Sustaining Smallholders and Rainforests by Eliminating Payment Delay in a Commodity Supply Chain---It Takes a Village

Sustaining Smallholders and Rainforests by Eliminating Payment Delay in a Commodity Supply Chain---It Takes a Village

By
Joann de Zegher, Dan A. Iancu, Erica Plambeck
Management Science.
2018

Millions of poor smallholder farmers produce global commodities,
often through illegal deforestation. Multinational commodity buyers have
committed to halt illegal deforestation and improve farmers’ livelihoods in
their supply chains. We propose a profitable way to do so, motivated by
field research in Indonesia’s palm oil industry. Currently, farmers suffer
from delay in payment by processors, and buyers expensively attempt to avoid
sourcing from illegally-deforested land by monitoring individual farmers.
Instead, we propose that buyers reward all farmers in a village by
eliminating payment delay if no production occurs on illegally-deforested
land in the village. Using field data, dynamic programming and game theory,
we show how eliminating payment delay improves productivity and
profitability for farmers, processors and buyers, and how village-level
incentives best halt illegal deforestation.