‘When Doing Good May Backfire: Smallholder-Farmer Selection into Yield-Improvement Programs’
by Utku Serhatlı
Nova School of Business and Economics
https://zoom.us/j/6834690808
Meeting ID: 683 469 0808
Abstract
Problem Definition: Large buyers of agricultural commodities (e.g., cocoa, coffee, hazelnuts) have spearheaded programs to improve smallholder farmers’ yields. However, some farmers, especially those not enrolled in such programs, are concerned that yield improvements could result in a decrease in crop prices and negatively affect their profits. We analyze the implications of such programs on market prices and smallholder farmers’ individual and aggregate well-being and identify farmer selection strategies into those programs that mitigate the potential conflict among those objectives.
Academic/Practical Relevance: While our research is motivated by our extensive interviews with hazelnut growers, our results and insights are relevant to other commodities such as cocoa and coffee. We used mathematical models along with simulations to highlight the various trade-offs involved in yield-improving programs. In doing so, we contribute to socially responsible operations with respect to smallholder farmers.
Methodology/Results: We consider a Cournot competition model where farmers choose their planting areas under yield uncertainty. Farmers are differentiated in terms of their planting cost and yield. We analytically show that a) because yield-improvement programs push market prices down, they may decrease the profits of some farmers; b) the only possible farmer selection into the program that may not be harmful is to enrol all of them; c) selecting the lowest-cost farmers minimizes farmers’ individual economic losses, performs well in terms of their aggregate well-being, and either maximizes or minimizes the crop price reduction, depending on whether the yield-improvement program targets a decrease in yield variability or an increase in average yield. Calibrating our model using industry data, we find that farmers’ well-being is more sensitive than crop prices to farmer selection. Thus, the lowest-cost farmer selection performs well along the three objectives of crop price reduction, improvement in farmers’ aggregate well-being, and minimization of farmers’ individual losses.
Managerial Implications: Because this study formalizes smallholder farmers’ concerns about the potential downsides of yield-improvement programs, it can help policy-makers assess the various trade-offs involved and guide buyers in their farmer selection strategy.
Bio:
Utku Serhatli is an Assistant Professor at NOVA School of Business and Economics. He is primarily interested in sustainable operations with a focus on the operational and social impacts of economic and environmental issues.
His research utilizes mathematical modeling such as optimization, dynamic programming, stochastic processes, and game theory. His teaching experience includes the core course of Operations Management at INSEAD, Operations Management, Operations Strategy, and Sustainable Operations at NOVA SBE and Los Andes.
He obtained a Doctor of Philosophy from INSEAD, prior to joining NOVA SBE. He also holds a Master of Science from INSEAD and a Bachelor of Science from Bilkent University. He previously worked as a financial consultant at TATA Consultancy Group
