Price premiums,payment delays,and default risk: understanding developing country farmers’ decisions to market through a cooperative or a private trader

Smallholder farmers in developing countries face a competitive disadvantage in modern agricultural supply chains. Joint marketing through cooperatives is a potential tool to mitigate these disadvantages; yet cooperatives’ success in these settings is uneven at best. We develop an analytical model to study a farmer's choice of selling to a private trader who pays cash on delivery but may exercise market power or a cooperative that promises a price premium but delays payment and carries a concomitant risk of default. In the presence of impatient and risk‐averse farmers, we show that these factors can severely limit smallholder patronage of a cooperative, despite a promised price premium. We then construct and parameterize a simulation model to fit a profile of heterogeneous farmers within a prototype developing‐country village, and study the optimal decisions of farmers regarding marketing through a cooperative versus a private trader. Results suggest that modest improvements in either timeliness of payment or probability of default can induce a substantial increase in a cooperative's market share and economic viability. Extending the simulation analysis to a dynamic setting shows how implementing reasonable policies to improve a cooperative's payment timeliness and default probability can markedly improve its growth trajectory.     

Agricultural sustainability of small-scale farms in Lacluta,Timor Leste

Despite the trend of dwindling productivity, tribal people of the Chittagong Hill Tracts (CHT) still practise shifting cultivation as a dominant hill farming system to support their livelihood. Drawing on an empirical study in Khagrachari district of the CHT, this research examined how far the production from present shifting cultivation supports the tribal people's livelihood and what alternative livelihood strategies they have adopted for subsistence by using data on input/output and income/expenditures, and analysing current government policies. The findings showed that productivity declined markedly, yields were almost equal to input values and farmers experienced food shortages for at least two to six months in a year. To make a living, farmers have adopted new occupations such as wage labour, animal husbandry, cultivation of annual monocrops and extraction and selling of forest products. Policy analysis indicates that previous policies were unable to reduce shifting cultivation intensity or improve tribal people's livelihoods or the region's forest resources. Reorientation of government policies, easy access to institutional support and the active participation of local people in development intervention are of the utmost importance in order to find alternative land uses for sustainable hill farming, to improve the farmer's living standards and to conserve forests and protect watersheds.     

Farmers' Preferences and Social Capital Regarding Agri‐environmental Schemes to Protect Birds

The steady decline of birds living in cereal steppe lands is a worrying situation that the European Common Agricultural Policy is attempting to remedy through the application of agri‐environmental schemes (AES). We assess farmers' preferences towards these AES, which call for a number of environmental practices to protect birds. Using a face‐to‐face survey in farming communities in Aragón (Spain), and through the estimation of an Ordered Logit model (OL), we assess the ranking of AES attributes, and obtain their economic valuation according to the farmers' preferences. We find that social factors are also important in determining farmers' decisions. In particular, the importance of social trust and expectation of compliance by other neighbours, encourage farmers to sign up to AES. These and other results may be used to design more effective AES and help to solve this important biodiversity problem.     

What farmer types are most likely to adopt joint venture farm business structures?

Joint venture (JV) farm structures have the potential to increase the productivity and profitability of traditional family farms. However, such structures are not widely adopted within the farm business community. Furthermore, knowledge on the relative attractiveness of different JV models to farmers is limited. We use a choice experiment to explore what JV structures are preferred by Australian farmers, and how farmers’ socio‐demographic and attitudinal characteristics influence the type of JV structure preferred. A latent class analysis revealed significant unobserved preference heterogeneity amongst the population. We identify four latent classes that differ in their preferences regarding the number of JV partners, access to new machinery, and/or the opportunity for additional annual leave. All classes of farmers displayed positive preferences for operational decision‐making with other JV partners, although they varied in their preferences towards final operational responsibility. The diversity in preferences shows that there is no ‘one size fits all’ JV design, leaving opportunities for a range of JV decision models. Such flexibility in JV design is likely to have advantages when seeking JV partners, with a significant proportion of the sampled population open to collaborative decision‐making models.     

Oil Palm Expansion among Smallholder Farmers in Sumatra,Indonesia

Many tropical regions are experiencing a rapid growth of oil palm cultivation. In Indonesia, the world's leading palm oil producer, in addition to large companies, smallholder farmers are increasingly engaged in the oil palm sector. Smallholder oil palm cultivation may contribute to income gains and socio‐economic development. However, land‐use decisions by smallholders are not well understood. Without appropriate policies, negative social and environmental consequences can also occur. To improve the knowledge base, we use data about present and past land‐use decisions from a survey of farm households in Sumatra. Employing duration models, we analyse the determinants and dynamics of oil palm adoption among smallholders. We find that independently operating farmers are currently driving growth rates in the oil palm sector. Smallholder adoption decisions are mainly attributable to regional and village level factors. While the current adoption primarily occurs outside of contracts, previous contractual ties between companies and other farmers in the same village play an important role for individual decisions. Beyond initial adoption, we also analyse later expansion decisions. While expanding the oil palm area subsequent to initial adoption is common among all types of adopters, those without previous contracts are found to expand significantly faster. We conclude that the concessions the government has allocated to palm oil companies in the past have initiated oil palm adoption in the small farm sector, but that the ensuing land‐use dynamics are mostly beyond government control. Some wider implications are discussed.     

