Coordination of channel members’ efforts and utilities in contract farming operations

Baozhuang Niu, Delong Jin and Xujin Pu

European Journal of Operational Research, 2016, vol. 255, issue 3, 869-883

Abstract: One important driving force behind parties entering into contract farming agreements is to improve farmers’ production efforts (e.g. buying agricultural machinery or using new planting techniques). In this study, we examine two widely used channel structures in contract farming operations, namely firm–farmer (FF) and firm–cooperative–farmer (FCF) structures, to assess how each contract type influences the coordination of efforts and utilities by channel members. First, we study wholesale price and cost-sharing contracts under the FF structure and find that the latter can result in a win–win outcome for both channel members when the firm’s cost-sharing proportion is lower than a threshold level. We also find that cost-sharing contract effectively enlarges the opportunity of a successful FF contract farming agreement. Interestingly, we show that the purchasing price offered by the firm has a unimodal pattern in its cost-sharing proportion. Second, under the FCF structure, we consider two bargaining models based on the cooperative’s commission contracts with the farmer. We find that the farmer’s production effort can achieve the system optimal level, and the cooperative’s high bargaining power helps ensure a steady FCF contract farming agreement. We also find that there exists a win–win–win outcome for all three channel members when the cooperative’s commission ratio is higher than a threshold level.

Keywords: Production effort; Contract type; Channel coordination; Contract farming (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221716304180
Full text for ScienceDirect subscribers only

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:eee:ejores:v:255:y:2016:i:3:p:869-883

DOI: 10.1016/j.ejor.2016.05.064

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().