The Sustainability of Contract Farming with Specialized Suppliers to Modern Retailers: Insights from Vegetable Marketing in Indonesia

Shinya Ikeda and Ronnie S. Natawidjaja
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Shinya Ikeda: College of Agriculture, Regional and Environmental Science, Ibaraki University, Inashiki 300-0393, Japan
Ronnie S. Natawidjaja: Center for Sustainable Food Studies, Padjadjaran University, Bandung 40132, Indonesia

Agriculture, 2022, vol. 12, issue 3, 1-11

Abstract: Specialized suppliers to supermarkets in rural Java showed that smallholder farmers could engage in contract farming with the rise of retail modernization. This paper examines whether they have sustained contract farming with the recent decline of modernized stores. Our field survey, based on cases reported by the World Bank in 2006, provides the following findings: (1) Some suppliers failed to sustain contract farming due to growers’ hold-up problems; (2) The suppliers could prevent contract breaching by either undertaking contract-specific investments to train growers or provide inputs. Moreover, they selected growers based on their social reputation to avoid contract breaching; (3) We found that farmers in breach of contract farming on the modern channel begin to arrange farmers’ groups by themselves and return to the traditional channel as a new type of intermediaries. This indicates an evolution of the traditional marketing channel with the supermarket revolution.

Keywords: supermarket revolution; contract farming; hold-up problem; Java (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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