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

Ranajoy Bhattacharyya, Gouranga Das and Sugata Marjit

No 312026, Working Papers from International Agricultural Trade Research Consortium

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. Entry of CF could cause ‘vanishing’ of the food-crop sector. 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 cash-crop 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. Such ramifications could (a) increase GDP; (b) give rise to adverse distributional consequences for labour, and land-owner; (c) reduce domestic production of food and increase food import and hence, (d) aggravate food insecurity. Thus, CF might imply a tradeoff between food insecurity, inequality and growth. However, either zero CF and extremely high CF are suboptimal and hence, CF cannot be substitute of non-CF agricultural sector producing Food crops. In fact, fallacy of composition shows that aggregate has a price effect so that food-crop sector never disappears. 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: Demand and Price Analysis; International Relations/Trade (search for similar items in EconPapers)
Pages: 35
Date: 2021-06
New Economics Papers: this item is included in nep-agr and nep-int
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/312026/files/W ... a%20Das%20Marjit.pdf (application/pdf)

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:ags:iatrwp:312026

DOI: 10.22004/ag.econ.312026

Access Statistics for this paper

More papers in Working Papers from International Agricultural Trade Research Consortium Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().