Peer review

“Agriculture by contract” (A × C) is the main Mexican government program aimed at mitigating price risks for agricultural producers in Mexico. A × C has unique features involving forward contracts and the provision of basis subsidies and subsidized exchange‐traded futures options for both producers and intermediaries. A simulation model is developed to analyze the market and welfare effects of A × C. When applied to corn, results show that A × C exerts substantial impacts and causes large transfers across sectors. Even if A × C reduced intermediaries' market power to the largest extent feasible, results indicate that it would still cause important losses in aggregate welfare.

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