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(1) What is the incentive for a chemical farmer who works with
the coupon system to adopt organic fertiliser?
(1) Buy the rest of the required chemical fertiliser using own
money
(3) Prepare or buy organic fertiliser for the rest of the fertiliser
requirement.
Among the three options I argue that the most attractive option
for a commercial paddy farmer in terms of incentives is to buy the
rest of fertiliser using own finances. Here the fertiliser cost will be
reflected in the output price. This might increase the rice price in
the short run but with proper management of paddy storages the
price impact will be smoothened in the long run.
The next best alternative for the farmer is to supply the rest of the
fertiliser requirement through organic fertiliser. However the
profitability in this case will be heavily determined on the scale of
cultivation and the supply chain of organic fertiliser. This is
because large amount of organic fertiliser is needed for an acre.
The third option is to reduce the cultivation area where the hit on
profitability is the hardest. Therefore yields least incentives for a
farmer. For subsistence framers the best option is to reduce the
cultivation area. Any other option will result in an additional cost.
For a subsistence farmer it could be cheaper to buy rice from the
market if needed rather than trying to produce by buying
fertiliser.
Export value chains on the other hand are quality reflectively (for
the most part). For example the Good Agricultural Practices (GAP)
value chain has clear incentives to maintain quality. The value
chain only allows the recommended levels of fertiliser and other
chemicals. Farmers work very loosely with the agriculture
extension officers where it is essential to get recommendations on
any chemical applications.
Grow what you can eat is about the opportunity cost. Sometimes
the opportunity cost of growing in terms of time, space, and fixed
and variable inputs might overweigh the willingness to pay for
toxic produce. In such cases the incentives are towards
consuming toxic produce rather than cultivating by yourself.
For some consumers the third option might give the highest
incentives. For example, there are consumers who have reduced
the consumption of fruits and vegetables that are famous for
using banned chemicals (e.g.: cabbage, capsicum, banana and
mango). For them the foregone utility in terms of reduced
consumption is lower than the opportunity cost of cultivation or
searching informal quality signals.
This is also evident in the GAP value chain where farmers are
facing difficulties in finding exporters while their extension officer
has sold almost three times of what farmers have produced.
Therefore allowing the extension officer to reduce the transaction
costs might reduce the incentives for farmers to stay in the value
chain.