Cooperative agricultural production to exploit individual heterogeneity under a delivery target: The case of cotton in Uzbekistan

This study argues that heterogeneous farms operating under a delivery target may yield significant economic benefits if they coordinate their production portfolio. To analyze the gains from cooperation, we simulate various cooperative game solutions over seven cotton producing farms in a bio-economic model of a water users association. The study results show that cooperation can fulfill multiple objectives: ensure the cotton production targets, increase farm profits and grain production, and reduce the pressure on water resources. We investigate a situation where farms differ in soil quality and distance to irrigation canals. The proposed modification in the national cotton procurement policy that utilizes the comparative advantages of cooperating cotton-producing farms can make the cooperative agreements economically attractive even among heterogeneous farms. It should be noted that the benefits offered from farm cooperation may be smaller or even vanish if transaction costs grow excessively in response to the heterogeneity of participating farms and the size of the cooperative. In addition, the economic benefits will not necessarily be distributed equally among participating farms and thus require the development of fair division rules. In this respect, net gain allocation schemes based on production costs, size and cotton output of farm cooperation are presented and discussed against the distinct social features of rural Uzbekistan. (C) 2015 Elsevier Ltd. All rights reserved.