Enforcing contracts: The role of state subsidies as a hybrid enforcement mechanism in contracts between tomato processors and farmers in Algeria

Sami Assassi, Georgios Kleftodimos, Oualid Benharrat and Aybike Bayraktar

Development Policy Review, 2025, vol. 43, issue 2

Abstract: Motivation Contract farming plays a significant role in the growth of agriculture in many countries. Contracting poses substantial challenges when courts and companies are insufficiently developed, constraining the fulfilment of contracts. Exploring innovative contract enforcement mechanisms could yield valuable insights. Purpose We evaluate the effectiveness of state subsidies as a hybrid enforcement mechanism of the marketing contract developed by the Algerian government for tomato processors and their farmer suppliers. Approach and methods We examine the delivery decisions of Algerian tomato farmers to honour contracts or to deliver to the spot market. From the findings we evaluated the direct and indirect effects of subsidies on expanding the self‐enforcing range of contracts and on encouraging firms to establish private contract enforcement mechanisms. Propensity scoring was used to match farmers. The data come from a comprehensive database of contracted tomato producers and surveys of all tomato canneries in 2021. Findings Subsidies, by reducing processor costs and raising famer prices, help to make contracts self‐enforcing. Subsidies, moreover, encouraged half of the processors to adopt private contract enforcement mechanisms, above all loans to their supplier farmers. These mechanisms have had a positive, albeit moderate, effect on farmer deliveries. Farmers still deliver only half of their contracts owing to weakening self‐enforcement as the subsidy can be accessed in the spot market. Policy implications Public subsidies can help enforce contracts in agricultural value chains, especially where legal systems are fragile. Strict control of access to subsidies and incentives is crucial to ensure that the contract price provides sufficient incentive to farmers and to encourage processors to provide additional incentives.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/dpr.12827

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:devpol:v:43:y:2025:i:2:n:e12827

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0950-6764

Access Statistics for this article

Development Policy Review is currently edited by David Booth

More articles in Development Policy Review from Overseas Development Institute Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().