Reasons of Engagement and Impact of Contract Farming to Smallhold Farmers: A Literature Review

Abstract

This paper is a review of books, journals, discussion papers, conference proceedings, and other related articles about the reason or reasons of the smallhold farmers in engaging in contract farming and evaluate its tangible and intangible impact to their socio-economic conditions. The literatures show that contracting generates more benefits and better income to farmers, especially the marginal and smallholders. It improves their productivity due to risk minimization, access to market and economies of scale. This means the farmers get effectively integrated into domestic and international markets. Contracting also gives farmers intangible and latent benefits. However, contract farming may pose the following problems like: contract biases, imperfections of the market world, input supply and crop failures, delayed produce delivery and payment, quality control and lack of negotiation power. However, the following gaps must be focused in the future studies: an in-depth evaluation on the outcomes of contract farming to rural development; accountable marketing contracts between small farmers and big firms; a systematic investigation on informal contracts and how it can be an efficient and effective market linkage for the smallholders; and, more empirical studies on contract farming in livestock and crop farming in the developing countries especially the Philippines.