Does Market Upgrading Benefit Farmers? Market Differentiation, Contract Farming, and Professional Cooperatives in China's Pork Processing Industry

Discussion Papers

No.612

by Mariko WATANABE

August 2016

ABSTRACT

This study tested whether contract farming or farmers professional cooperatives (FPCs) improved the social benefit of pork production and income of breeding farmers in China. The main concern of this study is whether institutional arrangement like contract farming or FPCs actually improved the welfare of farmers as expected. To answer this question accurately, we estimated the differentiated market demand of pork products in order to quantify the benefit by transaction types. Our study finds that contract farming or FPCs improved the benefits of pork products, but farmer's income remained lower than that of traditional transaction types. This finding is new in terms of quantifying distribution of the economic values among sales outlets, agro-firms and farmers. It is more reliable because it explicitly captures impacts from both demand side and supply side by structural estimation. In practice, we need to keep it mind the bargaining power of small farmers will not improve instantly even when the contract farming or FPCs are introduced.

Keywords: pork processing industry, differentiated demand estimates, value chain, contract farming, farmers professional cooperatives
JEL classification: Q13 L22 O13

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