TRUST ME! EXAMINING THE CONTRACTUAL RELATIONSHIPS BETWEEN SUGARCANE PRODUCERS AND MILLS IN THE CERRADO

Abstract

An increase in biofuel demand aligned with public policies has fueled the expansion of sugarcane into Goiás and Mato Grosso do Sul in the Cerrado. Geographic, temporal and physical asset specificities delimit the area from which mills can procure sugarcane, making sugarcane producers and mills dependent on each other. Thus contracting is a common practice in sugarcane production in the Cerrado and its success directly impacts the sustainability of the ethanol expansion. We fill a gap in the literature on producers’ contract acceptance and trust by determining the factors that affect contract perception and trust with contractors. Using primary data from the states of Goiás and Mato Grosso do Sul we estimate ordered logit models using producer’s perceptions, their characteristics and that of their enterprise. Profits and experience are important factors for a producer when considering a contract. Communication, transparency and other farmer’s perception of a mill were important in building trust. Mills wanting to improve their chances of signing a contract should focus on more participation in the community and on better communication with farmers.