IDEAS home Printed from https://ideas.repec.org/a/bla/popmgt/v30y2021i9p3036-3053.html
   My bibliography  Save this article

An Economic Analysis of Agricultural Support Prices in Developing Economies

Author

Listed:
  • Harish Guda
  • Milind Dawande
  • Ganesh Janakiraman
  • Tharanga Rajapakshe

Abstract

The goals of the guaranteed support price (GSP) scheme, adopted by several developing countries to support their farmers and the underprivileged population, are threefold: (a) as a supply‐side incentive, to ensure high output from the farmers, (b) as a demand‐side provisioning tool, to subsidize the consumption needs of the poor, and (c) to maintain an adequate amount of foodgrains as reserve stock, to mitigate the adverse effects of yield uncertainty (food security). We offer analytically supported insights on the fundamental aspects of this scheme by analyzing a Stackelberg game between a homogenous population of small farmers and a social planner. We model the strategic behavior of the farmers and the consuming population (Above‐ and Below‐Poverty‐Line consumers), and compare the equilibrium outcome with that under the direct benefit transfer (DBT) scheme, where the social planner simply distributes the budget among the BPL consumers. The comparison of the social planner's surplus depends on the marginal value from maintaining a reserve stock (i.e., the significance of food security). If this value is high, then the surplus under the GSP scheme strictly dominates that under DBT; otherwise, the surplus is identical. The comparison of the production by the farmers depends on two economic forces—the poorness of the BPL consumers and yield uncertainty. If the poorness is extreme, then the two schemes lead to identical production. If yield uncertainty is dominant, then DBT is ineffective in improving production while the GSP scheme can induce a strictly higher production by strategically choosing the reserve stock.

Suggested Citation

  • Harish Guda & Milind Dawande & Ganesh Janakiraman & Tharanga Rajapakshe, 2021. "An Economic Analysis of Agricultural Support Prices in Developing Economies," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 3036-3053, September.
  • Handle: RePEc:bla:popmgt:v:30:y:2021:i:9:p:3036-3053
    DOI: 10.1111/poms.13416
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/poms.13416
    Download Restriction: no

