Effect of Contract Farming in a Small Open Less-Developed Economy: A General Equilibrium Analysis
- Title
- Effect of Contract Farming in a Small Open Less-Developed Economy: A General Equilibrium Analysis
- Author
- Gouranga G. Das
- Keywords
- Contract Farming; Food crops; Cash-crops; Food Insufficiency; Finite Change; General Equilibrium; Fallacy of Composition
- Issue Date
- 2021-06
- Publisher
- IATRC
- Citation
- IATRC(International Agricultural Trade Research Consortium) Working paper #21-02, page. 1-35
- 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.
- URI
- https://ageconsearch.umn.edu/record/312026/https://repository.hanyang.ac.kr/handle/20.500.11754/166544
- ISSN
- 1098-9210
- DOI
- 10.22004/ag.econ.312026
- Appears in Collections:
- COLLEGE OF BUSINESS AND ECONOMICS[E](경상대학) > ECONOMICS(경제학부) > Articles
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