Economics of contracts in African food systems: evidence from the malt barley sector in Ethiopia

Delelegne A Tefera,Jos Bijman

doi:10.1186/s40100-021-00198-0

Abstract

Foreign direct investment (FDI) facilitates modernization of domestic agri-food systems in emerging economies through increased use of vertical coordination. This paper sheds lights on how international brewer investments in African food systems affect smallholder market participation and value chain development. In particular, we analyze the impact of contracts among malt barley producers in Ethiopia. Using cross-sectional survey data, we employ inverse probability-weighted regression adjustment (IPWRA) and propensity score matching (PSM) techniques to analyze the economic impact of contracting. We find that contrary to popular belief, contracting has positive and significant impact on malt barley production, intensification, commercialization, quality improvement, and farm gate prices, ultimately resulting in increased net income and spillover into the productivity of other food crops.

Highlights

Smallholder agriculture remains important for economic development in sub-Saharan Africa (SSA) and produces about 80% of the food consumed in the region (FAO 2013b)
We present a short review of these studies using the following perspectives: (a) the prevalence in the use of Contract farming arrangement (CFA); (b) which farmers participate in CFAs; (c) the welfare impacts of CFAs; and (d) the organization of the contract and the role of intermediaries
Our findings demonstrate that CFA participation has a positive impact on the following performance indicators: malt barley yield, intensification, quality, share sold, farm gate price, malt barley income, and other crops income

Summary

Introduction

Smallholder agriculture remains important for economic development in sub-Saharan Africa (SSA) and produces about 80% of the food consumed in the region (FAO 2013b). The increase in urbanization, rising incomes, industrialization, a burgeoning middle class, and globalization have led to the emergence of modern supply chains, including modern food retail (Maertens and Swinnen 2012; Minten et al 2016; Reardon et al 2009; Verhofstadt and Maertens 2013). These developments have resulted in changes in the food production process, vertical coordination, and dominance of food processors (Swinnen and Maertens 2007).

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Discussion

Conclusion