Do Proposed and Enacted Contract Farming Regulations Really Raise Farmer Income?

ABSTRACT Federal and state regulatory agencies have proposed or enacted interventions that curtail the use of certain payment instruments in contract farming to enhance farmer revenue. We study whether these interventions are likely to safeguard contract farmers in practice. We develop a framework in which empirically prevalent contracting arrangements emerge endogenously in equilibrium. We predict curtailing the use of formula pricing and production contracts (two prevalent interventions) would generally raise farmer revenue. The magnitude of the impact of these contract regulations on farmer revenue varies with the degree of moral hazard and primary risk source (price vs. yield) within the transaction.