IDEAS home Printed from https://ideas.repec.org/a/oup/wbecrv/v29y2015i3p606-630..html
   My bibliography  Save this article

Managing Quantity, Quality, and Timing in Indian Cane Sugar Production: Ex Post Marketing Permits or Ex Ante Production Contracts?

Author

Listed:
  • Sandhyarani Patlolla
  • Rachael E. Goodhue
  • Richard J. Sexton

Abstract

Private sugar processors in Andhra Pradesh, India use an unusual form of vertical coordination. They issue ‘permits’ to selected cane growers a few weeks before harvest. These permits specify the amount of cane to be delivered during a narrow time period. This article investigates why processors create uncertainty among farmers using ex post permits instead of ex ante production contracts. The theoretical model predicts that ex post permits are more profitable than ex ante contracts or the spot market under existing government regulations in the sugar sector, which include a binding price floor for cane and the designation of a reserve area for each processor wherein it has a legal monopsony for cane. The use of ex post permits creates competition among farmers to increase cane quality, which increases processor profits and farmer costs. Empirical analysis supports the hypothesis that farmers operating in private factory areas have higher unit production costs than do their counterparts who patronize cooperatives.

Suggested Citation

  • Sandhyarani Patlolla & Rachael E. Goodhue & Richard J. Sexton, 2015. "Managing Quantity, Quality, and Timing in Indian Cane Sugar Production: Ex Post Marketing Permits or Ex Ante Production Contracts?," The World Bank Economic Review, World Bank, vol. 29(3), pages 606-630.
  • Handle: RePEc:oup:wbecrv:v:29:y:2015:i:3:p:606-630.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/wber/lhu004
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marcel Fafchamps & Ruth Vargas Hill & Bart Minten, 2008. "Quality control in nonstaple food markets: evidence from India," Agricultural Economics, International Association of Agricultural Economists, vol. 38(3), pages 251-266, May.
    2. Ferrantino, Michael J. & Ferrier, Gary D., 1995. "The technical efficiency of vacuum-pan sugar industry of India: An application of a stochastic frontier production function using panel data," European Journal of Operational Research, Elsevier, vol. 80(3), pages 639-653, February.
    3. Singh, Sukhpal, 2002. "Contracting Out Solutions: Political Economy of Contract Farming in the Indian Punjab," 2002 ASAE 3rd International Conference, October 18-20, Jaipur, India 294714, Asian Society of Agricultural Economists (ASAE).
    4. Dileep, B.K. & Grover, R.K. & Rai, K.N., 2002. "Contract Farming in Tomato: An Economic Analysis," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 57(2), June.
    5. Sudha Narayanan, 2012. "The Heterogeneous welfare impacts of participation in contract farming schemes: Evidence from Southern India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-019, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Craig Jeffrey, 2002. "Caste, Class, and Clientelism: A Political Economy of Everyday Corruption in Rural North India," Economic Geography, Taylor & Francis Journals, vol. 78(1), pages 21-41, January.
    7. Ferrantino Michael J. & Ferrier Gary D. & Linvill Carl B., 1995. "Organizational Form and Efficiency: Evidence from Indian Sugar Manufacturing," Journal of Comparative Economics, Elsevier, vol. 21(1), pages 29-53, August.
    8. Mangala, K.P. & Chengappa, P.G., 2008. "A novel agribusiness model for backward linkages with farmers: a case of food retail chain," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 21(Conferenc).
    9. Abhijit Banerjee & Dilip Mookherjee & Kaivan Munshi & Debraj Ray, 2001. "Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra," Journal of Political Economy, University of Chicago Press, vol. 109(1), pages 138-190, February.
    10. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    11. Barrett, Christopher B. & Bachke, Maren E. & Bellemare, Marc F. & Michelson, Hope C. & Narayanan, Sudha & Walker, Thomas F., 2012. "Smallholder Participation in Contract Farming: Comparative Evidence from Five Countries," World Development, Elsevier, vol. 40(4), pages 715-730.
    12. Mala Lalvani, 2008. "Sugar Co-operatives in Maharashtra: A Political Economy Perspective," Journal of Development Studies, Taylor & Francis Journals, vol. 44(10), pages 1474-1505.
    13. Singh, Sukhpal, 2002. "Contracting Out Solutions: Political Economy of Contract Farming in the Indian Punjab," World Development, Elsevier, vol. 30(9), pages 1621-1638, September.
    14. Sandhyarani Patlolla & Rachael E. Goodhue & Richard J. Sexton, 2012. "Price floors and technical inefficiency in India's sugar processing industry," Agricultural Economics, International Association of Agricultural Economists, vol. 43(1), pages 105-114, January.
    Full references (including those not matched with items on IDEAS)

