• ISSN: 2010-023X (Print)
    • Abbreviated Title: Int. J. Trade, Economics and Financ.
    • Frequency: Quaterly
    • DOI: 10.18178/IJTEF
    • Editor-in-Chief: Prof.Tung-Zong (Donald) Chang
    • Managing Editor: Ms. Shira. W. Lu
    • Abstracting/ Indexing:  Crossref, Electronic Journals Library , EBSCO
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HOME > Archive > 2021 > Volume 12 Number 6 (Dec. 2021) >
IJTEF 2021 Vol.12(6): 154-159 ISSN: 2010-023X
DOI: 10.18178/ijtef.2021.12.6.711

Impact of Contract Farming: Evidence of Small Dairy Farm Households in Mongolia

Tuvshinjargal Dagiimaa

Abstract—Since 2014, the Mongolian dairy production has grown rapidly, meanwhile, the need for a stable supply of raw materials also has increased. However, the dairy farm households are the potential suppliers for dairy companies, cannot comply with the higher demand and grading requirements for the supplied products. That is, the spot market has been created vertical coordination problem along the supply chain. So dairy companies initially have changed an organizational form for the supply base and introduced the contract farming (CF) arrangement. CF is defined as an agreement between a contractor (for instance, processor) and one or more farmer (s) for the production and supply of agricultural products under forward agreements. The agreement often includes the provision of production support by the contractor, such as inputs and technical assistance. The analysis focused on the household characteristics associated with participation in CF and the impact of contract participation on annual milk income. The study sampled from the Mongolian small dairy farm households includes contract farmers and independent farmers. The econometric analysis has three estimations. First, I use a probit model to estimate the probability that a given household will participate in CF. Second, I estimate the regression model of income as a function of farm household’s characteristics and a dummy variable representing participation in CF by OLS method. Third, to control sample selection bias, I estimate the treatment effects model. The research result found that CF has a positive effect on the milk income through the estimation both of the ordinary regression model and the Hackman’s selection-correction model. However, the former estimation underestimated this effect and there was the effect of an unobservable variable. In addition, the critical view that dairy company not only excludes small farms from CF but also contracts with a few large-scale farms was not supported. Finally, the hypothesis that the household with relatively intensive dairy farm due to the perishable nature of milk choose CF to reduces transaction costs based on Transaction cost economics was supported.

Index Terms—Contract farming, the Mongolian dairy industry, the Heckman correction.

The author is with the University of Finance and Economics, Ulaanbaatar, Mongolia (e-mail: tuvshinjargal.d@ufe.edu.mn).

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Cite: Tuvshinjargal Dagiimaa, "Impact of Contract Farming: Evidence of Small Dairy Farm Households in Mongolia," International Journal of Trade, Economics and Finance vol.12, no.6, pp. 154-159, 2021.

Copyright © 2021 by the authors. This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

 

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