Trade,value chains,and rent distribution with foreign exchange controls: Coffee exports in Ethiopia

Exchange rate policies can have important implications on incentives for export agriculture. However, their effects are often not well understood. We study the issue of foreign exchange controls and pricing in the value chain for Ethiopia's coffee—its most important export crop. Relying on unique pricing and cost data, we find that coffee exporters are willing to incur losses during exporting by offering high prices for coffee locally in order to access scarce foreign exchange. We further find that the consequent high wholesale prices for coffee are transmitted to producers, so that coffee farmers are unintended beneficiaries of this rent.     

Maize Diversity and the Political Economy of Agrarian Restructuring in Guatemala

The neoliberal restructuring of agriculture is often predicated on the promise of a more efficient food system: other objectives, such as access to food, the environmental sustainability of production practices, the nutritional composition of diets and the rights of food producers, are largely ignored. In this paper, I document how the liberalization of trade and agricultural policies in Guatemala has undermined the latter set of objectives, thereby compromising domestic food sovereignty and global food security. In particular, I demonstrate how neoliberal policies have undermined maize agriculture and contributed to the loss of crop genetic resources in the Guatemalan ‘megacentre’ of agricultural biodiversity. In its place, small‐scale farmers have been encouraged to conform to the country's purported comparative advantage in non‐traditional export crops. The results have been widening inequality, a growing dependence upon imported grain and agrochemicals, environmental degradation and decreased food security.     

Heterogeneous Demand and Supply for an Insurance‐linked Credit Product in Kenya: A Stated Choice Experiment Approach

We employ a discrete choice experiment to elicit demand and supply side preferences for insurance‐linked credit, a promising market‐based tool for managing agricultural weather risks and providing access to credit for farmers. We estimate preference heterogeneity using primary data from smallholder farmers and managers of lenders/insurers combined with household socio‐economic survey data in Kenya. We analyse the choice data using maximum simulated likelihood and Hierarchical Bayes estimation of a mixed logit model. Although there are some similarities, we find that there is conflicting demand and supply side preferences for credit terms, collateral requirements, and loan use flexibility. We also analyse willingness to buy and willingness to offer for farmers and suppliers, respectively, for the risk premium for different attributes and their levels. Identifying the preferred attributes and levels for both farmers and financial institutions can guide optimal packaging of insurance and credit providing market participation and adoption motivation for insurance‐bundled credit product.     

Risk,learning, and technology adoption

This article explores how decision makers learn and use information, with an application to the adoption of biotechnology in agriculture. The empirical analysis relies on experimental and survey data measuring risk preferences, learning processes, and the adoption of genetically modified (GM) seeds among U.S. grain farmers. While controlling for risk aversion, we link individual learning rules with the cognitive abilities of each decision maker and their actual GM adoption decisions. We find evidence that very few individuals are Bayesian learners, and that the population of farmers is quite heterogeneous in terms of learning rules. This suggests that Bayesian learning (as commonly assumed in the analysis of agricultural technology adoption) is not an appropriate characterization. In addition, we do not find a strong relationship between observed learning styles and the timing of GM seed adoption. To the extent that learning is a key part of the process of technology adoption, this suggests the presence of much unobserved heterogeneity in learning among farmers.     

Can women's self‐help groups improve access to information,decision‐making,and agricultural practices? The Indian case

Effective agricultural extension is key to improving productivity, increasing farmers’ access to information, and promoting more diverse sets of crops and improved methods of cultivation. In India, however, the coverage of agricultural extension workers and the relevance of extension advice is poor. We investigate whether a women's self‐help group (SHG) platform could be an effective way of improving access to information, women's empowerment in agriculture, agricultural practices, and production diversity. We use cross‐sectional data on close to 1,000 women from five states in India and employ nearest‐neighbor matching models to match SHG and non‐SHG women along a range of observed characteristics. We find that participation in an SHG increases women's access to information and their participation in some agricultural decisions, but has limited impact on agricultural practices or outcomes, possibly due to financial constraints, social norms, and women's domestic responsibilities. SHGs need to go beyond provision of information to changing the dynamics around women's participation in agriculture to effectively translate knowledge into practice.     