    File URL: https://libkey.io/10.1111/poms.13416?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Burak Kazaz & Scott Webster & Prashant Yadav, 2016. "Interventions for an Artemisinin-based Malaria Medicine Supply Chain," Production and Operations Management, Production and Operations Management Society, vol. 25(9), pages 1576-1600, September.
    2. David L. Sjoquist, 1979. "An Analysis of Market Adjustments under a Price Floor," The American Economist, Sage Publications, vol. 23(1), pages 28-34, March.
    3. Awi Federgruen & Upmanu Lall & A. Serdar Şimşek, 2019. "Supply Chain Analysis of Contract Farming," Manufacturing & Service Operations Management, INFORMS, vol. 21(2), pages 361-378, April.
    4. Ying-Ju Chen & Christopher S. Tang, 2015. "The Economic Value of Market Information for Farmers in Developing Economies," Production and Operations Management, Production and Operations Management Society, vol. 24(9), pages 1441-1452, September.
    5. Christopher S. Tang & Yulan Wang & Ming Zhao, 2015. "The Implications of Utilizing Market Information and Adopting Agricultural Advice for Farmers in Developing Economies," Production and Operations Management, Production and Operations Management Society, vol. 24(8), pages 1197-1215, August.
    6. Chris Parker & Kamalini Ramdas & Nicos Savva, 2016. "Is IT Enough? Evidence from a Natural Experiment in India’s Agriculture Markets," Management Science, INFORMS, vol. 62(9), pages 2481-2503, September.
    7. Tim Josling & Kym Anderson & Andrew Schmitz & Stefan Tangermann, 2010. "Understanding International Trade in Agricultural Products: One Hundred Years of Contributions by Agricultural Economists," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(2), pages 424-446.
    8. Retsef Levi & Somya Singhvi & Yanchong Zheng, 2020. "Economically Motivated Adulteration in Farming Supply Chains," Management Science, INFORMS, vol. 66(1), pages 209-226, January.
    9. Cummings, Ralph Jr. & Rashid, Shahidur & Gulati, Ashok, 2006. "Grain price stabilization experiences in Asia: What have we learned?," Food Policy, Elsevier, vol. 31(4), pages 302-312, August.
    10. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    11. Gomez-Limon, Jose Antonio & Riesgo, Laura & Arriaza Balmón, Manuel, 2002. "Agricultural Risk Aversion Revisited: A Multicriteria Decision-Making Approach," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24827, European Association of Agricultural Economists.
    12. Jaehyung An & Soo-Haeng Cho & Christopher S. Tang, 2015. "Aggregating Smallholder Farmers in Emerging Economies," Production and Operations Management, Production and Operations Management Society, vol. 24(9), pages 1414-1429, September.
    13. Karl A. Fox, 1956. "The Contribution of Farm Price Support Programs to General Economic Stability," NBER Chapters, in: Policies to Combat Depression, pages 295-356, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Prashant Chintapalli & Christopher S. Tang, 2022. "Crop minimum support price versus cost subsidy: Farmer and consumer welfare," Production and Operations Management, Production and Operations Management Society, vol. 31(4), pages 1753-1769, April.
    2. Nan, Qiuying & Sun, Mengchan & Nie, Jiajia & Yang, Rui & Wan, Lijuan, 2023. "The efficacy of a forward market for the agricultural sector in mitigating climate risk: A potential alternative to agricultural subsidies?," Finance Research Letters, Elsevier, vol. 55(PB).
    3. Zhong, Ling & Nie, Jiajia & Yue, Xiaohang & Jin, Minyue, 2023. "Optimal design of agricultural insurance subsidies under the risk of extreme weather," International Journal of Production Economics, Elsevier, vol. 263(C).
    4. Li, Hongping & Zha, Yong & Bi, Gongbing, 2023. "Agricultural insurance and power structure in a capital-constrained supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 171(C).
    5. Dan, Bin & Lei, Ting & Zhang, Xumei & Liu, Molin & Ma, Songxuan, 2023. "Modeling of the subsidy policy in fresh produce wholesale markets under yield uncertainty," Economic Modelling, Elsevier, vol. 126(C).
    6. Chintapalli, Prashant, 2023. "Optimal multi-period crop procurement and distribution policy with minimum support prices," Socio-Economic Planning Sciences, Elsevier, vol. 89(C).
    7. Xiaolong Guo & Lihong Cheng & Yugang Yu, 2022. "Government subsidy policy for green and efficient raw materials considering farmer heterogeneity," Production and Operations Management, Production and Operations Management Society, vol. 31(11), pages 4095-4112, November.
    8. Liu, Hengyu & Zheng, Kai, 2024. "Analysis of the Chinese government's subsidy programs to restore the pork supply chain: The case of African swine fever," Omega, Elsevier, vol. 124(C).
    9. Pagare, Dewang & Biswas, Indranil & Agrahari, Amit & Ghosh, Sriparna, 2023. "A small farmer’s market choice in the presence of multiple markets: The Indian case," European Journal of Operational Research, Elsevier, vol. 311(2), pages 739-753.
    10. Harish Guda & Milind Dawande & Ganesh Janakiraman, 2021. "“Seemingly‐Beneficial” Interventions," Production and Operations Management, Production and Operations Management Society, vol. 30(10), pages 3337-3353, October.
    11. Guerrero-Ortiz, Pilar Lourdes & Palacio-Muñoz, Víctor Herminio & Leos-Rodríguez, Juan Antonio & Ocampo-Ledesma, Jorge Gustavo, . "Precios de Garantía en México (2019-2020): diseño e implementación de política agrícola," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 21(02).
