Contract Farming Arrangements Research Articles

From market-based development to value chain transformation: What markets can (not) do for rural poverty alleviation?

Market reforms are considered as an important strategy to support poverty reduction amongst small-scale agrifood producers in developing and emerging economies. Most attention is commonly focused on voluntary initiatives that provide a guaranteed minimum price to farmers and improve services for rural communities, supplemented by good agricultural practices for higher productivity, environmental quality and to support living incomes. Whereas alternative trade movements have become ‘mainstream’ their market shares are stagnating. Since agrifood markets have changed substantially and trade networks are restructured, smallholders are increasingly controlled by midstream agents (traders and processors) and captured into contract farming arrangements. This article outlines a new discourse around value chain transformation that supports local processing for income and employment generation and favours better integrated supply chains based on circularity and trust. It identifies new alliances between producers and traders that change market governance beyond simple adjustments in exchange relationships. Combining public investments (market infrastructure) with civic-driven organization (cooperation and contracts) and private networks (for profit redistribution along the value chain) offers interesting opportunities for linking sustainable business practices with value-driven trade arrangements.

Contract farming in transitional economies: A stakeholder theory perspective

Abstract In transitional economies, contract farming is widely recognized as a means for addressing numerous market failures affecting small farmers. Reviewing the scholarship on contract farming, we show that its traditional understandings have been framed by the narratives of transaction cost economics and power dynamics. We critically evaluate these narratives and demonstrate how stakeholder theory, with its relational understanding of business, offers a more comprehensive understanding of contract farming. We argue that a stakeholder theory perspective underscores the trust-based and collaborative nature of successful contract farming arrangements. It highlights the importance of informal and moral stakeholder relationships that compensate for the limitations of weak enforcement mechanisms and inadequate legal frameworks in transitional economies. This way, a stakeholder theory perspective on contract farming highlights its strategic management and business ethics dimensions, offering valuable guidance for cultivating successful stakeholder relationships.

Does contract farming arrangement improve smallholder tobacco productivity? Evidence from Zimbabwe

Contract Farming Arrangements (CFA) can be viewed as a pro-active response to lack of reliable markets and steeply rising input prices. CFA proponents argue that CFA can enhance technical efficiency of tobacco farming and productivity. Thus, in this study, the paper interrogates the effect of CFA on tobacco productivity in southern Africa: Hurungwe district of Zimbabwe. The study controls for both observable and unobservable factors, like age, education, and ability to use information-unknown to the researchers, explaining farmers decision to participate in CFA. The study uses the Endogenous Switching Regression (ESR) model, which also acts as a robust check for the Propensity Score Matching techniques as it studies both observable and unobservable factors influencing CFA participation. Based on the ESR model, this study finds that CFA improves tobacco productivity by 39%. Nonetheless, CFA is labour-intensive. Hence, women and the elderly are less likely to participate in CFA, suggesting the need to develop gender-sensitive labour-saving technologies. Even though tobacco products kill their users, we would like to explore whether CFA can make farming more productive or not. We hypothesize that if tobacco farming would be more productive, then perhaps farmers will have enough money to buy food so they can be healthier even if the tobacco leaves, they grow can kill people elsewhere. Thus, these results inform CFA-related policies that improve smallholder tobacco productivity in Southern Africa. With existing tobacco controls, these results are equally valid to other cash crops where most developing economies anticipate the majority resource-constrained smallholder farmers to shift their production systems entirely away from tobacco in the immediate future.

Analysis of common bean (Phaseolus vulgaris L.) trade in Cameroon: A trader's perspective of preferred varieties and market traits

