Close Vertical Coordination and Income Stabilization for Forage Farmers: Evidence From China

ABSTRACT

The inability to ensure stable incomes for Chinese forage farmers has contributed to a severe shortage of forage supplies. However, there is currently a lack of research on pathways to achieve income enhancement and stabilization for forage farmers. Considering forage characteristics and farmer constraints, this study argues that close vertical coordination constitutes a necessary pathway to income enhancement and stabilization. An income function for forage farmers is first constructed to theoretically examine the income effects and underlying mechanisms of close vertical coordination. Subsequently, empirical analysis is conducted using survey data from key forage‐producing regions in China, primarily applying a multinomial endogenous switching regression method. The results demonstrate that compared with market transaction models, close vertical coordination has a significant positive effect on income enhancement and stabilization for forage farmers. Specifically, the production contract coordination model yields the highest income enhancement effect at 30.17%, while organizational coordination and production contract coordination models lead to income stabilization effects of 63.16% and 70.81%, respectively. The operational mechanisms vary among close vertical coordination models in terms of achieving income enhancement and stabilization. Organizational coordination largely relies on production efficiency and quality control, while sales contract coordination emphasizes quality control and transaction value, and production contract coordination encompasses production efficiency, quality control, and transaction value. These findings indicate that policy interventions should encourage wider participation in close vertical coordination models, thereby enhancing their income effects and increasing forage supply capacity.