Farmers’ Participation In Contract Farming And The Stability Of Contractual Relationship

From both theoretical and international operational experience,contract farming plays an important role in promoting the links between smallholders and large markets,reducing farmers’ market risk,saving transaction costs,adjusting the structure of agricultural industry,increasing farmers’ income and ensuring the quality and safety of agricultural products.However,a series of problems,such as low rates of contract participation and high rates of contract breach,have emerged in the process of contract farming practice,particularly in the stability of contractual relationship.The problems of"low participation rate" and "difficulty in fulfilling contracts" have become the bottleneck restricting the further development of China’s agricultural industrialization.At the same time,it also highlights that the promotion of the contract model of "leading firms+farmers" is more complex and arduous for China,which is in a deep transition period,and again arouses people’s thinking:why is contract farming difficult to implement it effectively in China?What are the reasons that affect farmers’ participation in contract farming and the stability of contractual relationship?This is a realistic question to be answered by China’s agricultural industrialization policy.Through literature review,we found that the factors affecting farmers’ decision-making in contract farming participation and the stability of contractual relationship include characteristics of farmers,the trading environment,the trading characteristics related to farmers’ characteristics and trading environment,and the product attributes and contract forms.However,the existing literature mainly focuses on the impact of external factors such as market risk and transaction cost,ignoring agents’ behavioral preferences such as discounting and risk attitude.Due to the difficulty of measuring psychological characteristics,there is still a lack of specific analysis from the micro perspective of individual internal preferences,especially the lack of in-depth analysis of the mechanism of farmers’ contract participation and contract breach based on the individual psychological factors that behind farmers’ behavior motivation.In fact,farmers’ behavior decision-making regarding contract participation,contract breach,and renewal of contract can be regarded as economic behavior decision-making under the combined action of psychological factors and external factors,in which psychological factors are the internal causes of behavior occurrence and have a systematic impact on the process of behavior decision-making.Therefore,in order to deeply explore the decision-making mechanism of farmers’ contract participation and breach of contract,we need to integrate psychological factors and external factors to construct the overall analysis framework.Behavioral economics is a combination of traditional economics and cognitive psychology,in which cost-benefit analysis is still regarded as a basic logical analysis method,and psychological cognitive bias is introduced to analyze individual’ economic behavior.Behavioral economics attempts to explore the comprehensive mechanism of psychological factors and external factors on individual behavior decision-marking under a unified logical analysis framework,and can effectively analyze and predict individuals’ economic behavior and enhance the realistic explanatory of economic models.Based on the above considerations,this paper is based on the perspective of behavioral economics,and is based on time preferences theory,prospect theory and the framework of cost-benefit analysis with bounded rationality.Through systematic and in-depth theoretical and empirical analysis,this paper explores the influence mechanism of farmers’ time and risk preferences on their contract participation behavior,contract breach behavior and long-term renewal intention,analyses the difference characteristics of heterogeneous farmers’ behavior decision-making,and explains the problems of farmers’ contract participation and stability of contract relationship in China’s contract farming practice.This paper expect to provide scientific basis for the government and leading firms to promote farmer’s contract participation rate,reduce farmer’s default rate,improve the long-term stability of contractual relationship,formulate relevant policies to guarantee farmer’s income,and optimize the design of contract mechanism.According to the development process of contractual relationship between leading firms and farmers in contract farming,this paper deeply analyzed the influence mechanism of time and risk preferences on farmers’ contract participation,contract breach and long-term contract renewal from three aspects:contract signing,contract enforcement,and contract continuation.Then the research path of "individual preference—contract participation—contract breach—contract renewal" was established,which provides a relatively complete logical analysis framework for the systematic study of contract farming participation and contractual relationship from the perspective of individual preference of farmers.Subsequently,the economics field experiments were carried out and a discount utility model was constructed to measure and estimate farmers’ time and risk preferences.Based on this,a series of empirical studies regarding farmers’ contract decision-making were perfomed by using econometric methods,and the influence mechanisms of time and risk preferences on farmers’ contract participation behavior and contractual relationship stability were explained in depth and systematically.The main contents and conclusions of this paper are summarized as follows.(1)Based on the in-depth analysis of the production links of China’s broiler industry chain and the basic situation of contract farming development,the impact of the current contract farming model on the performance of broiler farmers is empirically analyzed by econometric methods.First,the effect of contract farming on farmers’ income is analyzed at the overall level.Second,the quantile regression is used to further analyze the difference of the effect of contract farming on farmers’ performance at different income levels,which provides the basis for further understanding the behavior decision-making of farmers’participation in contract farming.The conclusions of this part show that broiler farmers’ participation in contract farming can significantly improve their income level on the whole.However,the impact on farmers at different income levels is distinct.That is,contract farming has a significant positive impact on farmers’ income only for low-income farmers,and has a more obvious effect on the income of farmers in less developed regions.In addition,the results show that the technical guidance and training provided by leading firms can significantly promote the income of contract farmers.