Impact of contract farming on land productivity and income of maize and potato growers in Pakistan

Abstract

While the positive income effect of contract farming is well established in the literature, the heterogeneity of effects for different crops has not been widely investigated. This study compares the income and productivity effects of large-scale contract farming under contract schemes for potatoes and maize in Pakistan. In the area of the study, maize is a common staple crop, widely available in the market, while the potatoes produced by contract farmers are a special variety not sold in the market. We find that potato contracting is associated with significantly higher income for participating farmers, while maize contracting has no association with either income or productivity. We found no negative association between contract participation and income from other sources. Taken together, these results show a higher total household income for potato contract farmers. We also show unique evidence that potato contract farmers tend to employ more skilled workers under a salary system for the management of farms, which implies that contract farming may have positive spillover effects in the skilled labor market. Neither scheme, however, is associated with larger employment of agricultural labor for simple tasks.