Marc F. Bellemare Posts

I have been working on contract farming for 15 years. The first I came into contact with the institution, in the principal contracts the production of an agricultural commodity to the agent, was in 2004, while doing my dissertation fieldwork in Madagascar.

At the time, I was doing research on agrarian contracts. Consequently, my dissertation’s third essay (a much-improved version of which became this article) was on contract farming.

Many things have changed about my research agenda since then, but this has been the one problem I have consistently worked on (often contre vents et marées) and in the in the intervening years, I have written seven additional articles on contract farming. So after publishing a review of the literature on the topic in World Development with Jeff Bloem in 2018, I thought I was done working on contract farming.

Little did I know that I would get pulled right back in, and to answer one of the big important questions in the literature on contract farming.

In in our 2018 article, Jeff and I had bemoaned the lack of external validity in the literature looking at the welfare impacts of contract farming on the participating households:

In Meemken and Bellemare (2019), just published in Proceedings of the National Academy of Sciences, we substantially improve on both the external and internal validity of the typical contract farming study. On the external validity front, we use comparable survey data from six developing countries; on the internal validity front, several individuals per household were surveyed, which allows incorporating household fixed effects to control for unobserved heterogeneity between households.*

Here is the abstract of this new paper:

Poverty is prevalent in the small-farm sector of many developing countries. A large literature suggests that contract farming—a preharvest agreement between farmers and buyers—can facilitate smallholder market participation, improve household welfare, and promote rural development. These findings have influenced the development policy debate, but the external validity of the extant evidence is limited. Available studies typically focus on a single contract scheme or on a small geographical area in one country. We generate evidence that is generalizable beyond a particular contract scheme, crop, or country, using nationally representative survey data from 6 countries. We focus on the implications of contract farming for household income and labor demand, finding that contract farmers obtain higher incomes than their counterparts without contracts only in some countries. Contract farmers in most countries exhibit increased demand for hired labor, which suggests that contract farming stimulates employment, yet we do not find evidence of spillover effects at the community level. Our results challenge the notion that contract farming unambiguously improves welfare. We discuss why our results may diverge from previous findings and propose research designs that yield greater internal and external validity. Implications for policy and research are relevant beyond contract farming.

And here is the paper’s significance statement:

Achieving the United Nations’ Sustainable Development Goals remains a challenge in many developing countries, and especially in rural areas. Smallholder farmers are often trapped in a vicious cycle of low-intensity farming, low yields, limited market access, and insufficient profits, all of which prevents beneficial investments. Contract farming is commonly seen as a suitable means of linking poor farmers to markets, improving household welfare, and promoting the modernization of the agricultural sector. The available evidence supports the notion that contract farming increases welfare, but external validity is limited. We address this gap using data from 6 developing countries and discuss implications for policy and research.

* Though we improve on internal validity relative to the typical contract farming study, this still falls short of the gold standard–a randomized controlled trial (RCT)–when it comes to internal validity. The only RCT I know of contract farming I know of is this wonderful paper by Arouna et al. (2019).

It has been a while since I blogged, so I thought it would be a good idea to share this new working paper of mine.

A few years ago I was asked to pitch ideas to the editors of the Annual Review of Resource Economics (ARRE)–in case you are not familiar with the Annual Reviews, they have done a fine job of competing with the Elsevier Handbooks, especially since they feature new articles every year.

One of the ideas that I pitched, and which the editors liked enough to ask me to submit to them, was for a review of the literature on price risk–that is, unexpected departures of a price from its expected level, also known as price volatility or price uncertainty.

This is something I have done a bunch of work on, from estimating the welfare impacts of price risk in a sample of agricultural households, to looking at whether food price volatility caused food riots, to discussing the potential of experimental and behavioral economics to study price risk, to estimating the response of producers to output price risk in the lab and in the field, and to looking at whether participation in agricultural value chains can help producers insure against price risk.

Given that, and given that I think there is still a lot of work to be done on the topic, I thought it was time for a perspective of the literature, and so I teamed up with my PhD student Chris Boyd Leon, who is writing her dissertation on issues related to price risk.

Here is the paper we submitted to the ARRE, and here is its abstract:

Much of neoclassical economics is concerned with prices—more specifically with relative prices. Similarly, economists have studied behavior in the face of risk and uncertainty for at least a century, and risk and uncertainty are without a doubt a feature of economic life. It is thus puzzling that price risk—that is, price volatility, or unexpected departures from a mean price level—has received so little attention. In this review, we discuss the microeconomics of price risk. We begin by reviewing the theoretical literature, a great deal of which is concerned with the effects of unstable agricultural prices on the welfare of producers, consumers, and agricultural households. We then discuss the empirical literature on the effects of price risk on economic agents. We emphasize policy responses to agricultural price risk throughout, discussing price stabilization policies from both a theoretical as well as an empirical perspective. Perhaps most importantly, we provide several suggestions for future research in the area of price risk given increasing risk on world agricultural markets due to both policy uncertainty and climate change.

Earlier this year I wrote two posts about Judea Pearl’s front-door criterion, and how to use it in a regression context (see here and here).

After writing those posts and seeing a few Twitter exchanges on the topic, I realized that a formal guide explaining how to use the front-door criterion in practice might be useful, and discussed with my PhD student Jeff Bloem–who is on the market this year; check out his CV here and consider hiring him–the possibility of working on such a paper together.

In this new working paper titled “The Paper of How”—an obvious play on dad joke about the title of Judea Pearl’s The Book of Why—we present just such a guide. More interestingly, however, we also (i) present three empirical illustrations of the front-door criterion, and (ii) explore what happens when the assumptions underlying the front-door criterion fail to hold.

Here is the abstract of this new paper, on which we welcome your comments:

Empirical social science nowadays consists largely of attempts at answering questions of the form “Does X cause Y?” As a result, social scientists rely on a number of empirical techniques aimed at disentangling causal relationships from mere correlations. One such technique is Judea Pearl’s (1995, 2000) front-door criterion, which relies for identification on the presence of a single, strictly exogenous mechanism on the causal path between the treatment and outcome. Social scientists in general–and economists in particular–have been resistant to the idea of adding the front-door criterion to the standard empirical toolkit, largely due to the difficulty posed by finding the required mechanism. To help overcome that resistance, we first explain how to use the front-door criterion in a regression context. We then present three empirical illustrations of the front-door criterion. Finally, and most importantly, we look at what happens when some of the assumptions underpinning the front-door criterion are violated.