The Implications of Utilizing Market Information and Adopting Agricultural Advice for Farmers in Developing Economies

Abstract

T o alleviate poverty in developing countries, governments and non-governmental organizations disseminate two types of information: (i) agricultural advice to enable farmers to improve their operations (cost reduction, quality improvement, and process yield increase); and (ii) market information about future price/demand to enable farmers to make better production planning decisions. This information is usually disseminated free of charge. While farmers can use the market information to improve their production plans without incurring any (significant) cost, adopting agricultural advice to improve operations requires upfront investment, for example, equipment, fertilizers, pesticides, and higher quality seeds. In this study, we examine whether farmers should use market information to improve their production plans (or adopt agricultural advice to improve their operations) when they engage in Cournot competition under both uncertain market demand and uncertain process yield. Our analysis indicates that both farmers will use the market information to improve their profits in equilibrium. Hence, relative to the base case in which market information is not available, the provision of market information can improve the farmers' total welfare (i.e., total profit for both farmers). Moreover, when the underlying process yield is highly uncertain or when the products are highly heterogeneous, the provision of market information is welfare-maximizing in the sense that the maximum total welfare of farmers is attained when both farmers utilize market information in equilibrium. Furthermore, in equilibrium, whether a farmer adopts the agricultural advice depends on the size of the requisite upfront investment. More importantly, we show that agricultural advice is not always welfare improving unless the upfront investment is sufficiently low. This result implies that to improve farmers' welfare, governments should consider offering farmer subsidies.

Coordination of channel members’ efforts and utilities in contract farming operations

“…Chen, Shanthikumar, and Shen (2013b) investigate the application of a new social media-voice-based farming information service, Avaaj Otalo, and characterize the strategic decisions made by experts and farmers with respect to information provision. Tang, Wang, and Zhao (2015) develop a quantity competition model to study whether farmers should utilize free information and advice to enhance their productivity. They consider demand uncertainty and process yields and find that market information always benefits farmers' social welfare, whereas agricultural advice may not.…”

Optimal Subsidies for Development Supply Chains

“…Levi et al 2017;Taylor and Xiao 2014). Other contexts for subsidies include education (Schultz, 2004); electricity (Goodarzi et al, 2015); food (Peeters and Albers, 2013); housing (Gilbert, 2004); and smallholders farmers (Tang et al, 2015). As regards energy or lighting specifically, there is the question of empirically establishing willingness to pay (Yoon et al 2016), consumer adoption of alternative lighting products (Uppari et al 2017), and supply chain coordination for photovoltaic modules (Chen and Su, 2014).…”

Offshore versus Onshore Sourcing: Quick Response, Random Yield, and Competition

“…It is more meaningful to compare the ex ante quantities to discuss order allocation since the ex post onshore quantity (q à r ðq à o ; BÞ) is varying depending on the market status (B) (see Equation (4)) and the probability of each realized outcome is ignorable. In addition, it is useful to discuss such ex ante metrics in characterizing the equilibrium outcome of the game (e.g., see section 4.1 in Tang et al 2015 and discussion therein). In a weak sense, the firm allocates a larger order to the responsive onshore supplier.…”