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Faculty & Research


Smallholder-Farmer Selection into Yield-Improvement Programs: Is It Really Doing Any Good? (Revision 1 )

Working Paper
Problem Definition: Large buyers of agricultural commodities (e.g., hazelnuts, cocoa, coffee) have spearheaded programs to increase smallholder farmers’ living standards by improving their yields. Are such programs truly effective in alleviating poverty? Is the buyer’s selection of farmers into such programs truly maximizing the farmers’ total welfare? Methodology/Results: The authors analyze the dynamics between heterogeneous smallholder farmers, who have different costs of planting effort and uncertain yields, and a buyer who helps some of them increase their average yields and reduce their variability. They demonstrate that yield-improvement programs, by driving market prices down, reduce the profits of not only the non-enrolled farmers but also some enrolled farmers. The authors further characterize the conditions under which the buyer’s farmer selection decision conflicts with the objective of maximizing the farmers’ total welfare. By calibrating our model with industry data, we identify that this conflict can result in a substantial opportunity loss in improving farmers’ total welfare, particularly when their yield variability remains unchanged. However, the authors find that buyers can significantly improve farmers’ total welfare by only slightly sacrificing their own interests in their farmer selection strategy. Managerial Implications: This study refutes the myth that farmers uniformly benefit from improved yields, especially when considering the entire farming ecosystem. On a more optimistic note, the authors show that a small degree of altruism on the part of the buyer can significantly improve farmers’ welfare.

Professor of Technology and Operations Management