Article thumbnail

An Analysis of Partially-Guaranteed-Price Contracts between Farmers and Agri-Food Companies

By C.S. Tang, M. Sodhi and M. Formentini

Abstract

Global agri-food companies such as Barilla and SABMiller are purchasing agricultural products directly from farmers using different types of contracts to ensure stable supply. We examine one such contract with partially-guaranteed prices (PGP). Under a PGP contract, around sowing time, the buying firm agrees to purchase the crop when harvested by the farmer, offering a guaranteed unit price for any fraction of the produce and offering the commodity market price prevailing at the time of delivery for the remainder. The farmer then chooses the fraction. By analyzing a Stackelberg game, we show (1) how the PGP contract creates mutual benefits when the firm’s purchase quantity is taken as being exogenous. We also analyze how the PGP contract is robust in creating value for both the firm and the farmer (2) when the firm’s purchase quantity is endogenously determined; (3) when the firm provides advisory services to the farmer; and (4) when the firm offers a price premium as an incentive for farmers to exert efforts to comply with ‘sustainable’ agricultural practices

Topics: HF
Publisher: 'Elsevier BV'
Year: 2016
DOI identifier: 10.1016/j.ejor.2016.04.038
OAI identifier: oai:openaccess.city.ac.uk:14263
Provided by: City Research Online

Suggested articles


To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.