(2)We measure farmers’ time and risk preferences based on the method of experimental economics.First,farmers’ time and risk preference experiments are designed,respectively,and the discount utility model of fusing prospect theory and quasi-hyperbolic discount theory is constructed.Farmers’ time and risk preferences are then estimated jointly by maximum likelihood estimation.Furthermore,the relationship between preference characteristics obtained from experiments and contract behavior decision-making of farmers in reality is discussed.The estimation results of farmers’ time and risk preferences are as follows.On the whole,Chinese broiler farmers generally lack patience and are biased to the present;and usually cannot accurately assess probability events,and tend to avoid risks and losses.However,the heterogeneity of time and risk preferences among farmers is obvious.Specifically,compared with contract farmers,non-contract farmers have higher levels of time and risk preferences,that is,they are more impatient and risk-taking;compared with contract-fulfilling farmers,defaulting farmers have higher levels of time and risk preferences;and compared with farmers with long-term contract renewal intention,farmers who are unwilling to renew contracts have higher levels of time and risk preferences.(3)Spatial econometric model is used to empirically test the impact of time and risk preferences on farmers’ contract farming participation behavior,as well as the spatial spillover effect of farmers’ behavior decision-making regarding contract participation.Further,cluster analysis is used to classify the samples,and to explore the differences of contract participation decision-making for farmers with different time and risk preferences types.In addition,the multi-variable probit model is used to analyze farmers’ preference for contract attributes.The empirical results of farmers’ contract farming participation is as follows.(a)Time and risk preferences have significant effects on farmers’ contract participation behavior.Specifically,the higher the degree of patience,and the higher the degree of risk aversion and loss aversion,the greater the probability of farmers participating in contract farming.(b)There is spatial correlation between farmers’ contract participation behavior.That is to say,farmers have positive spatial spillover effect when making contract participation decision,which reflects the coherence of farmers’ behavior decision-making.(c)Considering the heterogeneity of farmers’ preferences,we find that market risk has a significant impact on the contract participation behavior of farmers with lower levels of time and risk preferences.For farmers with less impatience and risk propensity,the greater the market risk,the greater the probability of participating in contract farming.(d)The results of the study on farmers’preference for contract attributes show that time and risk preferences significantly affect farmers’ preference for contract terms.Specifically,the more impatient and risky farmers are,the more likely they are to choose short-term contracts;and the more risk-averse and loss-averse farmers are,the more likely they are to prefer fixed price clauses and fixed subsidies.(4)The bivariate probit model is used to empirically analyze the impact of time and risk preferences on farmers’ contract breach behavior both in production and sales phases.Cluster analysis is used to classify the samples,and the differences in decision-making of farmers’breach behavior with heterogeneous preference are discussed in depth.In addition,the impact of time and risk preferences on the contract breach behavior of different groups of farmers is further analyzed based on transaction cost.The empirical results of farmers’ contract breach behavior are as follows.(a)Time and risk preferences have significant effects on farmers’ contract breach behavior in the production and sales phases.Specifically,the higher the degree of farmers’ impatience,or the lower the degree of farmers’ risk aversion,the greater the probability of farmers’ contract breach.Moreover,compared with the breach of contract in the sales phase,farmers’ contract breach behavior in the production phase is more affected by time and risk preferences.(b)Considering the heterogeneity of farmers’ preferences,we find that transaction costs and specific assets have a significant impact on the contract breach behavior only for farmers with lower degree of time and risk preferences.This implies that farmers’short-sighted attitude and risk propensity may weaken the role of traditional mechanisms(such as specific assets and transaction costs)in contract stability.(c)The comparative analysis of different characteristic groups of farmers show that,the impact of farmers’ time and risk preferences on their contract breach behavior varied with the distance between farms and leading firms.Specifically,the decision-making of farmers who are closer to the leading firms is greatly influenced by risk preferences,while the decision-making of farmers who are farther away from the leading firms is greatly influenced by time preferences.(5)Referring to the framework of perceived value theory,two important variables in perceived value theory,perceived benefit and perceived risk,are introduced in the analysis of farmers’ ntention of contract renewal.Structural equation model(SEM)is used to test the influence mechanism of time preference,risk preference,and perceived value on farmers’intention of contract renewal,and to test the intermediary role of perceived value between farmers’ individual preferences and contract renewal intention.In addition,taking the characteristics of farmers’ production scale as the adjusting variable,the difference of farmers’ renewal decision-making is further analyzed by using the grouping structural equation model.Empirical results of farmers’ contract renewal intention are as follows.(a)Perceived benefits and perceived risks significantly affect farmers’ willingness to renew contracts.Specifically,the higher the farmers’ perceived benefits of contract participation and the lower the farmers’ perceived risks(or costs)of contract participation,the stronger the willingness of farmers to sign long-term contracts with leading firms and recommend others to sign contracts;and compared with perceived risk.Moreover,compared with perceived benefits,farmers’ perceived risks of contract participation have a more significant impact on farmers’contract renewal intention.(b)Time and risk preferences significantly affect farmers’willingness to renew contracts.The higher the degree of patience and risk aversion of farmers,the stronger their willingness to renew contracts.Moreover,farmers’ time and risk preferences have significant effects on perceived benefits,which indicates that perceived benifits mediate the relationship between individual preferences and contract renewal intention.(c)The results of multiple-group analysis show that time preferences,risk preferences and family endowment significantly affect the renewal intention of small-and medium-scale farmers,but the impact on large-scale farmers is not significant.According to the above conclusions,this paper suggests that strengthening the supervision of contract enforcement,improving the transparency of contract terms,and guiding leading firms to formulate contracts with diversified attributes that are beneficial to farmers;improving the performance and restraint mechanism of contract farming based on farmers’ time and risk preference characteristics,and designing a system conductive to increasing farmers’ short-term fillfulment benefits and breach costs;strengthening contract farming propaganda in less developed region,enhancing small-scale farmers’ awareness of contract farming,strengthening the demonstration role of contract farming,and playing a positive spatial spillover effect;actively supporting and promoting the innovation and development of contract farming organization model,establishing a reasonable surplus distribution system and risk sharing mechanism,and improveing and perfecting the agricultural insurance system.This paper also put forward specific policy recommendations.