Do Contractual Relations Incentivize Farmers’ Adoption of Multiple Innovations?: Evidence from the Indonesian Dairy Sector Risti Permani, Ph.D. Professor Wendy Umberger, Ph.D. Global Food Studies, University of Adelaide The 60th AARES Conference, 2-5 February 2016
18
Embed
Do Contractual Relations Incentivize Farmers’ Adoption of ...ageconsearch.umn.edu/bitstream/235500/2/Permani ppt.pdf · Do Contractual Relations Incentivize Farmers’ Adoption
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Do Contractual Relations Incentivize Farmers’ Adoption of Multiple Innovations?: Evidence from the Indonesian Dairy Sector
Risti Permani, Ph.D. Professor Wendy Umberger, Ph.D.Global Food Studies, University of Adelaide
The 60th AARES Conference, 2-5 February 2016
Background
University of Adelaide 2
Technology adoption
• Adoption of a single type of technology
• Farmers may adopt in a stepwise pattern
Contract farming
• An important platform to allow smallholders to gain access to both markets and technologies
• Literature on contract farming and technology adoption is extensive
• Little has been done to assess the effects of farmers’ involvement in contract farming on the sequential adoption of multiple innovations.
– Imposing quality-based bonus payment to contracts between farmers and processors to address information asymmetries would improve input use and therefore milk quality (Saenger et al. 2013; Saenger et al. 2014)
• It remains unclear whether and how this vertical coordination has impacted farmers’ stepwise adoption of multiple innovations
Objective
University of Adelaide 3
• To investigate whether farmers who engage in contract farming would be more incentivized to (sequentially) trial multiple innovations
Methodology
University of Adelaide 4
Data collection (December 2014-January 2015)o >200 dairy households.o 6 cooperatives o Stratified random samplingo 20-page structured questionnaireo 10 moduleso Collaborative effort between Global Food Studies at
University of Adelaide and Bogor Agricultural Universityo Team: Four key researchers, 3 fieldwork coordinators, 16
enumerators, one data entry programmer (and her staff).
Have you used/done since 2010?
University of Adelaide 5
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Automatic milking machines
Milk processing (make yogurt)
Cooling milk in water tanks
Conserving forages for the dry seasons (hay, silage)
Milk pasteurisation
Biogas units
High protein concentrates (16% or higher)
Teat dipping after milking
Nutrient feed blocks
Record keeping
Feed legume forages (e.g. Leucaena)
Mastitis test
Grow new improved grasses (high yield)
Rubber/Plastic floor for the barn/cage
Stainless steel milking equipment
Improved milking hygiene to reduce TPC
Improving drinking water availability 24/7
Use of any fertilisers for the grass
Using detergents for milking equipment
Artificial Insemination (AI)
Adoption, 0 to 1
Innovations – adoption and timeline
Type of innovation Are you familiar with or have you heard of […]?
Have you used/done […] since 2010
Are you still using/doing [...]?
What year did you used/do [...] for the first time?
Artificial Insemination (AI) 0.99 0.98 0.97 2000
Using detergents for milking equipment 0.94 0.86 0.80 2001
Rubber/Plastic floor for the barn/cage 0.92 0.68 0.62 2008
• Similarly, contract farming participation could be affected by adoption decisions where more ‘technology savvy’ farmers might be more likely to meet standards and participate in contract farming.
• As summarised by Bolwig et al. (2009): to deal with endogenous selection, three approaches can be used:
1. Matching estimators which require that selection into program is based only on the observed variables. However, if the assumption of participation on observed variables is doubted, then matching methods will be biased;
2. Instrumental variable (IV);
3. Heckman selection models
Title and Author Method Instrument
The Economics of Smallholder
Organic Contract Farming in Tropical
Africa (Bolwig, et al., 2009)
OLS, Two-stage IV, LIML and
FIML Heckman Selection models
Treatment: Participation in the
organic scheme
Outcome: Gross crop revenue
(log.)
(i) A dummy constructed from the ratio of
non-farm revenue to total revenue, taking
the value of one for those falling in the top
tercile and zero otherwise; (ii) A dummy to
proxy welfare, one if the walls of the
household are made of brick and zero
otherwise.
Impact of Contract Farming on
Income: Linking Small Farmers,
Packers, and Supermarkets in China
(Miyata, et al., 2009)
Heckman selection model
Treatment: Participation in
contract farming
Outcome:
Household income
The distance between the farm of a
household and the farm of the village
leader.
