Estimation of Optimal Portfolios of Governance Structures for Improving Benin’ Rice Producers’ Income

Abstract

Prices volatility is one of the critical problems that highly affects smallholder producer’s income; therefore, it might contribute to deeper poverty. This study applies portfolio analysis to identify the optimal portfolio of governance structures (GSs) selection for paddy marketing. Data were collected in Benin in 2015 from 300 rice producers randomly selected. The results indicate that the optimal portfolio of two GSs consists of selling 17% and 83% of the production through spot market and formal contract, respectively. The best portfolio of three GSs consists of selling 13%, 57%, and 30% of the production through spot market, formal contract, and farmer association. Finally, a portfolio that consists of selling 10%, 25%, 43%, and 22% of the production through spot market, informal contract, formal contract, and farmers association, respectively, is the best one in the case of four GSs. Formal contract is included in all the best portfolios identified and always presents the highest percentage. Therefore, these formal contracts can be used to enhance rice producers’ revenues and reduce price fluctuation risk. The portfolios developed in this research can be used to advise paddy producers for a better marketing decision.