Definition
Public goods are produced through targeted prescriptions included in contracts for producing agricultural/forestry goods. It implies that consumers have clear information about the product’s connection with the public good and, therefore, (usually) accept to pay (more) for that added value.
Design Guidelines
In the value chain contracts type, the farmers are paid in exchange for having to respect respecting environmental prescriptions attached to a contract to provide a private good. Assuming consumers are willing to pay for the public good when purchasing the private good, farmers usually receive premium prices. So, the roles of the market, market players, and buyers/consumers are important in designing a value-chain contract. Thus, before choosing to develop and engage in a value chain contract, it is critical to check the market conditions and product requirements and then match them to the environmental objectives intended to be met with the product. If value chain contracts are at the risk of being unsuccessful, e.g., market conditions are unsuitable, or if the required environmental objectives cannot be achieved on acceptable financial terms, the practitioners should consider using other contractual solutions. The value chain mechanism might not be enough to compensate for the efforts needed, so it should be deemed to have public funding or be regulated by public support. E.g., value chain contracts for having local foods (organic certified) are not always only regulated by payments but also by public support and facilitation. To design efficient value chain contracts, the decision tree in Fig 8 below can be of help.
Fig 8 Decision tree for designing value chain contracts
