A Financial Contracting Approach to the Role of Supermarkets in Farmers' Credit Access

American Journal of Agricultural Economics (Impact Factor: 1.33). 02/2008; 92(4). DOI: 10.2139/ssrn.1102579
Source: RePEc


Traditional moneylenders monitor farmers to ensure that their investment is not diverted. Modern farming contracts offered by supermarkets in developing countries often entail a loan component, and monitoring arises as well. However, unlike moneylenders, supermarkets do care about the attributes of the product. Whether such attributes are obtained is influenced largely by the advice and the extension services received by farmers. We build a financial contracting model where we show that supermarkets optimally undertake both the monitoring and the advisory missions. This contract is shown to potentially enhance credit access for small farmers but sometimes also involves excessive monitoring.

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Available from: Philippe Marcoul, Jun 26, 2015
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    • "Swinnen and Vandeplas (2007) and Swinnen and al. (2008) analyse the role of standards on growth and development. Marcoul and Veyssière (2008) study the way supermarkets monitor the production process in order to guarantee quality by lending money to producers. These models show that there are conditions under which producers may benefit from the modernization of the supply chain. "
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    ABSTRACT: A wide range of the empirical studies shows to what extend the rise of supermarkets in developing countries deeply transform domestic marketing channels. In particular, the exclusion of small producers from the so-called dynamic marketing channels (that is remunerative ones) is at stake. Based on original data collected in Turkey in 2007 at the producer and the wholesale market levels, we show that the intermediaries are decisive in order to understand the impact of downstream restructuring (supermarkets) on upstream decisions (producers). The results show first that producers are not aware of the final buyer of their produce, as intermediaries hinder the visibility of the marketing channel, their choice is restricted to that of the first intermediary. Moreover, the econometric results conclude that producers who are indirectly linked to the supermarkets are more sensitive to their requirements in terms of quality and packaging than to the price premia they set accordingly to the effort made to meet their standards. Therefore, the results question the role of the wholesale market agents who act as a buffer in the chain and protect small producers from negative shocks, but who stop positive shocks as well, and reduce incentives.
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    • "While we have learned a lot about the development implications of the emergence of modern supply chains, the literature so far has been almost uniquely empirical. Exceptions are some recent studies on the relationships between the local suppliers and modern processors/retailers in developing countries and their implications for vertical coordination and rent distribution (Marcoul and Veysierre, 2008; Swinnen and Vandeplas, 2007). However these studies do not seek to explain the variations in the structure of the modern supply chains that one observes. "
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    ABSTRACT: Consumers have increasing demands for product standards. This has important implications for development. This paper develops a formal theory of the process of the introduction of high product standards in developing countries. The model endogenizes the introduction of high standards. Initial differences in income, the nature of capital constraints and transaction costs, the initial production structure and policies and institutions are shown to affect the likelihood of and the size of the high standards economy. Initial differences in some of these same factors—as well as inter-country differences in the distribution of the sizes of farmers—are also shown to determine which producers are included, and which not.
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    ABSTRACT: In recent years, quality standards have become crucial for developing countries' agricultural production systems in gaining access to high-value markets abroad or at home. High-value supply chains offer opportunities for high profits, but in order to comply with the required standards, suppliers in developing countries often need extensive support from agrifood companies. We use a theoretical model to investigate under which conditions such synergies between suppliers and agrifood companies are sustainable, and how created rents are distributed, in a context of factor market imperfections and weak contract enforcement. We also derive the implications of development.
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