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Large-scale land acquisitions (LSLAs) threaten smallholder livelihoods globally. Despite more than a decade of research on the LSLA phenomenon, it remains a challenge to identify governance conditions that may foster beneficial outcomes for both smallholders and investors. One potentially promising strategy toward this end is contract farming (CF), which more directly involves smallholder households in commodity production than conditions of acquisition and displacement.
To improve understanding of how CF may mediate the outcomes of LSLAs, we developed an agent-based model of smallholder livelihoods, which we used as a virtual laboratory to experiment on a range of hypothetical LSLA and CF implementation scenarios.
The model represents a community of smallholder households in a mixed crop-livestock system. Each agent farms their own land and manages a herd of livestock. Agents can also engage in off-farm employment, for which they earn a fixed wage and compete for a limited number of jobs. The principal model outputs include measures of household food security (representing access to a single, staple food crop) and agricultural production (of a single, staple food crop).
We study three obstacles of the expansion of contract rice farming in the Mekong Delta (MKD) region. The failure of buyers in building trust-based relationship with small-holder farmers, unattractive offered prices from the contract farming scheme, and limited rice processing capacity have constrained contractors from participating in the large-scale paddy field program. We present an agent-based model to examine the viability of contract farming in the region from the contractor perspective.
The model focuses on financial incentives and trust, which affect the decision of relevant parties on whether to participate and honor a contract. The model is also designed in the context of the MKD’s rice supply chain with two contractors engaging in the contract rice farming scheme alongside an open market, in which both parties can renege on the agreement. We then evaluate the contractors’ performances with different combinations of scenarios related to the three obstacles.
Our results firstly show that a fully-equipped contractor who opportunistically exploits a relatively small proportion (less than 10%) of the contracted farmers in most instances can outperform spot market-based contractors in terms of average profit achieved for each crop. Secondly, a committed contractor who offers lower purchasing prices than the most typical rate can obtain better earnings per ton of rice as well as higher profit per crop. However, those contractors in both cases could not enlarge their contract farming scheme, since either farmers’ trust toward them decreases gradually or their offers are unable to compete with the benefits from a competitor or the spot market. Thirdly, the results are also in agreement with the existing literature that the contract farming scheme is not a cost-effective method for buyers with limited rice processing capacity, which is a common situation among the contractors in the MKD region.