has taken various measures including the rural taxation reform (RTR) to promote grain production and to increase farmer incomes. In this study, we investigate whether the Chinese policy of abolishing rural taxation has improved farm households’ incomes and affected their production decisions. Using household survey data obtained from three regions in China, we estimate the effect of the RTR on farmers’ income. Results show that the RTR has significantly improved farmers’ post‐tax net income by 9.2% in Shandong, 16.9% in Shanxi and 16.8% in Zhejiang. These increments, mostly from farm income rather than from off‐farm income, are much higher than the direct income increase from the tax savings. In addition, we examine the dynamic impact of farmers’ net income, and find that the RTR has a sustained positive income effect in Shandong and Shanxi, whereas its positive effect in Zhejiang appears temporary. We also examine farmers’ production responses to the RTR. Results show that farmers in the three regions respond in different ways: farmers in Shandong significantly increase their labour input, farmers in Zhejiang increase intermediate inputs, whereas Shanxi farmers augment their intermediate inputs and enlarge their crop acreage. It appears that the farmers’ responses to the taxation reform vary due to the agronomic and economic factors in these three regions, suggesting that diverse post‐RTR supplemental policies should be implemented in different regions.     

The Potential for Nitrogen Abatement Trading in Agriculture: A Hypothetical Market Experiment

The effectiveness of nitrogen abatement trading as a policy measure relies on both heterogeneity in costs and environmental effectiveness across landscapes. Cost‐efficient implementation may therefore critically depend on spatial distributions of farm and farmer characteristics in water catchments. We use a spatially specific hypothetical market experiment to analyse the likelihood of farmers’ enrolment into nitrogen abatement trading contracts, and derive demand and supply functions for farmers’ nitrogen abatement. We find that farm characteristics influence both the decision whether to supply or purchase nitrogen abatement, as well as the amounts being traded. The derived demand and supply functions for farmers’ N abatement, using hypothetical market experiment data, can be used to reveal the variability in costs of abatement within a market. This provides valuable information to test potential trading schemes ex ante, to evaluate potential economic gains from policy implementation.     

The influence of management decisions and external factors on the dairy farmer's environmentally friendly farming objective: the Green Dairy experience

Ten dairy farms participated in an EU project that aimed to improve nitrogen use and assist with the adoption of more environmentally friendly farming practices. Nitrogen use and management decisions were monitored during 2003, 2004 and 2005. Nine farms improved nitrogen use (nitrogen output relative to input) in Year 2. Four farms maintained or further improved nitrogen use in Year 3. Management decisions and external factors that improved nitrogen use were increasing farm milk output, adopting best management practices for nitrogen use, growing forage crops that required less nitrogen than grass and favourable crop production conditions that rendered large quantities of good quality forage. Decisions that worsened nitrogen use were increasing cow numbers without sufficient management support, the late start of supplementary feeding when grass quality declined, setting the target yield too high, pursuing a higher milk price, less palatable silage and disease. Sufficient slurry storage is essential to improving nitrogen use. The savings from lower nitrogen input and the revenue from milk were in no proportion to the investments required for additional slurry storage, however. The farmers did adopt environmentally friendly practices, but only to the degree their businesses were able to sustain.     

More reasons why farmers have so little interest in futures markets

The use by farmers of futures contracts and other hedging instruments has been observed to be low in many situations, and this has sometimes seemed to be considered surprising or even mysterious. We propose that it is, in fact, readily understandable and consistent with rational decision making. Standard models of the decision about optimal hedging show that it is negatively related to basis risk, to quantity risk, and to transaction costs. Farmers who have less uncertainty about prices and those with a diversified portfolio of investments have lower optimal levels of hedging. If a farmer has optimistic price expectations relative to the futures market, the incentive to hedge can be greatly reduced. And finally, farmers who have low levels of risk aversion have little to gain from hedging in terms of risk reduction, in that the certainty‐equivalent payoff at their optimal hedge may be little different than the certainty equivalent under zero hedging. These reasons are additional to the argument of Simmons (2002) who showed that, if capital markets are efficient, farmers can manage their risk exposure through adjusting their leverage, obviating the need for hedging instruments.     

Spillovers from high-value agriculture for exports on land use in developing countries: evidence from Madagascar

High-value agriculture for exports is increasingly important in developing countries. In a case study of contract farming for exports of vegetables from Madagascar, strong spillover effects of these trade opportunities on land use are found to exist. Using a matched plot sampling design, the productivity of rice—the main domestically consumed staple—is shown to be two-thirds higher on fields that were contracted during the off-season for the production of vegetables. This increase in yields is linked to an increase of soil fertility due to the application of fertilizer and compost, which farmers did not use prior to the contracts. Although agricultural output goes up significantly, labor productivity stays the same, suggesting that there is greater labor absorption on existing land and the diffusion of this type of technology at a larger scale throughout Madagascar would be expected to substantially decrease incentives to deforest by increasing wages and to boost productivity of existing lands relative to newly deforested ones.     

Impacts of tenancy arrangements on investment and efficiency: evidence from Pakistan

In this article, we use farm‐level data from the Punjab Province in Pakistan to analyze the impact of three tenancy contracts on investment in soil‐improving and productivity‐enhancing measures and farm productivity. A multivariate tobit model that accounts for potential substitutability and complementarity of investment options, as well as endogeneity of tenure arrangements was employed in the empirical analysis. Our empirical results indicate that land tenure arrangements influence farmers’ decisions to invest in soil‐improving and productivity‐enhancing measures. In particular, owner‐cultivators with secured tenancy arrangements were found to be more likely to invest in soil‐improving and productivity‐enhancing measures, compared to those on leased contracts. We also find that output per hectare was highest on land cultivated by owners and lowest on land under sharecropping tenancy, lending support to the Marshallian inefficiency hypothesis.     

劳动力价格、信息不对称与农户精细管理技术投入——基于质量识别能力差异的视角

近年来,劳动力价格的快速上涨已然成为中国农业生产所必须面对的内在挑战。对于机械作业难度相对较大的劳动密集型作物而言,在缓解劳动力约束瓶颈的同时,更应通过精细化的果园管理,以提高产品质量,进而提高其市场价格。然而,由于农产品具有典型的经验品属性,在信息不对称的外部约束下,农户通常难以获得应有的"质量溢价"。基于此,本文通过构建理论分析框架,以果品质量关键环节的精细管理技术作为研究对象,系统分析在劳动力价格上涨背景下农户精细管理技术投入的决策机制,以及在不同农产品质量识别程度中,劳动力成本变化对其影响的异质性,并基于全国18个省份农户的调研数据进行实证研究。研究结果表明:农户交易对象质量识别能力的提高,能够缓解农户与购买者之间存在的信息不对称性,将农产品质量信息传递给购买者,使农户获得更高的销售价格,进而在有效提高农户精细管理技术投入水平的同时,能够弱化劳动力价格对其所产生的负面影响。