The role of cash crop marketing contracts in the adoption of low-input practices in the presence of risk and income supports

Abstract : The objective of this paper is to study the effect of agricultural policies on marketing decisions as well as the link between marketing and production decisions. We develop an analytical model to study how policies affect marketing decisions and conditions under which the two types of decisions are separable. We found that government policies impact marketing decisions. We also found that the necessary conditions to have separability of decisions are rather restrictive, even in the presence of a perfect hedging tool. We build a stochastic multiperiodic farm model to investigate the empirical relevance of our theoretical findings. The farm model is used to model a representative farm for the Midi-Pyrénées region in France (South-West). The results confirm the impact of price risk and direct payments on both production and marketing decisions with the proportion of grain marketed under different contracts that vary. We also observe that a large supply of marketing contracts allows to stabilize production choices. In particular, marketing contracts can contribute to help farmers to adopt green practices, which are riskier than conventional techniques intensive in chemical inputs.