Comparison of technical efficiency and technology gaps between contracted and non-contracted vegetable farmers in Western Kenya

Abstract

Contract farming is an innovative institutional arrangement with potential benefits to the livelihoods of value chain actors. However, there are mixed results in the literature on the extent to which participation in contracts contributes to farm efficiency and optimal use of available technology. This study estimated and compared technical efficiency (TE) and technology gap ratios (TGRs) between contracted and non-contracted farmers of chili pepper and spider plants in rural areas of Kenya. The study used both qualitative and quantitative data from a multistage sample of 300 vegetable farmers. The stochastic frontier and two-limit Tobit models were applied to analyze TE and its determinants, respectively. Further, a metafrontier method was used to estimate TGRs. Results showed that, for both spider plant and chili, contract participants had higher mean TE with respect to the metafrontier (0.66 and 0.24) compared to non-participants (0.12 and 0.15), respectively. Based on the positive effect of contract farming on TE, this study emphasizes the need for targeted interventions that reduce the bottlenecks that hinder effective participation in contracts.

Economic Dimensions of Agrarian Contracting

“…Contract is that means of 'Private Ordering' by which individual agents optimize their relationships, creating private rules for their exchange adapted to their specific conditions and needs (Williamson 2005). The only institutional restriction is that private contracts do not contradict the laws and do not harm the interests of others 1 .…”