Common beans contribute towards enhancing food and nutritional security in developing countries. Producing the right varieties entails that the interest of all value chain actors, like traders (wholesalers, retailers, and aggregators), are considered in developing breeding priorities to meet local and export market demand. However, there is little or no information on traders' perspectives regarding the preferred common bean traits and variety; hence, this study sought to fill the gap. This study aimed to analyse common bean trade in Cameroon by focusing on the trader's perspective of preferred varieties and market traits. A market survey was conducted in August 2021. Four regions of Cameroon (Adamawa, Centre, West, and Littoral) were purposively selected based on accessibility, and high concentration of bean traders and are considered the major bean distribution and consumption hubs. A two-stage random sampling was then used to select 175 traders. Data was gathered using a semi-structured questionnaire and analysed descriptively using Excel and STATA 14 software. The results indicated that 80% of bean trade was with Gabon and Congo. The majority of the sampled traders were men, as more men are involved in the bean business. Also, the majority of the traders did not participate in contract farming arrangements. Two market classes of beans were popular: red and white beans. The red beans were popular in the market probably due to good market traits such as affordability, good taste, high yield and early maturity. White bean market class was popular in the export market. Conversely, the black bean market class was the least preferred in the market. The most preferred market traits for improved common beans were good taste and acceptability by buyers. White beans fetched the highest wholesale (1.72 USD) and retail (1.41 USD) prices per kg on the market. Conversely, black beans fetched the lowest wholesale (0.8 USD) and retail (0.75 USD) prices per kg on the market. We recommend that common bean breeders should involve traders as important stakeholders whose market intelligence can be useful in developing improved bean varieties, which are demand-driven. Also, governmental and non-governmental agencies should promote improved common bean varieties to enhance productivity that meets the high demand in local and export markets. Besides, they should promote traders' participation in contract farming arrangements to enhance the steady supply of improved common beans on the market.

Are smallholder farmers benefiting from malt barley contract farming engagement in Ethiopia?

BackgroundIt is believed that in Ethiopia barley has been cultivated before 3000BC. Among the cereals, it is ranked in fifth place and the most important crop next to teff, sorghum, and wheat in the country. Different works of literature highlight that engagement in contract farming is one of the innovations promoted to tackle technology constraints of the smallholder farmers, as a possible solution to raising productivity and linking smallholders in the emerging modern marketing chains. Associated with the rapid rate of urbanization in the country, there is a high demand for malt barley which is resulting high expansion of beer factories. Consequently, in the study area, many farmers got into a contract agreement with Assela malt barley factories. Recent studies conducted on malt barley in Ethiopia gave much emphasis to the value chain aspect of malt barley. Therefore, the main motive behind this study was to fill the empirical literature gap in the field by giving much emphasis on the impact assessment of malt barley contract arrangement on income and food items dietary diversity of the respondent households.MethodologyTo attain the study objectives, both primary and secondary data were collected and used. Randomly selected 312 households comprising 127 households engaged in malt barley contract farming arrangements and 185 non-contract households were the source of primary data for this study. Secondary data were collected from a review of different works of literature. Both descriptive and econometric models were used to analyze the primary data using Stata software version 14. The propensity score matching model was applied to examine the impact of malt barley contract farming engagement on the income and dietary diversity of the respondents.ResultIt was found that family size, credit use, livestock holding, malt barley production experience, frequency of extension contact, and land allotted for malt barley production positively determine the probability of participation in malt barley contract farming arrangement. Contrary to this, distance to the malt barley collection centers negatively determine the probability of participation in malt barley contract farming. The ATT estimation of the PSM indicated that participation in malt barley contract farming has a positive impact on the income and dietary diversity of the respondent households.ConclusionParticipation in contract farming had a positive and significant impact on the annual income and dietary diversity of the smallholder households. The sensitivity analysis result showed that the impact results estimated by this study are insensitive to unobserved selection bias and the result obtained shows the true impact of contract farming on the income of the households. Therefore, concerned bodies working on malt barley production aspects as a development intervention should work to encourage non-contract farmers to engage in this activity.

Factors influencing broiler farmers’ participation in contract farming in Lesotho

