Leading Agricultural Enterprises And Farmers Order Arrangements And Compliance Mechanisms Study

Since 1990, contract farming has expanded rapidly in China. Most of the contract farming happens between the agribusiness firms and the small household farmers. The contract farming has played a key role in promoting the development of rural economy and the evolvement of food supply chain. But the contract farming also witnessed problems with contract enforcement and associated costs as limiting factors. The whole enforcement rate between the agribusiness firms and the small household farmers is very low. How to improve the enforcement rate is a very urgent task for the contract farming development in china. In order to resolve the problems, it is fairly important to reexamine carefully the factors that lead to contract arrangement and enforcement between the household and the agribusiness firm. The overall objective of this paper is to construct a conceptual framework as a tool to scrutinize the factors affecting to contract arrangement and enforcement, and distinguish the problems associated with contract enforcement. This paper is divided into 4 parts.The first part is a review of past literature. A number of theoretical models and approaches enhance our understanding of the underlying motivations and the enforcement of the contract. These include transaction cost economics (TCE), agent theory and contract economics theory. More often these approaches are applied individually, even though their insights are essentially complementary. If we take them into account together, the results will provide us better understanding of what factors play critical roles in contract arrangement and enforcement. The literature of these three important approaches is summarized followed by the brief introduction on contract farming.In the second part we develop a conceptual framework to examine empirically the factors leading to contract arrangement and enforcement between the households and the agribusiness firms. Based on the thought of transaction cost economics the paper treats the relation of the household and the agribusiness firm as one type of transaction arrangement. Following Williamson's idea, we withhold the hypothesis that the transaction characteristics (bounded rationality, opportunism, asset specific, uncertainly, frequency) do affect contract arrangement through transaction costs and the contract enforcement is affected by the contract arrangement. Furthermore, production features, external environmental conditions (e.g. socio-economic, government support) and household and agribusiness firm characteristics will make transaction characteristics distinguishable and then affect the transaction cost finally. It is based primarily on transaction cost economics but also borrows insights from other approaches. We present a conceptual framework to analyze the specific factors that influence contract arrangement and contract enforcement in agri-food sector. The framework has five components: environmental conditions, product and agents characteristics, contract arrangement, contract enforcement and performance. The environmental conditions involve social-economics, infrastructure, market and government support. Production characteristics consist of consumer characteristics and product nature such as perishability, product differentiation and quality variability. In household side wefocus on farmer's scale, education, the knowledge of contract farming and the oriented marketing practices. The scale, oriented market and other aspects are considered for agribusiness firms. Contract arrangements are studied from the perspective of the contract categories and specifications (e.g. contract duration, pricing arrangements, payment procedures, safeguards items). The contract performance is affected by the contract enforcement through the channel of contract arrangement.In the third section, the constructed framework is applied to an empirical study of the surveyed data and two case studies. The data used in this econometric analysis were obtained from two surveys. A village-level survey of 1036 household in 13 provinces in coastal,...