Impacts of marketing contract choices on technical efficiency: Insights from citrus production

Abstract

Farmers seeking marketing contracts for product sales need to adjust their production behaviour in advance to meet the product attributes required by market buyers. However, little is known about whether marketing contract users are more efficient in farm production than non-users. This study contributes to the literature by examining the impacts of marketing contracts (written contracts, verbal contracts, and no contracts) on technical efficiency, taking citrus production in Jiangxi Province, China, as an example. We first use a stochastic production frontier (SPF) model to calculate the technical efficiency scores of citrus production at the individual level. Then, we use a multinomial endogenous switching regression (MESR) model, which mitigates selection bias issues arising from observed and unobserved factors, to estimate the treatment effects of marketing contract choices on technical efficiency. The SPF model estimates show that the mean technical efficient score of citrus production is 0.626, ranging between 0.021 and 0.892. The MESR model estimates reveal that the average technical efficiency scores for written and verbal contract users are 14% and 2% higher than those for no-contract users. The average technical efficiency score for written contract users is 8% higher than for verbal contract users. Our findings highlight the importance of helping citrus farmers use marketing contracts, especially formal written contracts when selling their products, which can help increase technical efficiency and farm productivity.