Broiler production is one of the major income generating activities for small-scale broiler farmers in both urban and rural areas, but the sector is currently facing production and marketing challenges in Lesotho. Contract farming as a means for organising the commercial production of both large scale and small scale broiler farmers has been viewed as an effective solution to the sector’s challenges in the tiny southern African Mountain Kingdom. Contract farming is practiced in Lesotho but there are very few Basotho farmers practicing broiler production through contract farming and as a result, the study assessed factors influencing their participation in contractual agreements in two large districts of Lesotho which are Leribe and Maseru. One hundred and eighty (180) broiler farmers were selected using multi-stage sampling techniques and data were collected through structured interview schedule. Data were analysed using descriptive statistics and binary regression model to address objectives one and two which are to describe contract farming arrangements that broiler farmers have with agro firms and to identify factors influencing broiler farmers’ participation in contract farming in Lesotho respectively in this study. Descriptive results showed that broiler farmers (45%) participated in contract farming, while 55% participated in non-contract farming. Empirical results of the binary regression model revealed that broiler flock size (β=1.720, P<0.05), farming experience (β=0.784, P<0.05), farmer group/association membership (β=1.031, P<0.05), access to marketing infrastructure (β=0.699, P<0.05), access to extension services (β=1.950, P<0.05) and knowledge of grades and standards (β=1.600, P<0.05) influence participation in contract farming in Lesotho. Based on the findings, it is concluded that socio-economic, institutional and technical factors influence participation in contract farming which proves to be an efficient mechanism for production and marketing of agricultural products in the value chain in Lesotho. It is recommended that these factors be taken into consideration by national policy making authorities in the design and development of effective marketing structure for the products of broiler farmers in the country. Key words: contract farming, participation, broiler farmers, factors, binary regression, influence

Perceptions of Small-Scale Farmers on Tobacco Contract Farming: The Case of Marondera Rural District, Zimbabwe

Small-scale farmers’ perceptions of tobacco contract farming schemes in the Marondera rural district of Zimbabwe were critically assessed in this paper. The multi-stage sampling design was used to select five wards with the highest number of tobacco contracted farmers from where 60 contract and 60 non-contract tobacco farmers were randomly selected. A 5-point Likert scale was used to rank farmers’ perceptions. The paper established that small-scale farmers in Marondera rural district strongly believe contract farming makes it possible for the majority of farmers to venture into the production of high-value crops as it provides access to the much-needed markets while reducing the risk of price fluctuations. However, the majority of the respondents believed that contract farming is not profitable and there is a manipulation of farmers in contract farming arrangements. The independent samples t-test indicated a significant difference in perception score between participants and non-participants of tobacco contract farming schemes (p<0.05). The farmers who were not participating in tobacco contract farming schemes had a more positive perception of these schemes while those who participated had a more negative perception. The major implication is that gains associated with tobacco contract arrangements are not always apparent to farmers while the disincentives may be more visible. It is therefore fundamental that contract companies address some of the shortcomings existing in these contractual arrangements as well as change the perception of the farmers to develop mutually beneficial lasting relationships with their major stakeholders.

Institutional Innovations to Reduce High Transaction Costs and Risks in Smallholder Markets in Ghana

This article analyses institutional innovations to address high transaction costs and risks associated involved in the interaction between traders (agents) and smallholder farmers in rural markets of Ghana. A mixed methods design was used to collect data from participants. The findings from the study revealed possible institutional innovations to address high transaction costs and risks to facilitate smallholder farmers' market access in rural agricultural markers of Ghana. These include the introduction of a new contract farming arrangement, cooperative society, smallholder farmers' participation in decision making and the government's direct intervention.

Tobacco Farmers and Their Communities: Interlinkages, Gains and Losses in Mazowe, Zimbabwe

This article investigates spillover effects from the interlinked transactions arising from smallholder tobacco farmers’ participation in contract farming arrangements in the Mazowe district of Mashonaland Central. The case study is based on data from a household survey conducted in the district and includes both tobacco farmers and households that do not produce tobacco. Interviews, participant observation and a review of statistical data and grey literature helped trace dynamics of production, intra-household relations and changing communal relations. The study explores how social relations and power imbalances shape the distribution of benefits, costs and losses resulting from the adoption of contract farming in the production of tobacco. The paper argues that the adoption of contract farming leads to a range of interlinked transactional outcomes, such as the diversification of agricultural production and new investments into non-farm activities by the poorer members of the community. In turn, these interlinked transactions generate jobs and increase food consumption and effective demand for services at the community level. However, it is also the case that the gains from these interlinked transactions are highly skewed against the poorer people in the district and that wealthier and better-connected farmers gain more from adopting tobacco than their less wealthy and less well-connected peers. This could lead to increased inequality in the community. The paper shows how agricultural dynamism generates spillover and multiplier effects that benefit communities in an unequal and poorly understood manner.

