Efficiency gains in broiler production through contract parameter fine tuning

This paper reports on an analysis of existing broiler production contracts, with an attempt to establish the degree of efficiency gains possible from contract alteration. With the use of settlement cost and farm level data, an assessment is made of optimal grower input decisions given contract specifications. Using this analytical framework, alternative contract designs are simulated by searching over possible contract parameter values. The foci of the analysis are three contract parameters: base payment, bonus factor, and the utilities cost allocation factor. In the first two cases, the simulation generated ambiguous results. In the third case, results seem to indicate that switching part of the electricity cost from the grower's cost into the settlement cost may result in a mutual welfare gain.