Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/90610
Authors: 
Saenger, Christoph
Qaim, Matin
Torero, Maximo
Viceisza, Angelino
Year of Publication: 
2012
Series/Report no.: 
GlobalFood Discussion Papers 10
Abstract: 
In emerging markets for high-value food products in developing countries, processing companies search for efficient ways to source raw material of consistent quality. One widely embraced approach is contract farming. But relatively little is known about the appropriate design of contracts, especially in a small farm context. We use the example of the Vietnamese dairy sector to analyze the effectiveness of existing contracts between a processor and smallholder farmers in terms of incentivizing the production of high quality milk. A framed field experiment is conducted to evaluate the impact of two incentive instruments, a price penalty for low quality and a bonus for consistent high quality milk, on farmers’ investment in quality-improving inputs. Statistical analysis suggests that the penalty drives farmers into higher input use, resulting in better output quality. The bonus payment generates even higher quality milk. We also find that input choice levels depend on farmers’ socio- economic characteristics such as wealth, while individual risk preferences seem to be less important. Implications for the design of contracts with smallholders are discussed.
Subjects: 
Agribusiness
Community/rural/urban development
Institutional and behavioral economics
Demand and price analysis
JEL: 
C93
D22
L14
O13
Q12
Q13
Document Type: 
Working Paper

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