Agriculture Reference
In-Depth Information
however, generally implies the opposite prediction. Under risk neutrality, avoiding exoge-
nous variability through sharing offers no benefits. At the same time, as output becomes
more variable, the opportunities for the farmer to underreport (in effect, steal) the crop
increase. Greater exogenous yield variability allows the farmer to hide his actions behind
Mother Nature. Increases in output variability increase the cost of share contracts, so we
would expect a decrease in the use of cropshare contracts, or a negative coefficient on CV
and STD. This prediction is generally supported by our data, both at the aggregate level
(table 6.4) and at the contract level (table 6.5).
36
Table 6.4 shows that land contracts for low-variability crops are often dominated by the
sharing arrangement.
37
In Louisiana this is especially true for sugarcane, which has one of
the lowest CVs (0.099) in our sample, yet is predominantly shared (80% of all leased acres).
In the Great Plains share contracting for corn is important (60%-70% of contracts) even
though it has a relatively low CV (roughly 0.100). At the contract level, table 6.5 shows
considerable support for this implication. Table 6.5 shows that twenty-seven of forty-eight
estimated coefficients are negative and eleven of these are significant at the five percent
level, generating substantially more support than the standard principal-agent model.
Crop underreporting, however, is only part of the risk-neutral transaction cost story.
Row crops like corn, soybeans, and sorghum tend to be shared because of soil exploitation
problems (see chapter 4). Soil exploitation problems also increase with increased variance
in the random input, so these crops are predicted to have lower farmer shares when output
variability increases. Grain crops, on the other hand, do not experience as severe a soil
exploitation threat as row crops, and therefore the farmer's share rises with output variability
to counter underreporting.
The Distribution of Contracts across Assets.
In agricultural applications, the risk-
sharing framework has focused on the land lease contract. Yet land is only one of many
important farm inputs governed by contracts. Many other assets besides land—buildings,
equipment, skilled and unskilled labor—are important, and contracts routinely govern their
use. A risk-sharing rationale for land sharing should also imply share contracts for other
important assets like buildings and equipment. Data from British Columbia and Louisiana,
however, offer no indication that other assets are shared frequently like land. Table 6.8 shows
the distribution of sole ownership, shared ownership, and leasing for buildings, equipment,
and land. Sole ownership is, by far, the dominant regime for buildings and equipment, but
not for land. Buildings are not often leased apart from land and in these cases they are never
leased on a cropshare basis. Equipment leasing, too, is never based on output shares and is
far less common than for land leasing. When farmers lease equipment they usually pay a
daily rate or a rate based on hours of engine use, which is measured with gauges in tractors
and combines. This variation across different assets is inconsistent with the risk-sharing
