“Planted-shared" Contract Farming, Optimal Production Sharing Rules and Sustainable Development

Abstract

This article studies the optimality properties of "planted-shared" contract farming compatible with a sustainable development issue. Using a dynamic principal-agent model with bilateral engagement and taking into account the land fertility, we show that in the absence of an agricultural credit market, the optimal remuneration of the agent depends both on his productive performance and a land fertility index. In addition, the optimal long-term contract highlights an intertemporal smoothing of the production sharing index and the land fertility index. This reflects not only the incentive of the agent to redistribute effort and compensation throughout the duration of the contract but also its intertemporal incentive to maintain the land, which is a guarantee of sustainability of agriculture. Public authorities could promote such contracts not only to meet the strong demand for securing "planted-shared" contracts, but also to promote the efficient management of natural resources.

Keywords: contract farming, principal-agent model, production sharing, land fertility, sustainable development.

JEL Classification: D81, D82, Q01, Q15.