Optimal Drug Control under Risk of Drug Resistance – The Case of African Animal Trypanosomosis

We examine two widely used treatment strategies for African animal trypanosomosis in West Africa: preventive drug control ex‐ante trypanosomosis infection and curative drug control ex‐post trypanosomosis infection. We investigate which combination of these alternative strategies is economically optimal for cattle farmers. We apply a dynamic optimisation framework to consider both the negative externality of drug resistance development and human behaviour. We develop a bio‐economic model to simulate the economic consequences of treatment strategies in a dynamic scenario that takes into account the interactions among the vector, host and livestock farmers. This model allows for the evolution of drug‐resistant trypanosomes through trypanocide misuse and simulates the observed behaviours of cattle farmers based on the elicited risk and time preferences of a sample of 202 cattle farmers in Mali and Burkina Faso. The results show that the private optimal mix of treatment strategies for a risk averse and patient farmer involves preventive treatment for susceptible cattle, supported by a small number of curative treatments for infected cattle. Compared with the treatment strategies observed in the field, this optimal mix of treatment strategies would save approximately 5% of the annual income of a livestock farmer in the study area and would reduce the prevalence of trypanosomosis. In addition, we demonstrate that a reduction in a farmer's risk aversion is associated with higher treatment rates that can avoid additional losses. By contrast, a decrease in a farmer's patience is related to lower treatment rates that thwart additional benefits. Our results suggest that individual risk and time preferences need to be considered in the development process of disease control interventions.     

Incentive-Compatible Pollution Control Policies under Asymmetric Information on Both Risk Preferences and Technology

This article proposes a method to accommodate asymmetric information on farmers' risk preferences in designing voluntary environmental policies. By incorporating stochastic efficiency rules in a mechanism design problem, the government can find incentive-compatible policies by knowing only the general class of risk preferences among farmers. The model also accounts for hidden information on technology types and input use. The method is applied empirically to simulate a pollution control program in New York. Results suggest that participation incentives would be inadequate for many risk-averse producers if the government does not account for the diversity in risk preferences.     

Farmers’ objectives as determinants of organic farming adoption: the case of Catalonian vineyard production

This article assesses the decision to adopt organic farming practices. We use Duration Analysis (DA) to determine why farmers adopt organic farming practices and what influences the timing of adoption. We extend previous studies by including farmers’ objectives, risk preferences, and agricultural policies as covariates in the DA model. The Analytical Hierarchy Process is used as a multicriteria decision‐making methodology to measure farmers’ objectives. The empirical analysis uses farm‐level data from a sample of vineyard farms in the Spanish region of Catalonia. Farmers’ objectives are found to influence the conversion decision. Moreover, farmers who are not risk averse are more likely to adopt organic farming. Results point to the policy changes that have been most relevant in motivating adoption of organic practices.     

How Do Health and Social Insurance Programmes Affect the Land and Labour Allocations of Farm Households? Evidence from Taiwan

To protect farmers from health care costs and risks to livelihood, most countries have developed special health and social insurance programmes specifically for farmers. While numerous studies have examined the determinants of participation in these programmes, little is known about how they influence famers' land and labour allocations. Without government‐sponsored health and social insurance, farmers may seek off‐farm employment in order to obtain similar benefits. Conditioning eligibility for social insurance on minimum land holdings and on‐farm work days can lead to delayed retirement and other forms of job lock. We investigate these issues using a unique dataset of 703,287 farms in Taiwan. After controlling for non‐random participation in Taiwan's social insurance programme, we find that the programme increases (decreases) on (off) farm labour supply, and decreases the amount of set‐aside land. This suggests that payments from social insurance substitute for those issued through land set‐aside programmes to some extent, and that failing to account for this substitution increases the cost of achieving both programmes' objectives.     

Production risk,risk aversion and the determination of risk attitudes among Spanish rice producers

Agricultural production is subject to risk and the attitudes of producers toward risk will influence input choices insofar as these affect production risk. Risk attitudes in turn may be affected by certain socioeconomic characteristics of producers. Using 2004 survey data from a cross‐section of 130 Spanish rice farms, we estimate risk‐aversion coefficients of farmers and investigate the influence of a series of socioeconomic variables on their risk attitudes. Our results show that farmers exhibit risk‐averse behavior and that risk attitudes are related to a series of socioeconomic characteristics. In particular, the belief that the farm will continue after the producer retires is found to increase the degree of risk aversion, while age is found to have nonlinear effects on risk aversion. Off‐farm income, especially from nonagricultural activities, is found to reduce risk aversion. Neither the educational level of the producer nor the presence of dependents on the household is found to have an effect on risk preferences. Regarding the production technology, we find that land, labor, and fitosanitary products are risk‐reducing inputs, whereas capital, seeds, and fertilizer all increase risk.     

