Modeling the Market and Welfare Effects of Mexico's “Agriculture by Contract” Program

21 Pages Posted: 15 Apr 2020

See all articles by Sergio H. Lence

Sergio H. Lence

Iowa State University - Department of Economics

Date Written: April 2016

Abstract

“Agriculture by contract” (A × C) is the main Mexican government program aimed at mitigating price risks for agricultural producers in Mexico. A × C has unique features involving forward contracts and the provision of basis subsidies and subsidized exchange‐traded futures options for both producers and intermediaries. A simulation model is developed to analyze the market and welfare effects of A × C. When applied to corn, results show that A × C exerts substantial impacts and causes large transfers across sectors. Even if A × C reduced intermediaries' market power to the largest extent feasible, results indicate that it would still cause important losses in aggregate welfare.

Keywords: Agricultura por contrato, agriculture by contract, farm programs, farm support, market impact, price risk, welfare analysis

Suggested Citation

Lence, Sergio H., Modeling the Market and Welfare Effects of Mexico's “Agriculture by Contract” Program (April 2016). American Journal of Agricultural Economics, Vol. 98, Issue 3, pp. 925-945, 2016, Available at SSRN: https://ssrn.com/abstract=3575901 or http://dx.doi.org/10.1093/ajae/aav052

Sergio H. Lence (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States

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