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Grower heterogeneity and the gains from contract farming The case of Indian poultry

Grower heterogeneity and the gains from contract farming The case of Indian poultry Purpose – The purpose of this paper is to offer an empirical analysis of contract farming (CF) for poultry in the southern state of Andhra Pradesh in India. Design/methodology/approach – Through a probit equation, the factors that matter to their participation in contracting are evaluated. The estimation of income gains is considered within a treatment effects model. The risk benefits from contracting are estimated by simulating the variability of returns if the contract farmers were to be independent growers. Findings – This paper shows that the poultry integrators in Andhra Pradesh are able to appropriate almost the entire efficiency gains from contracting. Yet, the contract growers are better off with the contract. This outcome is because of grower heterogeneity and the way it is employed in the selection of contract growers. The paper also finds that contract growers do gain substantially in terms of risk reduction. Research limitations/implications – The CF literature reminds us that these arrangements often fail because of opportunistic behavior. The poultry example shows that contracting is a useful institution when processor interests are closely aligned to that of the grower. This paper describes the circumstances under which this alignment is obtained. Originality/value – First, it adds to the small and growing body of work that estimates the income gains to contract growers. Second and going beyond existing work on developing countries, this paper also addresses the risk benefits from contracting. Thirdly, this paper estimates the income gains from contracting to the processing firms. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Indian Growth and Development Review Emerald Publishing

Grower heterogeneity and the gains from contract farming The case of Indian poultry

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Publisher
Emerald Publishing
Copyright
Copyright © 2009 Emerald Group Publishing Limited. All rights reserved.
ISSN
1753-8254
DOI
10.1108/17538250910953462
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to offer an empirical analysis of contract farming (CF) for poultry in the southern state of Andhra Pradesh in India. Design/methodology/approach – Through a probit equation, the factors that matter to their participation in contracting are evaluated. The estimation of income gains is considered within a treatment effects model. The risk benefits from contracting are estimated by simulating the variability of returns if the contract farmers were to be independent growers. Findings – This paper shows that the poultry integrators in Andhra Pradesh are able to appropriate almost the entire efficiency gains from contracting. Yet, the contract growers are better off with the contract. This outcome is because of grower heterogeneity and the way it is employed in the selection of contract growers. The paper also finds that contract growers do gain substantially in terms of risk reduction. Research limitations/implications – The CF literature reminds us that these arrangements often fail because of opportunistic behavior. The poultry example shows that contracting is a useful institution when processor interests are closely aligned to that of the grower. This paper describes the circumstances under which this alignment is obtained. Originality/value – First, it adds to the small and growing body of work that estimates the income gains to contract growers. Second and going beyond existing work on developing countries, this paper also addresses the risk benefits from contracting. Thirdly, this paper estimates the income gains from contracting to the processing firms.

Journal

Indian Growth and Development ReviewEmerald Publishing

Published: Apr 17, 2009

Keywords: Agriculture; Poultry; Vertical marketing; India

References