Supermarket contracts, opportunity cost and trade-offs, and farm household welfare: Panel data evidence from Kenya

Abstract

• Panel data models of the effects of supermarket contracting on farmers’ welfare. • Supermarket suppliers have higher income and dietary diversity than traditional channel suppliers. • Supermarket channel stayers sustain higher income gains than dropouts or newcomers. • Positive spill-over effects of supplying supermarkets on other sources of income. • Wider supermarket participation can improve household nutrition. While previous studies analyzed the welfare effects of smallholder participation in supermarket channels, little is known about the effects over time of supplying supermarkets on farm household incomes and diets, possible trade-offs, and opportunity costs of supermarkets on different income sources. We use panel data from smallholder vegetable farmers in Kenya to address these research gaps. The results show that supermarket contracts increase overall income by 61% and the dietary diversity score of nutritious foods by 4%, on average. Supermarket contracts also increase farm income without sacrificing income from other sources. In terms of participation dynamics, supermarket stayers and dropouts achieve overall income gains, but newcomers do not immediately benefit, due to their huge initial capital investment. Supermarket participation is not a panacea for all smallholder marketing and livelihood challenges but benefits farmers who can meet contractual requirements.