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Effect of Contract Farming in a Small Open Less-developed Economy: A General Equilibrium Analysis

Author

Listed:
  • -Ranajoy Bhattacharyya

    (Indian Institute of Foreign Trade (IIFT), Kolkata, India.)

  • Gouranga Das

    (Hanyang University, Seoul, South Korea)

  • Sugata Marjit

    (Indian Institute of Foreign Trade,Kolkata,India)

Abstract

: In this paper, we analyse the entry of a cash crop producing foreign Contract Farming (CF) subsector within the agricultural sector of a country. Entry requires a cash crop price that is substantially above the price of the food crop already being produced within the country. CF (a) increases GDP; (b) may make income distribution more skewed; (c) reduces domestic production of food and hence, (d) increases food import and hence food insecurity. Thus, CF might imply a trade-off between food insecurity, inequality and growth. We employ a variant of 3×3 mixed Specific Factor-Heckscher Ohlin general equilibrium model of production and trade where introduction of a new policy may lead to the emergence of a new sector resulting in finite changes where we show the possibilities of sectoral diversification with combinations of contract farming vis-à-vis traditional agriculture under some plausible conditions. However, either zero CF and extremely high CF are suboptimal and hence, CF cannot be substitute of non-CF agricultural sector producing Food crops. Our results seem to be consistent when compared to some empirically robust conclusions found in the literature and some secondary data available in the FAO website.

Suggested Citation

  • -Ranajoy Bhattacharyya & Gouranga Das & Sugata Marjit, 2021. "Effect of Contract Farming in a Small Open Less-developed Economy: A General Equilibrium Analysis," Working Papers 2153, Indian Institute of Foreign Trade.
    • Handle: RePEc:ift:wpaper:2153
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Contract Farming; Food crops; Cash-crops; Food Insufficiency; Finite Change; General Equilibrium.;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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