Linking apple farmers to markets: determinants and impacts of marketing contracts in China

Abstract

Purpose – The purpose of this paper is to investigate the determinants of marketing contract choices including written contracts, oral contracts and no contracts, as well as to examine the impact of marketing contracts on net returns from apple production in China. Design/methodology/approach – A two-stage selection correction approach (Bourguignon, Fournier, and Gurgand (BFG)) for the multinomial logit model is employed to estimate the impact of marketing contracts on net returns from apple production. On the basis of the BFG estimation, the authors also use an endogenous switching regression model and a propensity score matching technique to estimate the causal effects of marketing contract choices on net returns from apple production. Findings – The results reveal significant selectivity correction terms in the choices of both written contracts and no contracts and insignificant selectivity correction terms in the choice of oral contract, indicating that accounting for selection bias is a prerequisite for unbiased and consistent estimation. The findings also indicate written contracts increase apple farmers’ net returns, while oral contracts exert the opposite effect. Originality/value – To the best of the authors’ knowledge, this study is the first to examine the impact of marketing contract choices on net returns from apple production, accounting for selectivity effects.