    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. Vamsidhar Reddy, T.S. & Hall, Andy & Sulaiman V., Rasheed, 2010. "New Organisational and Institutional Vehicles for Managing Innovation in South Asia: Opportunities for Using Research for Technical Change and Social Gain," MERIT Working Papers 2010-054, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    2. Schipmann, Christin & Qaim, Matin, 2011. "Supply chain differentiation, contract agriculture, and farmers’ marketing preferences: The case of sweet pepper in Thailand," Food Policy, Elsevier, vol. 36(5), pages 667-677.
    3. Schipmann, Christin & Qaim, Matin, 2011. "Supply chain differentiation, contract agriculture, and farmers’ marketing preferences: the case of sweet pepper in Thailand," GlobalFood Discussion Papers 108349, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    4. Adu-Gyamfi Poku & Regina Birner & Saurabh Gupta, 2018. "Making Contract Farming Arrangements Work in Africa’s Bioeconomy: Evidence from Cassava Outgrower Schemes in Ghana," Sustainability, MDPI, vol. 10(5), pages 1-21, May.
    5. Singh, Sukhpal, 2009. "Rapporteur’s Report on Implications of Corporate Entry into Agricultural Input and Output Markets and Its Impact on Small Producers and Consumers," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 64(3), pages 1-9.
    6. Veettil, P. Chellattan & Yashodha, Y. & Johny, J., 2018. "Group contracts and sustainability - Experimental evidence from smallholder rice seed production," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277563, International Association of Agricultural Economists.
    7. Johny, J. & Veettil, P.C. & Yashodha, Y., 2018. "Group contracts and sustainability - Experimental evidences from smallholder rice seed production," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276042, International Association of Agricultural Economists.
    8. Ochieng, Dennis O. & Veettil, Prakashan C. & Qaim, Matin, 2017. "Farmers’ preferences for supermarket contracts in Kenya," Food Policy, Elsevier, vol. 68(C), pages 100-111.
    9. Thomas Kopp & Ashok K. Mishra, 2022. "Perishability and market power in Nepalese food crop production," Journal of Agricultural Economics, Wiley Blackwell, vol. 73(2), pages 518-540, June.
    10. Maertens, Miet & Vande Velde, Katrien, 2017. "Contract-farming in Staple Food Chains: The Case of Rice in Benin," World Development, Elsevier, vol. 95(C), pages 73-87.
    11. Mishra, Ashok K. & Kumar, Anjani & Joshi, Pramod K. & D'Souza, Alwin & Tripathi, Gaurav, 2018. "How can organic rice be a boon to smallholders? Evidence from contract farming in India," Food Policy, Elsevier, vol. 75(C), pages 147-157.
    12. repec:oup:apecpp:v:40:y:2018:i:3:p:353-378. is not listed on IDEAS
    13. Bellemare, Marc F., 2012. "As You Sow, So Shall You Reap: The Welfare Impacts of Contract Farming," World Development, Elsevier, vol. 40(7), pages 1418-1434.
    14. Neda Trifković, 2014. "Governance Strategies and Welfare Effects: Vertical Integration and Contracts in the Catfish Sector in Vietnam," Journal of Development Studies, Taylor & Francis Journals, vol. 50(7), pages 949-961, July.
    15. Arouna, Aminou & Michler, Jeffrey D. & Lokossou, Jourdain C., 2021. "Contract farming and rural transformation: Evidence from a field experiment in Benin," Journal of Development Economics, Elsevier, vol. 151(C).
    16. Marcel Fafchamps & Ruth Vargas Hill & Bart Minten, 2008. "Quality control in nonstaple food markets: evidence from India," Agricultural Economics, International Association of Agricultural Economists, vol. 38(3), pages 251-266, May.
    17. Marwa, Erick & Manda, Julius, 2021. "Do Youth Farmers Benefit from Participating in Contract Farming: Evidence from French Beans Youth Farmers in Arusha, Tanzania," 2021 Conference, August 17-31, 2021, Virtual 315907, International Association of Agricultural Economists.
    18. Lambrecht, Isabel & Ragasa, Catherine, 2016. "Do development projects crowd out private-sector activities? A survival analysis of contract farming participation in northern Ghana," IFPRI discussion papers 1575, International Food Policy Research Institute (IFPRI).
    19. Jian Li & Ping Qing & Wuyang Hu & Minglai Li, 2022. "Contract farming, community effect, and farmer valuation of biofortified crop varieties in China: The case of high‐zinc wheat," Review of Development Economics, Wiley Blackwell, vol. 26(2), pages 1035-1055, May.
    20. Schoneveld, George C., 2022. "Transforming food systems through inclusive agribusiness," World Development, Elsevier, vol. 158(C).
    21. BEHERA, Deepak Kumar & SWAIN, Braja Bandhu, 2021. "Coperative-Led Contract Farming On Farm Productivity In India," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 21(1), pages 49-58.

    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:oup:wbecrv:v:29:y:2015:i:3:p:606-630.. 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: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/wrldbus.html .

    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.