DDRIE: Farm to Fridge: Traceability and Quality Incentivizing in a Dairy Chain

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Improving the quality of agricultural products is an important step in the process of structural transformation---moving farmers from subsistence farming to modern commercial agriculture. Disorganized agriculture value chains prevent the transmission of quality incentives to farmers in the supply chain, especially when quality is unobserved at the farm gate. Without an effective traceability system along the value chain, farmers will not be rewarded for producing high-quality products. This project will support low-income farmers to develop more accountable food supply chains by establishing a sustainable traceability and quality-based payment system in dairy farming. This system helps to improve products’ quality, increase farmers’ profit, and improve consumers’ welfare, which has the potential to be scaled up to not only many other dairy cooperatives, but also other agricultural commodities. This research would help the U.S. target its aid policies in agricultural value chains in developing countries more effectively with a better understanding of these emerging markets. The results of this research could improve agricultural product quality and increase the incomes of small-scale farmers as well as improve the health of consumers. This project will use a randomized controlled trial (RCT) at the collection center level within dairy cooperatives to evaluate the effect of establishing a milk quality traceability system, supplemented with a quality-based payment on milk quality, and farmers’ investment in quality upgrading. The experiment has two arms. First, the project implements a traceability system to track the flow of milk delivery throughout the value chain among randomly selected collection centers. Milk tests at different levels based on the traceability system will be conducted to determine farmers’ eligibility for quality subsidies. Second, this project randomizes the subsidy to be paid to eligible farmers as well as vary the range of subsidies to be given to farmers. This experimental design allows the PIs to identify the causal effects of traceability systems and quality-based payment on milk quality and farmers’ investment in quality upgrading. The design can be adapted to study other markets and the results could provide economists with a better understanding of product quality upgrading, and important contribution to the development economics literature. The data collected for the project will be made available to future researchers. The results of this research could improve agricultural product quality and increase the incomes of small-scale farmers as well as improve the health of consumers. The results will also inform US policies on quality upgrading in agricultural value chains as well as guide the formulation of US aid policies.This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.