    12. Sushil Gupta & Hossein Rikhtehgar Berenji & Manish Shukla & Nagesh N. Murthy, 2023. "Opportunities in farming research from an operations management perspective," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1577-1596, June.
    13. Min Su & Nico Heerink & Peter Oosterveer & Tao Tan & Shuyi Feng, 2021. "Impacts of China’s Minimum Grain Procurement Price Program on Agrochemical Use: A Household-Level Analysis," Agriculture, MDPI, vol. 11(10), pages 1-20, September.
    14. Nur Ayvaz‐Çavdaroğlu & Burak Kazaz & Scott Webster, 2021. "Incentivizing Farmers to Invest in Quality through Quality‐Based Payment," Production and Operations Management, Production and Operations Management Society, vol. 30(10), pages 3812-3830, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jiguang Chen & Ying‐Ju Chen, 2021. "The Impact of Contract Farming on Agricultural Product Supply in Developing Economies," Production and Operations Management, Production and Operations Management Society, vol. 30(8), pages 2395-2419, August.
    2. Xiaolong Guo & Lihong Cheng & Yugang Yu, 2022. "Government subsidy policy for green and efficient raw materials considering farmer heterogeneity," Production and Operations Management, Production and Operations Management Society, vol. 31(11), pages 4095-4112, November.
    3. Lingxiu Dong, 2021. "Toward Resilient Agriculture Value Chains: Challenges and Opportunities," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 666-675, March.
    4. Nur Ayvaz‐Çavdaroğlu & Burak Kazaz & Scott Webster, 2021. "Incentivizing Farmers to Invest in Quality through Quality‐Based Payment," Production and Operations Management, Production and Operations Management Society, vol. 30(10), pages 3812-3830, October.
    5. Jónas Oddur Jónasson & Kamalini Ramdas & Alp Sungu, 2022. "Social impact operations at the global base of the pyramid," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4364-4378, December.
    6. Sushil Gupta & Hossein Rikhtehgar Berenji & Manish Shukla & Nagesh N. Murthy, 2023. "Opportunities in farming research from an operations management perspective," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1577-1596, June.
    7. Saed Alizamir & Foad Iravani & Hamed Mamani, 2019. "An Analysis of Price vs. Revenue Protection: Government Subsidies in the Agriculture Industry," Management Science, INFORMS, vol. 65(1), pages 32-49, January.
    8. Yu, Yanan & He, Yong & Zhao, Xuan, 2021. "Impact of demand information sharing on organic farming adoption: An evolutionary game approach," Technological Forecasting and Social Change, Elsevier, vol. 172(C).
    9. Guo, Qiaozhen & He, Qiao-Chu & Chen, Ying-Ju & Huang, Wei, 2021. "Poverty mitigation via solar panel adoption: Smart contracts and targeted subsidy design," Omega, Elsevier, vol. 102(C).
    10. Wei Zhang & Long Gao & Mohammad Zolghadr & Dawei Jian & Mohsen ElHafsi, 2023. "Dynamic incentives for sustainable contract farming," Production and Operations Management, Production and Operations Management Society, vol. 32(7), pages 2049-2067, July.
    11. Shihong Xiao & Ying-Ju Chen & Christopher S. Tang, 2020. "Knowledge Sharing and Learning Among Smallholders in Developing Economies: Implications, Incentives, and Reward Mechanisms," Operations Research, INFORMS, vol. 68(2), pages 435-452, March.
    12. Luyi Gui & Christopher S. Tang & Shuya Yin, 2019. "Improving Microretailer and Consumer Welfare in Developing Economies: Replenishment Strategies and Market Entries," Service Science, INFORMS, vol. 21(1), pages 231-250, January.
    13. Duygu Akkaya & Kostas Bimpikis & Hau Lee, 2021. "Government Interventions to Promote Agricultural Innovation," Manufacturing & Service Operations Management, INFORMS, vol. 23(2), pages 437-452, March.
    14. Tarun Jain & Jishnu Hazra & T. C. E. Cheng, 2023. "Analysis of upstream pricing regulation and contract structure in an agriculture supply chain," Annals of Operations Research, Springer, vol. 320(1), pages 85-122, January.
    15. Hau L. Lee & Christopher S. Tang, 2018. "Socially and Environmentally Responsible Value Chain Innovations: New Operations Management Research Opportunities," Management Science, INFORMS, vol. 64(3), pages 983-996, March.
    16. Yiwen Bian & Shuai Yan & Zelong Yi & Xu Guan & Ying‐Ju Chen, 2022. "Quality Certification in Agricultural Supply Chains: Implications from Government Information Provision," Production and Operations Management, Production and Operations Management Society, vol. 31(4), pages 1456-1472, April.
    17. Ming Hu & Yan Liu & Wenbin Wang, 2019. "Socially Beneficial Rationality: The Value of Strategic Farmers, Social Entrepreneurs, and For-Profit Firms in Crop Planting Decisions," Management Science, INFORMS, vol. 65(8), pages 3654-3672, August.
    18. Chen-Nan Liao & Ying-Ju Chen & Christopher S. Tang, 2019. "Information Provision Policies for Improving Farmer Welfare in Developing Countries: Heterogeneous Farmers and Market Selection," Manufacturing & Service Operations Management, INFORMS, vol. 21(2), pages 254-270, May.
    19. ManMohan S. Sodhi & Christopher S. Tang, 2016. "Supply chain opportunities at the bottom of the pyramid," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(2), pages 125-134, June.
    20. Tang, Christopher S. & Sodhi, ManMohan S. & Formentini, Marco, 2016. "An analysis of partially-guaranteed-price contracts between farmers and agri-food companies," European Journal of Operational Research, Elsevier, vol. 254(3), pages 1063-1073.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:popmgt:v:30:y:2021:i:9:p:3036-3053. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1937-5956 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.