Abstract
AbstractThe global demand for cashew nuts continues to increase steadily. However, many African countries face difficulties in marketing and adding value to the product. Using recent survey data of 391 cashew farmers in Ghana, this paper contributes to the growing evidence on the significance of contract farming (CF) in improving the welfare of rural households in developing countries. Specifically, the paper analyzes the factors that influence cashew farmers’ decisions to participate in CF, and the impact of participation on farmers’ performance. We employ a recently developed switching regression model with endogenous explanatory variables and endogenous switching to control for selection bias caused by observable and unobservable factors. The empirical results show that participation in CF significantly increases labor productivity and price margins, as well as cashew yields, and net revenues. A disaggregated analysis of the sample into farm size categories reveals that small‐sized cashew farms tend to benefit more through CF, compared to medium‐ and large‐sized farms.
Highlights
The need for higher levels of managed coordination has grown due to rapid changes in global food markets (Minot & Sawyer, 2016)
We find that contract farming (CF) participation significantly increases labor productivity by 61%, and price margins by 45%, compared to the average labor productivity and price margins obtained by cashew farmers
Given the challenges smallholder farmers face in marketing their products, with the emergence of supermarkets, CF has been widely identified as a means of helping smallholder farmers to participate in value chains
Summary
The need for higher levels of managed coordination has grown due to rapid changes in global food markets (Minot & Sawyer, 2016). Despite the central role of cashew for the Ghanaian economy, there is a lack of knowledge about how CF shapes cashew production and incomes Another aspect of our analysis is the introduction of heterogeneity in impacts by scale of operation. This will be very important in designing policies that aim at supporting CF and off-farm employment by knowing which segment of farmers to target Likewise, it will provide policy makers with insights into the multidimensional effects of participation in CF, as well as enhance the understanding of the mechanisms through which CF affects welfare (Bellemare & Bloem, 2018; Upton & Lentz, 2017).
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