A study on the role of innovative enterprise-farmer contracts in the sustainable development of agricultural industrialization - A perspective based on GHM theroy

• Main Author: WU, Yanjie
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: agricultural industrialization; contractual stability; relational contract theory; GHM theory; transaction cost; Agricultural and Resource Economics; Asian Studies; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/etd_coll/432; https://ink.library.smu.edu.sg/context/etd_coll/article/1435/viewcontent/GPBA_AY2016_DBA_WU_YANJIE.pdf
• Institution: Singapore Management University

Agricultural industrialization is the primary channel to promote large-scale agricultural production, intensive processing, and marketing, enhancing agricultural production efficiency. In the long run, promoting agricultural industrialization is conducive to the deep integration of primary, secondary, and tertiary industries. It can improve the comparative efficiency of agriculture and reduce poverty by promoting the employment of agricultural labor and the flow of production factors between urban and rural areas. The model of “leading enterprises+farmers” is a significant agricultural industrialization business model. In China, the development of agricultural industrialization is late and fast, and more problems have emerged in the development. The contractual risks between the two subjects of the “leading enterprises+farmers” model seriously restrict agricultural industrialization development, which requires applying relevant contractual theories and theoretical practices to innovate the contractual structure to ensure the sustainability of agricultural industrialization. To ensure the sustainable development of agricultural industrialization, it is necessary to apply relevant contract theory and practice to innovate the contract structure. The leading research of this paper is divided into the following parts: in the first part; we review the theoretical foundations of Agricultural Industrialization Theory and GHY Theory by combing relevant research literature and cases and propose the main problems that limit the stability of contract in agricultural industrialization development; in the second part, we introduce the factors of transaction stability and behavioral factors into the game framework based on social welfare maximization, analyze and solve the equilibrium conditions using GHM theory and derive the main constraints of contractual stability. In the third part, the main constraints on the stability of contractual linkages are analyzed by using an empirical model to analyze the main factors affecting the income increase of farmers, production efficiency, and contractual stability in contractual agriculture through a case study of contractual agriculture innovation under the “leading enterprises+farmers” model of Paisenbai. In the fourth part, we present the study’s main conclusion and propose innovations. The main findings of this paper include 1. The key to maintaining the stability of the contract of “leading enterprises+farmers” lies in controlling the transaction costs of the contract from the perspective of organizational structure so that the adaptability and incentives of the contract are compatible with the incompleteness of the contract itself; 2. The social welfare optimization relationship brought about by contractual relationships is only related to the savings in transaction costs and investment in technology management factors between the parties resulting from the specific organizational relationship brought about by the contractual arrangement and is not related to price. However, the price within the contractual relationship is related to the stability of the contract, and the premise of the social welfare function is the survival of the contractual relationship, so the optimization of total social welfare is still related to the price; 3. The contract under the “separation of powers” model is similar to an intra-enterprise contract in terms of form, formulation, and implementation, with framework characteristics, and needs to be gradually enriched and implemented in the implementation process to maintain the stable implementation of the transaction and reasonable distribution of the surplus through tacit understanding and trust; 4. Characteristics play a significant and profound role in the agro-industrialization dimensions of farmers’ income increase and production efficiency; in addition, factors such as the improvement of human capital quality also contribute to the quality and efficiency of agro-industrialized production. Based on theoretical analysis and empirical research, this paper proposes the following recommendations: 1. standardize and rectify the mechanisms of purchase price determination, product grade determination and benefit sharing between leading enterprises and farmers, strengthen the construction of farmers’ rights and interests protection organizations, enhance farmers’ negotiation status and bargaining power while respecting enterprises’ profitability needs, reduce negotiation costs of contractual linkage, enhance farmers’ sense of access under contractual linkage, and promote efficient and orderly cooperation of leading enterprises-farmers; 2. pay attention to natural and market risks of agricultural production, provide more policy support and regulation in agricultural risk subsidies and market transaction settlements, build a risk-sharing mechanism for stakeholders, reduce implementation costs in contractual linkages, effectively replace market contracts with contractual linkages between leading enterprises-farmers, and reduce risk exposure of all parties; 3. organize Carry out activities such as agricultural production promotion, adult education, and distance education, and encourage enterprises to implement technical training for farmers in the form of government subsidies to improve the quality of farmers’ human capital and cultivate specialized talents in agricultural production.