Expanding through Precarity

Abstract Since the early 2000s, the border regions of the Russian Far East have seen rapid growth in large-scale Chinese agriculture through contract-farming arrangements. This article, drawing on archival and ethnographic findings, focuses on contract relations between Chinese agribusinesses and small farmers as a labour regime, unusual in the Russian context. It argues that practices of informal subcontracting, mediation and border governance underlie this regime and produce precarity for small farmers, shifting to them the natural and human risks of agricultural production in Russia. The article points out that managers of large companies used the border to discipline and dispossess direct producers.

Tobacco Farming and the Reconfiguration of Co-operatives in Tanzania

Tobacco has been grown in Tanzania since the 1950s and remains a designated strategic export crop cultivated under contract farming arrangements. This article examines the role of primary co-operative societies (PCSs) in co-ordinating the tobacco contract farming system. The article traces the transition from public marketing boards to private sector predominance and contributes to an understanding of the dynamics of contractual arrangements between private capital and smallholder tobacco farmers. It draws primarily on data collected through in-depth interviews with tobacco-processing companies and the leaders of PCSs in Urambo district, Tanzania. The analysis shows that the PCSs that are central to this sector need to ensure that their members farm in accordance with good agricultural practices and comply with reforestation and labour practice requirements as part of the industry’s focus on corporate social responsibility programmes and the promulgation of strategies addressing social and environmental concerns. Furthermore, the PCSs have become the gatekeepers for local development projects co-funded by the Tanzanian tobacco processing companies and global cigarette brand owners. The article argues that the PCSs’ ability to capture economic benefits for local development by tapping into the tobacco value chain depends not only on PCS leadership qualifications, capabilities and their capacity to ‘align’ farmers with the required cultivation practices, but also on the bargaining capacity of the PCSs in relation to the tobacco processing companies, which is influenced by whether the supply base is reliable in both quantity and quality. Recent developments in the contract farming arrangements provide new constellations of economic dynamics and opportunities for social and economic development activities at the PCS and village levels. The article ends with a discussion of rural development outcomes based on tobacco revenues, showing how contract farming integrates local communities into the dynamics of the global tobacco value chain while simultaneously reproducing local socio-economic differentiation.

Technical Efficiency of Broiler Contract Growers in Chegutu District of Zimbabwe: A Stochastic Frontier Analysis

Zimbabwe has witnessed a steady growth in broiler contract farming post the land reform programme which has brought in new players for which little is known about their level of productivity when compared to traditional commercial broiler producers. The purpose of this study was to determine the technical efficiency of broiler contract growers in Chegutu district of Zimbabwe. Specific objectives for the study were to establish socio-economic characteristics of boiler contract growers, estimate their technical efficiency and establish the determinants of technical efficiency. A population of 54 growers under one contract farming arrangement was studied. Cross sectional data was collected using a structured questionnaire and the stochastic frontier analysis was used to analyse the technical efficiencies and the determinants of technical efficiency. Broiler contract farming is dominated by male growers who constitute 72% of the contracted farmers. Significant factors influencing output were found to be batch size, feed quantity and transport cost. The broiler contract growers were found to be highly efficient with a mean technical efficiency of 97.1% ranging from 88.9%-99.6%. Grower residence on the farm and grower management of daily operations were found to significantly reduce technical inefficiency while technical inefficiency increases with grower age and key employee experience. The study recommends that there is need to expand broiler contract farming as it is highly efficient. The government must also put in place measures that encourage young smallholder farmers to venture into broiler contract farming as they are more efficient when compared to older farmers. Measures should also be put in place to encourage more female farmers to venture into broiler contract farming.

Formal and informal contract farming in Mozambique: Socially embedded relations of agricultural intensification

AbstractThis paper explores the role of contract farming arrangements in agricultural intensification in sub‐Saharan Africa, combining secondary literature and original case material from Mozambique. The paper extends the scope of “contract farming” beyond the formal contracts between large companies and small‐scale producers to include less formal credit agreements between farmers and traders. It argues that such informal contract arrangements are evidence of farmers' agency in “real markets.” In the studied cases, farmers use contract farming opportunities to intensify agricultural production by investing in irrigation and inputs. While informal contracts typically concern locally consumed crops, thus with more possibilities for side selling than formal contracts for export crops with company‐controlled markets, informal contract compliance reflects closely knit social ties between the contracting parties. In both formal and informal contracts, purchasers tend to seek out producers who are already irrigating, thus obtaining gains from farmers' earlier investments. This also implies contract farming as a mechanism for accelerating social differentiation arising from unequal access to irrigation. The paper argues that the significance of informal contracts in the studied cases raises the possibility that informal contract farming by local traders plays a more important role in agrarian transformation in Africa than formal contract farming by large companies.

