Effect of Contract Farming in a Small Open Less-developed Economy: A General Equilibrium Analysis

-Ranajoy Bhattacharyya (), Gouranga Das and Sugata Marjit ()
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-Ranajoy Bhattacharyya: Indian Institute of Foreign Trade (IIFT), Kolkata, India.
Sugata Marjit: Indian Institute of Foreign Trade,Kolkata,India

No 2153, Working Papers from Indian Institute of Foreign Trade

Abstract: : In this paper, we analyse the entry of a cash crop producing foreign Contract Farming (CF) subsector within the agricultural sector of a country. Entry requires a cash crop price that is substantially above the price of the food crop already being produced within the country. CF (a) increases GDP; (b) may make income distribution more skewed; (c) reduces domestic production of food and hence, (d) increases food import and hence food insecurity. Thus, CF might imply a trade-off between food insecurity, inequality and growth. We employ a variant of 3×3 mixed Specific Factor-Heckscher Ohlin general equilibrium model of production and trade where introduction of a new policy may lead to the emergence of a new sector resulting in finite changes where we show the possibilities of sectoral diversification with combinations of contract farming vis-à-vis traditional agriculture under some plausible conditions. However, either zero CF and extremely high CF are suboptimal and hence, CF cannot be substitute of non-CF agricultural sector producing Food crops. Our results seem to be consistent when compared to some empirically robust conclusions found in the literature and some secondary data available in the FAO website.

Keywords: Contract Farming; Food crops; Cash-crops; Food Insufficiency; Finite Change; General Equilibrium. (search for similar items in EconPapers)
JEL-codes: F11 F16 F60 J43 O13 Q17 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2021
New Economics Papers: this item is included in nep-agr and nep-int
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