Group contracts and sustainability: Experimental evidence from smallholder seed production.

László Vasa,Judit Johny,Yashodha Yashodha,Prakashan Chellattan Veettil

doi:10.1371/journal.pone.0255176

László Vasa, Judit Johny + Show 2 more

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https://doi.org/10.1371/journal.pone.0255176

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Abstract

Contract farming in seed production has played an instrumental role in bringing private investment into seed research and production. As developing countries have predominantly small and marginal farmers, the number of inefficiencies that arise from seed contractual agreements hinders producers from realizing the full potential benefits from seed contracts. We carried out an economic experiment with real producers and organizers currently engaged in seed production to analyze their preference for group seed contracts, its sustainability and welfare implications in the seed value chain. The producers are offered two types of group contracts: B and C. Contract B involves a company-organizer-seed producer group (SPG) whereas contract C removes the organizer and directly engages with the SPG (company → SPG). In the experiment, producers are asked to choose between an existing contract and either of the proposed group contracts. The experiment consists of two treatments: (i) concealed and revealed price information between agents, and (ii) presence and absence of a local organizer while making the decision. We find that the preference for group contract B is higher than for group contract C, suggesting the need for producers bargaining which can be achieved through group contract in the existing contract, Bargaining is high (6.3 percentage points) when price information is concealed. SPGs survive for about four out of five rounds and more than half of the groups (53%) formed in the first round survived throughout the five rounds, indicating a very high group sustainability.

Highlights

Contract farming (CF) in agriculture has diverse views on its impact on smallholders–supporters argue for its inclusivity of smallholders to modern value chains and viewed as an institutional mechanism to remove market imperfections in output, land, credit, labor and insurance markets [1,2]
Studies have largely focused on the factors that determine the success or failure of groups after groups have been established [2,11,12] In this light, the current study empirically evaluates the formation of voluntary groups among rice seed producers under contract farming
We find that the average survival rate of a group is 55%, implying that more than half of the seed producer group (SPG) formed are likely to survive throughout once they are formed

Summary

Introduction

Contract farming (CF) in agriculture has diverse views on its impact on smallholders–supporters argue for its inclusivity of smallholders to modern value chains and viewed as an institutional mechanism to remove market imperfections in output, land, credit, labor and insurance markets [1,2]. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript

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