This paper examines the incentives and disincentives for the adoption of Good Agricultural Practices (GAPs) by farmers and by downstream handlers of farm outputs in developing countries. GAPs cover a diverse set of objectives and have been developed by a wide array of interest groups from private supply chain-driven systems tied to individual retailers, and industry-wide systems driven by retailer or producer associations, to programmes developed within national policy frameworks or promoted by international agencies.

GAPs can be seen as attempts to improve the sustainability of agriculture on a number of fronts, including protecting environmental and natural resources, improving food quality and food safety and enhancing food security through improved production techniques. Concerns have been raised regarding the potential effect of GAPs on smallholders in developing countries. There are fears that stringent new GAPs could marginalise small producers, cutting off access to export markets and imposing disproportionately higher production costs on smaller producers given the investments that may be needed to adopt good practices. Conversely, GAPs may provide the catalyst for improvements to production techniques and to supply chain infrastructure (e.g. processing, storage, transportation) in developing countries.

Table 1 summarises the incentives and disincentives to adopt GAPs discussed in this paper. The strength of each incentive or disincentive is classed as “strong” or “marginal”. For example, some incentives for adoption (e.g. stabilisation of yield and/or revenue) are expected to be stronger than other incentives (e.g. reduction in wastage). The final column indicates the type of GAPs programme in which this incentive or disincentive is likely to be more prevalent. The GAPs programmes are classified broadly as (i) private industry supply chain GAPs, where the farmers are working with a specific processor, exporter and/or retailer within a closed supply chain (PSC); (ii) industry group GAPs, where the GAP has been established by a producer or retailer association, such as EUREPGAP (IG); (iii) national government-initiated GAPs (G), such as the Malaysian Farm Accreditation Scheme, and; (iv) GAP programmes that are championed by international agencies and may extend across multiple national boundaries in developing countries (IA).

In some cases, the (dis)incentive for adoption is relevant regardless of the type of GAP programme, such as stabilised yield (revenue) or increased production costs. Other incentives are more relevant to specific types of programmes. For example, if a farmer must made investments that are specific to one buyer, he/she is vulnerable to the buyer changing the terms of their agreement or refusing to accept supplies. This disincentive applies mostly to private supply chain GAPs. It is less relevant for GAPs implemented by international agencies that may be broader in scope and where farmer investments are not likely to be specific to one buyer. In general, the economic incentives for adoption are stronger for private supply chain systems, whereas many of the economic disincentives (increased costs) apply to all types of GAP system.

Table 1 (Executive Summary) Characterising Incentives/Disincentives to Adopt GAPs

Incentive	Farmer Incentive	Processor/Retailer incentive	GAPs Systems Where Most Prevalent
ECONOMIC
Price Premium	üü		PSC
Access to market/supply chain	üü		PSC
Access to reliable inputs		üü	PSC, IG
Product differentiation	ü	üü	PSC
Stabilise yield/revenue	üü		PSC, IG, G, IA
Reduce storage losses	ü	ü	PSC, IG, G, IA
Reduce wastage	ü	üü	PSC
Increase farm asset value	ü		PSC, IG, G
Protection against market externalities	ü		PSC, IG
Increase variable production costs (e.g. labour)	ûû	ûû	PSC, IG, G, IA
Reduce output/increase average costs	ûû	ûû	PSC, IG, G, IA
Increase fixed production costs (e.g. equipment)	ûû	ûû	PSC, IG, G, IA
Asset specific investment*	û	û	PSC
Reduce search costs	ü	ü	PSC, IG (G, IA)
Reduce monitoring costs		üorû^a	PSC, IG, (G, IA)
Altruism/social capital	ü	ü
REGULATORY/LEGAL/ INSTITUTIONAL
Owning property rights to scarce resources	ü		G
Subsidies	ü	ü	G
Reduce liability/show due diligence	ü	üü	PSC, IG
Reliance on institutional infrastructure	û	û	PSC, IG, G, IA
Third party monitoring	ü	ü	PSC, IG, G, IA
HUMAN CAPITAL
Expand skill set	ü	ü?	PSC, IG, G, IA
Record-keeping (literacy)	ûû	û	PSC, IG, G, IA

Key:

Where üü = strong incentive to adopt; ü = marginal incentive to adopt;
ûû = strong disincentive to adopt; û = marginal disincentive to adopt

PSC = Private supply chain GAPs; IG = Industry Group GAPs(e.g. producer association), G = national government GAPs; IA = international agency or NGO GAPs

^a Depends on the presence of third party verification which lowers monitoring costs. Without third party verification, processors/retailers will likely face higher monitoring costs.

* An asset specific investment has little or no value in an alternative use, e.g. inputs or equipment that are specific to one buyer. Having made the investment, the farmer is vulnerable to the buyer acting opportunistically by reneging on a supply agreement.

The incentives for farmers to adopt GAPs include economic incentives such as increasing and/or stabilising revenue, reducing average costs, improved market access, increased capital valuation of farm assets, reduced vulnerability to poor agricultural practices of other farmers; regulatory or legal incentives including changes in ownership rights or tax burdens, liability rules, subsidies; and human capital incentives including access to new skills. Disincentives for farmers to adopt GAPs include economic disincentives such as: increased production costs, investment in assets that are specific to one buyer and/or cannot be recovered if the buyer-seller relationship breaks down; institutional constraints including inadequate quality monitoring infrastructure, weak or corrupt public institutions for overseeing GAPs, and; human capital constraints such as literacy limits on documentation capabilities; constraints on labour or management time, weak public extension, etc.

Market forces have driven the development of many GAPs through the demand by consumers in developed economies for stronger food safety and food quality assurances. In addition to on-farm practices, Good Manufacturing Practices for downstream firms are important in ensuring the integrity of product attributes assured through a GAP programme. Often this is combined with traceability or identity preservation systems. Smaller firms may have a ‘first-mover’ advantage if they can capitalise on their ability to tailor production processes to niche markets and offer traceability. However, technological change erodes this competitive advantage, eventually allowing larger firms to adapt their commodity-oriented systems to capture more value-added. Furthermore, the marketing and supply chain infrastructure in many developing countries has limited capacity for segregating GAP and non-GAP produce to allow full traceability and identity preservation of GAP output.

Monitoring (and certification) by an independent third party plays a critical role in assuring the credibility of GAPs. The probability that third party monitoring will reveal true product quality is important in ensuring the integrity of products from GAPs programmes. If third party monitoring is ineffective, the threat of regulatory intervention to mandate specific production practices can provide the incentive for an industry to ‘voluntarily’ introduce GAPs. However, this presumes that intervention by a government or public agency would improve quality monitoring and certification. In many developi