Contractual Arrangement In Cooperatives And Farmers' Production Behavior

The rural household responsibility system has provided effective economic incentive to micro-economic agents, which in turn ensured the booming of Chinese agricultural economy at the very beginning of reform. Nevertheless, with the deepening of market-oriented reform launched in the circulation of agricultural products, small farmers start to encounter with great difficulties in getting adapted to the big market and dealing with various types of risk. In this setting, agricultural cooperatives emerged as an institutional arrangement for collective action of small farmers, which are deemed to be essential for agricultural systematization and modernization.Agricultural cooperatives in China are generally characterized by "strong leaders" and "weak participators", showing a unique "core-peripheral" circle structure. After gaining membership in the cooperative, apart from building an identity affiliation with the cooperative, the farmers also establish to a large extent a contractual transaction relationship with the cooperative. In this context, several questions could be posed here such as:what factors determine the farmers'decision of participation in the cooperative? How is the production decision rights allocated according to the contractual arrangement of internal transaction in the cooperative? Does the contractual arrangement reduce price risk for farmers? Does it save transaction cost and increase production revenue by maintaining a cooperative membership? What effects does the contractual arrangement have on the farmers' production behavior? Based on the survey data of apple growers in Shandong Province, this paper will examines the above question. The outline of the paper and conclusions drawn are as follow:The paper begin in Chapterâ… with a brief introduction, in which research questions and objectives are presented, several key conceptions are defined, the methodology and technical route are sketched, and then the structure arrangement of the dissertation is introduced. Chapterâ…¡continues with a literature view on its theoretical bases (transaction cost theory and principal-agent theory) and several strands of the literature such as farmers' decisions on participation in the cooperatives, the contractual allocation of decision rights, the contractual allocation of price risk, the income effect of contractual transaction, the behavioral decision on fertilizer and chemical use. Chapterâ…¢offers some background information on the operation of cooperatives and development of the apple industry in Shandong Province, and then gives a description of the survey design and the samples.In Chapter IV, the paper examines the determinants of farmers'decision on participation in the cooperative. The empirical analysis based on the econometric model with farmer characteristics, operation characteristics and market characteristics as main dependent variables reveals that the older farmer is, the higher the education the farmer has gained, or the more volatile the market price is, the lower the farmers' motivation to join in the cooperative would be. Whereas the lager the apple planting size is, the higher proportion the apple farming income accounts for, the higher the apple quality is, or the lower the market price is. the stronger the farmers'motivation to join in the cooperative would be.In Chapter V, the paper discusses how the production decision rights is allocated via the contractual arrangement. The survey demonstrates that the decision rights shift from farmers to the cooperative after farmers' joining in the cooperative in various degrees. A higher probability of decision rights shifting towards the cooperative is observed for fertilizer/chemical purchasing and applying. The allocation of the production decision rights are mainly influenced by investment in specific assets by the cooperative, employment of agricultural technician, marketing channels, social identity of the cooperative leaders and contractual pricing system.Chapter VI examines whether the contractual arrangement reduces price risk for farmers. As the survey demonstrates, the cooperative tends to be opportunistic, given that there is a disparity between the initial contract and the implemented contract in terms of pricing system. The results show the decrease of price risk that farmers face with after their participation in the cooperative is mainly determined by factors such as quality of apples, planting size, distance to markets, the social identity of the cooperative leaders, profit rebate and technical guidance. Chapterâ…¦evaluates whether contractual arrangement saves transaction cost and increase production revenue by maintaining a cooperative membership. The results illustrate that, ceteris paribus, the contractual arrangement reduces farmers' transaction cost for about 48 Yuan/Mu and increase net revenue for about 321 Yuan/Mu. The decrease of transaction cost is largely because the cooperative share part of the information cost, transport fee as well as time cost in the process of agricultural inputs purchasing and apples marketing. The rise in net revenue is mainly due to lower price of agricultural inputs via group purchasing.Chapterâ…§discusses the impact of the contractual arrangement on farmers' production behavior. Compared with non-members, the cooperative members reduce inorganic fertilizer use and chemical use amounted to 344.6 Yuan/Mu and 189.7 Yuan/Mu respectively, while increase organic fertilizer use amounted to 269.4 Yuan/Mu. The results show that soil test-based fertilization guidance, quality control of apples and pricing system can facilitate farmers' effective use of fertilizers; pesticide residuals detecting, control and supervision of chemical use and pricing system promote farmers' effective use of chemicals.Chapter IX presents a case study, which reveals that the contractual arrangement with different members varies widely. The production decision rights of demonstration districts and standardized production base are mainly controlled by the cooperative, with transation according to "market price plus markup"; whereas the production decision rights of ordinary orchards are controlled by farmers, with transation at market price. There is an increase in revenue of farmers, and chemical and fertilizer use also tend to be more moderate after their participation in the cooperative, which further validate the aforementioned conclusion.Chapter X summarizes the whole dissertation and presents a set of policy recommendations, and then concludes with further discussion.