Contract Farming Risks: A Monte Carlo Assessment
AbstractThe objective of this study is to identify the key risks facing each of the stakeholders in the export-focused paprika value chain in Zambia. Although a deterministic cost–benefit analysis indicated that this outgrower scheme would have a very satisfactory net present value (NPV), a Monte Carlo analysis using an integrated financial–economic–stakeholder model identifies a number of risk variables that could make this system unsustainable. The major risks include the variability of the real exchange rate in Zambia, the international price of paprika and the farm yield rates. This analysis points out that irrigation systems are very important for both stabilizing yields and increasing them. The analysis also shows the limitations of loan financing for such outgrower arrangements when at the sector level it is difficult or even impossible to mitigate the risks from real exchange rate movements and movements of international commodity prices. This micro-level analysis shows how critical real exchange rate management policies are in achieving sustainability of such export-oriented value chains.
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Bibliographic InfoPaper provided by JDI Executive Programs in its series Development Discussion Papers with number 2013-07.
Length: 24 pages
Date of creation: Dec 2013
Date of revision:
Monte Carlo simulation; outgrower scheme; paprika ; smallholder farmers; ; sustainability;
Find related papers by JEL classification:
- Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- C. A. Hidalgo & B. Klinger & A. -L. Barabasi & R. Hausmann, 2007. "The Product Space Conditions the Development of Nations," Papers 0708.2090, arXiv.org.
- Orden, David, 2010. "Recent Macroeconomic Dynamics and Agriculture in Historical Perspective," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 42(03), August.
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