Effect of Contract Farming in a Small Open Less-Developed Economy: A General Equilibrium Analysis
- Authors
- Bhattacharyya, Ranajoy; Gouranga G. Das
- Issue Date
- Jun-2021
- Publisher
- IATRC
- Keywords
- Demand and Price Analysis; International Relations/Trade
- Citation
- IATRC Working Papers Series, v.21, no.02, pp 1 - 35
- Pages
- 35
- Indexed
- FOREIGN
- Journal Title
- IATRC Working Papers Series
- Volume
- 21
- Number
- 02
- Start Page
- 1
- End Page
- 35
- URI
- https://scholarworks.bwise.kr/erica/handle/2021.sw.erica/113880
- DOI
- 10.22004/ag.econ.312026
- 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.
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