Contract farming and smallholder incentives to produce high quality: experimental evidence from the Vietnamese dairy sector
AbstractIn emerging markets for high-value food products in developing countries, processing companies search for efficient ways to source raw material of consistent quality. One widely embraced approach is contract farming. But relatively little is known about the appropriate design of contracts, especially in a small farm context. We use the example of the Vietnamese dairy sector to analyze the effectiveness of existing contracts between a processor and smallholder farmers in terms of incentivizing the production of high quality milk. A framed field experiment is conducted to evaluate the impact of two incentive instruments, a price penalty for low quality and a bonus for consistent high quality milk, on farmers’ investment in quality-improving inputs. Statistical analysis suggests that the penalty drives farmers into higher input use, resulting in better output quality. The bonus payment generates even higher quality milk. We also find that input choice levels depend on farmers’ socio-economic characteristics such as wealth, while individual risk preferences seem to be less important. Implications for the design of contracts with smallholders are discussed.
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Bibliographic InfoPaper provided by International Association of Agricultural Economists in its series 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil with number 126430.
Date of creation: 2012
Date of revision:
Contract farming; incentives; risk; experimental economics; framed field experiment; dairy; Vietnam; developing countries; Agribusiness; Institutional and Behavioral Economics; International Development; Risk and Uncertainty;
Other versions of this item:
- Christoph Saenger & Matin Qaim & Maximo Torero & Angelino Viceisza, 2013. "Contract farming and smallholder incentives to produce high quality: experimental evidence from the Vietnamese dairy sector," Agricultural Economics, International Association of Agricultural Economists, vol. 44(3), pages 297-308, 05.
- Saenger, Christoph & Qaim, Matin & Torero, Maximo & Viceisza, Angelino, 2012. "Contract farming and smallholder incentives to produce high quality: experimental evidence from the Vietnamese dairy sector," Discussion Papers 122614, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
- C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
This paper has been announced in the following NEP Reports:
- NEP-AGR-2012-07-23 (Agricultural Economics)
- NEP-ALL-2012-07-23 (All new papers)
- NEP-EXP-2012-07-23 (Experimental Economics)
- NEP-SEA-2012-07-23 (South East Asia)
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