As You Sow, So Shall You Reap: The
Welfare Impacts of Contract Farming
(Bellemare, 2012)
IV model
Treatment: Household
participation in contract farming
Outcome:
Household income
A variable derived by interacting: (i) Dummy 1=’Yes’ to a hypothetical contract
farming question i.e. (randomly generated)
contingent valuation question ( Arrow et
al., 1993 and Mitchell and Carson, 1989);
and
(ii) The initial (hypothetical) value of
investment to enter a contract farming as
part of the same question (i.e. “Would you
be willing to enter a contract farming
agreement that would necessitate an initial
investment of [___]?”; the value ranges
from 25,000 - 150,000 Ariary or US$ 12.5 -
75).
An analysis of contract farming in
East Java, Bali, and Lombok,
Indonesia (Simmons, et al., 2005)
OLS and 2SLS
Treatment:
Contract participation
Outcome: gross margins and
labour use
N/A
Production Contracts and Farm
Business Growth and Survival (Key,
2013)
OLS and IV-2SLS
Treatment: Participation in
production contract
Outcome: Farm size growth
The local (county-level) availability of
production contracts.
University of Adelaide 9
Instrument
• The ‘availability of contracts’ (Key, 2013) as proxied by the average number of local buyers as an instrument.
• In our survey, farmers reported that two most important clauses in their contract are price certainty and supply exclusivity.
Total plate count testing (Yes=1) 0.772 0.546 2.207** 1.854 0.553*
Constant 1.406 -15.19 -32.29 -18.81
Number of observations 210 210 210 210 210
Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1; Base category is innovation index=0. All
coefficients are marginal effects. STATA command gsem is used to run multinomial logit with an endogenous regressor
Concluding remarks
University of Adelaide 16
• There is a need to better understand the determinants of adoption of innovations given the declining rates of adoption.
• Endogeneity of contract farming
– Younger; more educated; smaller farms located close to a processor; quality-based pricing – more likely to engage in contract farming
– ‘Availability of contracts’ as an instrument
• Determinants of adoption of innovations vary between different innovation modes taking into account the sequence of adoption.
• Policy recommendations on the design and timing of programs to introduce new innovations to farmers and future ‘packaging of technologies’ by emphasizing ‘stepwise dissemination’.
References
University of Adelaide 17
• Barrett, C. B., Bachke, M. E., Bellemare, M. F., Michelson, H. C., Narayanan, S., Walker, T. F., 2012. Smallholder Participation in Contract Farming: Comparative Evidence from Five Countries, World Development. 40, 715-730.
• Bellemare, M. F., 2012. As You Sow, So Shall You Reap: The Welfare Impacts of Contract Farming, World Development. 40, 1418-1434.
• Bolwig, S., Gibbon, P., Jones, S., 2009. The Economics of Smallholder Organic Contract Farming in Tropical Africa, World Development. 37, 1094-1104.
• Ersado, L., Amacher, G., Alwang, J., 2004. Productivity and Land Enhancing Technologies in Northern Ethiopia: Health, Public Investments, and Sequential Adoption, American Journal of Agricultural Economics. 86, 321-331.
• Key, N., 2013. Production Contracts and Farm Business Growth and Survival, Journal of Agricultural and Applied Economics. 45, 277-293.
• Miyata, S., Minot, N., Hu, D., 2009. Impact of Contract Farming on Income: Linking Small Farmers, Packers, and Supermarkets in China, World Development. 37, 1781-1790.
• Saenger, C., Qaim, M., Torero, M., Viceisza, A., 2013. Contract farming and smallholder incentives to produce high quality: experimental evidence from the Vietnamese dairy sector, Agricultural Economics. 44, 297-308.
• Saenger, C., Torero, M., Qaim, M., 2014. Impact of Third-party Contract Enforcement in Agricultural Markets—A Field Experiment in Vietnam, American Journal of Agricultural Economics.
• Simmons, P., Winters, P., Patrick, I., 2005. An analysis of contract farming in East Java, Bali, and Lombok, Indonesia, Agricultural Economics. 33, 513-525.
• Wang, H. H., Wang, Y., Delgado, M. S., 2014. The Transition to Modern Agriculture: Contract Farming in Developing Economies, American Journal of Agricultural Economics. 96, 1257-1271.