Fertilizer Application in Contract Farming: A Risk Analysis

Abstract

To our knowledge, this is the first study in the world to incorporate risk into the contract-farming participation decision process and to examine empirical evidence on the effect of contract farming on fertilizer application, filling the research gaps in the relevant literature and providing perspectives on both chemical fertilizer reduction and organic fertilizer application behavior. To estimate the impact of contract farming on farmers’ application of chemical fertilizer and organic fertilizer, we used data on tea farmers from the Fujian and Hubei provinces in China and the recursive binary probit model. The 2SLS (two-stage least-squares) model was used to estimate the impact of the contract-farming participation rate on farmers’ organic and chemical fertilizer application intensity. The empirical results show that farmers’ risk-prevention ability had a significant negative impact on farmers’ contract-farming participation decision and rates. Contract-farming participation had a significant, positive impact on farmers’ organic and chemical fertilizer application intensity, while contract-farming participation rates had a significant, negative impact on the intensity of chemical fertilizer application by farmers. However, contract-farming participation rates did not have a significant impact on organic and chemical fertilizer application intensity. To promote fertilizer reduction and organic fertilizer incremental application, an effective strategy could be to promote farmers’ participation in contract agriculture.