Abstract
The export of grain from Western Australia depends on a grain supply network that takes grain from farms to port through Cooperative Bulk Handling (CBH) receival and storage sites. The ability of the network to deliver pest free grain to port and ship depends on the quality of grain delivered by farmers and the efficacy of phosphine based fumigation in controlling stored grain pests. Unfortunately, over time, common stored grain pests have developed resistance to phosphine. There is some evidence that phosphine resistance, develops on farm due to inadequate biosecurity management. This paper considers the design of farm biosecurity contracts using a principal agent approach. An optimizing non-linear programming model with different effort levels of Cooperative Bulk Handling (principal) and farmer (agent) is developed to determine: (i) whether the farmer’s effort level affect the CBH’s profit function, and (ii) whether increasing monitoring effort by the CBH has an impact on farmer’s performance on farm. Results show that; (i) the optimal effort level of farmer is higher for perfect information assumption than moral hazard one. Meanwhile, (ii) under moral hazard assumption, when Bulk Handler is engaged in intensive monitoring level, the farmer is engaged in a higher level of effort. Price premium represents the incentive for farmers, while cost-reduction represents the incentive for Grain Bulk Handler. Key words: Principal-agent model, biosecurity contracts, asymmetric information, stored grain, effort levels, farmer, grain bulk handler.
Highlights
Biosecurity hazards stemming mainly from invasive alien pests and exotic diseases impose a threat over the production systems worldwide (Vitousek et al, 1996)
The main findings of the paper can be summarized as follows: (1) Asymmetric information, relating to grain quality and in particular the effort level that the farmer applies to grain biosecurity management on farm, imposes a cost on Cooperative Bulk Handling (CBH) and ; reduces its profit
The results of the three scenarios described under grain quality model show that, asymmetric information between CBH and farmer reduces the CBH’s profits
Summary
Biosecurity hazards stemming mainly from invasive alien pests and exotic diseases impose a threat over the production systems worldwide (Vitousek et al, 1996). Such hazards can potentially result in significant economic losses; especially for agricultural producers in regions infested with pests or diseases. The consequences might extend over individual farmers to have epidemic effect on the agricultural market through non-sustainability in supply and higher prices in demand. What makes the problem more complicated and have more potential to increase rapidly is the expansion in trade globalization (Pimentel et al, 2001)
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