As You Sow, So Shall You Reap: The Welfare Impacts of Contract Farming

51 Pages Posted: 30 Apr 2010 Last revised: 7 Dec 2010

See all articles by Marc F. Bellemare

Marc F. Bellemare

University of Minnesota - Twin Cities - Department of Applied Economics

Date Written: December 2, 2010

Abstract

What is the impact of participation in agricultural value chains on the welfare of smallholders? Contract farming, wherein a processing firm delegates its production of agricultural commodities to growers, is often viewed as a means of increasing smallholder welfare in developing countries. Because the problem posed by the nonrandom participation of grower smallholders in contract farming has so far not been dealt with convincingly, however, whether participation in contract farming actually increases smallholder welfare is still up for debate. This paper uses an experimentally derived nonparametric measure of willingness to pay to enter contract farming to control for actual participation in contract farming. Using data from Madagascar, results indicate that participation in contract farming is associated with a 10- to 16-percent increase in income; a 15-percent decrease in income volatility; a two-month decrease in the duration of the hungry season; and a 31-percent increase in the likelihood of receiving a formal loan.

Keywords: Contract Farming, Welfare, Grower-Processor Contracts, Outgrower Schemes

JEL Classification: L23, L24, O13, O14, Q12

Suggested Citation

Bellemare, Marc F., As You Sow, So Shall You Reap: The Welfare Impacts of Contract Farming (December 2, 2010). Available at SSRN: https://ssrn.com/abstract=1595977 or http://dx.doi.org/10.2139/ssrn.1595977

Marc F. Bellemare (Contact Author)

University of Minnesota - Twin Cities - Department of Applied Economics ( email )

MN
United States

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