Tariff Liberalisation,Price Transmission and Rural Welfare in China

China's tariff liberalisation as part of its WTO accession application and eventual agreement has been thoroughly analysed in the literature. However, much of this literature is based on forward‐looking ex‐ante analyses and few studies provide empirical evidence on its actual impact. We fill in this gap by evaluating empirically the welfare effects of China's actual tariff liberalisation on Chinese farmers during the 1997–2010 period. By estimating the domestic market price effects of China's tariff liberalisation and the associated wage earning effects, we find that on average Chinese farmers were able to gain more from reduced consumption prices than they would lose from reduced agricultural and wage income due to tariff liberalisation. Welfare gains over time are estimated to be positively correlated with the actual degrees of tariff liberalisation, implying that relatively more gains were realized immediately before and after China's WTO accession in 2001, as compared to the more recent period when relatively little liberalisation was carried out. Farmers’ rising non‐agricultural income and increasing consumption shares of non‐agricultural products are important determinants of these positive average welfare effects. Moreover, welfare gains from tariff liberalisation are shown to be distributed unevenly across Chinese provinces and income levels, with farmers located in coastal provinces and at higher income levels gaining more than their counterparts in remote provinces and at lower income levels.     

The impact of strengthening agricultural extension services on women farmers: Evidence from Ethiopia

This paper evaluates the effect of the Rural Capacity Building Project (RCBP), which aimed at promoting growth by strengthening the agricultural service systems in Ethiopia, and by making them more responsive to smallholders’ needs, in particular women farmers. We examine the gender‐differentiated impact of the RCBP using panel data on 1,485 geographically dispersed households in project and control kebeles. We find that women farmers’ access and satisfaction with extension services increased significantly immediately after the start of the project, but that effect did not last into the medium term. The project led to an increase in the adoption of high‐value crop farming, area of land cultivated, and economic participation of household members, benefiting male‐ and female‐headed households equally. Results point to the positive impact of incorporating women's needs and constraints in the design of the agricultural extension system. However, the project was not able to reduce the preexisting gender gap in agricultural outcomes.     

Cost‐reflective pricing: empirical insights into irrigators’ preferences for water tariffs

Using prices to improve the efficiency with which water resources are allocated is now widely accepted in principle if somewhat difficult to achieve in practice. Whilst there are some technical difficulties associated with full‐cost recovery in irrigation, the lack of political will to tackle reform remains a significant impediment. This article reports the results of an empirical investigation into farmers’ preferences for changes to water prices and tariff structures. We conclude that some of the preferences of farmers are conducive to price reform. We also find evidence that public subsidy of infrastructure in irrigation is not always aligned with the preferences of farmers.     

How has microcredit supported agriculture? Evidence using panel data from Bangladesh

Improving agricultural productivity has received a greater attention in recent years amid concerns about rising food insecurity, population pressures, and climate change. Many believe that better access to institutional credit, spanning microcredit as well as commercial and agricultural banks, can help rural households smooth risks, and access inputs and other technology to modernize agriculture and improve farm/nonfarm linkages. We use recently augmented household panel data spanning over 20 years in Bangladesh to examine the effects of rural credit expansion (both microcredit and formal bank channels) on outcomes for agricultural households. We find that microcredit has benefited households with lower landownings, raising agricultural income from activities such as livestock rearing that require less land, as well as nonfarm income diversification for all households, but with the strongest effect for landless or near‐landless households. We do not find effects of microcredit on crop income, but do, however, find that reported supply‐side credit constraints significantly lower crop income. Borrowing by both men and women has contributed to nonfarm income growth for marginal farmers, but only men's borrowing has contributed to nonfarm income growth among higher landowning groups.     

The effects of growth,shrinkage, population aging and preference shifts on urban development—A spatial scenario analysis of Berlin,Germany

We observe diverse urban development trends in European cities, with processes such as population aging, growth, shrinkage, and reurbanization having unclear consequences on land use and the urban form. The effects of these processes are especially difficult to determine when they occur quickly and simultaneously. We use varying scenarios of contrasting and exceeding variants of these urban development trends to uncover possible interactions by focusing on demographic and residential preference shifts that were simulated in a previously presented land use model (Lauf et al., 2012). Using urban form indicators and landscape metrics, we determine urban to peri-urban effects. Among other interesting results, we discovered that population aging expedited by population shrinkage greatly affects land consumption. This effect is especially pronounced in the outer city due to the residential preferences of elderly people and thereby reduces urban shrinkage. In contrast, a shift in preferences toward reurbanization reduces land consumption significantly. Population aging produces synergies in terms of urban growth and landscape fragmentation and trade-offs in terms of urban shrinkage and compactness, and the opposite holds for increasing reurbanization.