The role of contracts in the adoption of irrigation by Brazilian orange growers

Abstract

This article analyses the drivers of adoption of irrigation systems by orange growers in the State of São Paulo, Brazil. Given the scarcity of similar studies focusing on the Brazilian orange sector, the starting point of our article is the estimation of a translog production function to assess the impact of irrigation on the production of a sample of 98 São Paulo’s orange growers. The results showed that irrigation adoption increased orange production of the farms in the sample by 21.9 %, ceteris paribus. Despite the potential benefits of irrigation, adoption was rather low: only 24.6 % of the orange orchards area in the Brazilian orange belt was irrigated in 2015. Starting from this apparent paradox, we argue that the information asymmetry and conflicts observed in the contractual relationship between growers and juice processing firms reduce the incentives for the adoption of technologies in the Brazilian orange sector. We apply probit models to the same sample to test four hypotheses on drivers of the decision to adopt irrigation. The results of our empirical analysis show that the use of contracts in transactions with processing firms negatively affect the adoption of irrigation. The analysis also identifies other variables that influence positively the adoption of irrigation: participation in producers’ associations, participation in courses on irrigation and dependence on the income from the orange orchard. The results of this study suggest that the design of policies aimed at fostering irrigation adoption must consider potential bargaining power asymmetries in the relationships between the users of irrigation and the buyers of their agricultural production.