Contract design in agriculture supply chains with random yield
File(s)
Accepted version
Author(s)
Anderson, Edward
Monjardino, Marta
Type
Journal Article
Abstract
In an agricultural setting it is natural to consider yield risk in the context of a three level supply chain: with a small number of suppliers, large numbers of growers, and a small number of buyers. In the cereal growing case that is our focus, there is a supplier of fertiliser, a potentially large number of growers of cereal crops and a buyer, who purchases grain from the growers. The yield depends both on the input level of fertiliser and also on random weather-related factors. We study the impact of a new type of contract structure in which the grower purchases inputs at a discount, but agrees to a reduced price for the crop. The buyer makes a payment to the supplier to compensate for the discount offered. We show how this can coordinate the supply chain and demonstrate the potential advantages of this contract form when producers are risk averse. We look in detail at the implications of the use of these contracts by Australian wheat growers using data generated by APSIM, a growth simulation tool, to understand the connection between yields, fertiliser use and the weather. By using APSIM we can estimate the distribution of yields implied by the grower’s decision on fertiliser application and hence estimate optimal fertiliser use for risk averse growers.
Date Issued
2019-09-19
Date Acceptance
2019-03-28
Citation
European Journal of Operational Research, 2019, 277 (3), pp.1072-1082
ISSN
0377-2217
Publisher
Elsevier
Start Page
1072
End Page
1082
Journal / Book Title
European Journal of Operational Research
Volume
277
Issue
3
Copyright Statement
© 2019 Elsevier B.V. All rights reserved. This manuscript is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence http://creativecommons.org/licenses/by-nc-nd/4.0/
Identifier
http://gateway.webofknowledge.com/gateway/Gateway.cgi?GWVersion=2&SrcApp=PARTNER_APP&SrcAuth=LinksAMR&KeyUT=WOS:000468721200021&DestLinkType=FullRecord&DestApp=ALL_WOS&UsrCustomerID=1ba7043ffcc86c417c072aa74d649202
Subjects
Social Sciences
Science & Technology
Technology
Management
Operations Research & Management Science
Business & Economics
OR in agriculture
Yield uncertainty
Supply chain contracts
Risk aversion
RISK-AVERSION
COORDINATION
NITROGEN
WHEAT
MANAGEMENT
EFFICIENCY
FARMERS
SYSTEMS
DEMAND
GAPS
Publication Status
Published
Date Publish Online
2019-04-03