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Group contracts and sustainability: Experimental evidence from smallholder seed production

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  • Prakashan Chellattan Veettil
  • Yashodha
  • Judit Johny

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.

Suggested Citation

  • Prakashan Chellattan Veettil & Yashodha & Judit Johny, 2021. "Group contracts and sustainability: Experimental evidence from smallholder seed production," PLOS ONE, Public Library of Science, vol. 16(8), pages 1-27, August.
    • Handle: RePEc:plo:pone00:0255176
    DOI: 10.1371/journal.pone.0255176
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    3. Warning, Matthew & Key, Nigel, 2002. "The Social Performance and Distributional Consequences of Contract Farming: An Equilibrium Analysis of the Arachide de Bouche Program in Senegal," World Development, Elsevier, vol. 30(2), pages 255-263, February.
    4. Grosh, Barbara, 1994. "Control Farming in Africa: An Application of the New Institutional Economics," Journal of African Economies, Centre for the Study of African Economies, vol. 3(2), pages 231-261, October.
    5. Sokchea, An & Culas, Richard J., 2015. "Impact of Contract Farming with Farmer Organizations on Farmers’ Income: A Case Study of Reasmey Stung Sen Agricultural Development Cooperative in Cambodia," Australasian Agribusiness Review, University of Melbourne, Department of Agriculture and Food Systems, vol. 23, March.
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