A violent market price contract for agribusiness supply chain

A contract farming arrangement between a firm and a farmer is an important mechanism for development in the agribusiness sector. Among the major challenges of these arrangements are the violations of the contract by the parties under conditions of extreme market price fluctuations. To address this issue, we propose a violent market price (VMP) contract, which incentivises the firm and the farmer to remain in the contract even under extreme price fluctuation. In the VMP contract, we propose a pricing mechanism which adjusts the price based on adverse market conditions. We model the firm-farmer interaction as a Stackelberg game and derive the optimal contract parameters using backward induction. We establish that there is no incentive to deviate from the VMP contract. The sum of the expected profits of the firm and the farmer is found to be higher when both honour the VMP contract than when they violate. The individual rationality conditions for the firm and the farmer to enter into the contract are derived. The model is demonstrated through numerical illustrations based on case-study, and sensitivity analysis is performed to provide further insights.

Exploring the Adaptive Capacity of Sugarcane Contract Farming Schemes in the Face of Extreme Events

Adaptive capacity determines the extent to which exposure to natural hazards and extreme events translates into impacts. This study traces the effectiveness of adaptive capacity of two different sugarcane contract farming schemes (so-called outgrower schemes)—Phata and Kasinthula—in Chikwawa district in southern Malawi which, due to their proximity, are similarly exposed to extreme events, but have shown different impacts in terms of sugarcane production. We develop a framework to explore and compare the adaptive capacity at scheme management level, and relate the findings to the historical changes in yield, the occurrence of extreme events in the district and the lived experiences of the scheme management over the last ten years (2010–2019) using qualitative data from interviews with scheme managers. The total level and components of adaptive capacity differ in several aspects. Phata had much better prerequisites to mitigate the impacts of the extreme events (i.e., maintain production), particularly related to the Asset base, Knowledge and information, Innovation, and Forward-looking decision-making. Kasinthula on the other hand, was impacted by compound events whilst having low financial capacity, weak governance and reduced human capacity. Kasinthula had limited capacity to recover from the severe 2015 floods, the adaptive capacity thus drawn upon and were not restored when next event occurred (drought). This novel, comparative approach to assessing adaptive capacity, linking to past events, has been shown useful in order to determine the components that are missing and need to be built in order to reduce risk from extreme events and climate change. These findings are important to ensure future adaptation of sugarcane outgrowers, and relevant also to other contract farming arrangements or similar kinds of agricultural organizations.

Does contract farming improve rice farmers' food security? Empirical evidence from Ghana

PurposeIn order to improve access to resources for smallholder farmers, efforts are being made to promote contract farming in Ghana. This is seen as a strategy to increase agricultural productivity of farmers, give better market access and guarantee adequate supply of raw materials to agro-based industries. However, the challenge is whether contract farming leads to improvement in food security status of farmers. The study therefore seeks to explore to what extent farmers' food security status is influenced by their participation in contract farming activities.Design/methodology/approachUsing Cragg's double-hurdle model to analyse participation in contract farming, the authors control for selection bias using propensity score matching applied to a data set of 336 observations to examine the impact of contract farming on the food security levels of rice farmers in Ghana.FindingsThe results of this study show that yield of paddy and the wealth of the farmer are the main factors that influence the quantity of paddy rice to be contracted in contract farming arrangements. This study also finds that participation in contract farming will increase food security by 109%. In conclusion, contract farming has a significant positive impact on the farmers' food security status.Originality/valueAgricultural policies and rural development initiatives supporting the promotion and expansion of contract farming should be pursued to persuade more farmers to produce under contract farming agreements.

Formal rules and its role in centralised-diffusion systems: A study of small-scale producers of oil palm in Colombia

This paper explores the different pathways of technology diffusion and the resulting impacts on technology adoption that can emerge following a strategy to incorporate vulnerable communities of small-scale producers into traditionally top-down governance agribusiness systems. Building on the Contract Farming Arrangements (CFA) literature, we suggest that despite high levels of top-down control and the mono systems of diffusion that these practices imply, diffusion forms can vary considerably according to the motivations that drive different types of producers and the variances in local governance. We summarise these diffusion forms as a diffusion pathway of governance dictated by dominant change agent control and a diffusion pathway of governance dictated by change agent control and user participation. An important contribution of the paper is to highlight the critical role of formal rules in defining the types of governance for the creation of these different pathways. However, additional factors associated with the participation of smallholders such as attachment to land, engagement in collective action and long-term sustainability visions also introduce variations in these pathways and define the results of technology adoption. The study focuses on the Colombian oil palm sector; a key agribusiness sector targeted by policy makers with a strategy to integrate small-scale farmers into the agribusiness value chain as a means to relieve poverty and reduce levels of rural violence associated with conflicts over land and production of elicit crops.

Typology of contract farming arrangements: a transaction cost perspective

ABSTRACTThis paper proposes an alternative typology of contract farming arrangements (CFA) based on transaction cost theory. To construct the typology, we first surveyed managers of agribusiness firms and contracted farmers in Zimbabwe to understand the provisions in their contracts, the motivations for their inclusion and the level of transaction attributes, particularly the sub-categories of asset specificity and uncertainty. We then developed a two-by-two matrix of contract types based on the interaction of transaction attributes. The results show that four contract types can be distinguished: total, group, lean and market contracts. Furthermore, CFAs that are misaligned with transaction attributes have problems of side-selling and inefficiency. Our new empirically based categorisation can help managers and policymakers to design CFAs that match with underlying transaction attributes, thus enhancing the stability and efficiency of CFAs.

Smaller-scale land grabs and accumulation from below: Violence, coercion and consent in spatially uneven agrarian change in Shan State, Myanmar

Abstract This article presents field research data on a smallholder maize crop boom in Shan State, northern Myanmar, and its spatially uneven dispossessory effects. Local research teams studied eight villages, four in the north and an equal number in the south of Shan State, using focus group discussions and randomized household interviews, supplemented with key informant interviews. This study deepens the global land grab debate by highlighting the role of smallholder cash crop booms in “smaller-scale” land grabs that have been shown to be significant drivers of agrarian transformation, especially in Southeast Asia. The article builds on the conceptualization of “accumulation from below” by accounting for the geographically differentiated processes of dispossession from smallholder contract farming arrangements, its variant forms of coercion and consent, and the political contingencies that give rise to and help explain uneven agrarian change. The study’s findings demonstrate how political contingency shapes spatial patterns of accumulation and dispossession through regional and local variations in the politics of ethnic identity, migration, insurgency and an illicit drugs economy. These political dynamics inform the hierarchy of power and cultural familiarity between smallholders and local state-supported “silent strongmen”, in this case town moneylenders and village elites, which—together with several other identified factors, especially the poppy economy—influence the spatial distribution of dispossession. Neither extra-economic coercion within orbits of state power nor simply accumulation from below by market opportunities adequately explains uneven agrarian transformation. Instead, the analytical frame on forms of violence in capital accumulation should be expanded and deepened in order to better capture the complex coming together of violence, coercion and consent that is geographically specific, and taken together is more than the sum of their parts.

Well‐off small‐scale tobacco growers and farm workers in the Mexican agrarian reform (1972–1990)

AbstractIn this article, I study small‐scale growers of blonde tobacco varieties from the state of Nayarit in Mexico who had contract farming arrangements with the state‐owned company Tabamex (1972–1990). I refer to them as “well‐off small‐scale tobacco growers” given that in the 1960s, 1970s, and the 1980s, they became one of the subaltern social groups that benefited the most from the Mexican Agrarian Reform. I want to set this research apart from the ones carried out on tobacco growers in Nayarit, which have almost exclusively understood this group as agricultural producers and have perceived as secondary, and even as anecdotal, the impact of the high levels of wage labour hired in the region. I argue that in order to have a better understanding of the social relations at play, it is important to take into account that Nayarit tobacco growers have also been employers of farm workers. Hence in my analysis, I have also included the seasonal farm workers hired by these small‐scale tobacco growers because of their importance in the labour force. More specifically, I have looked into the vulnerability and invisibility of these workers both within this branch of agricultural activity and state institutions.