Contract Farming in Developed and Developing Countries

Abstract

Contract farming (CF) has long been practiced but is becoming increasingly common in both developed and developing countries with the heightened interest of consumers in food safety and quality. Under CF, farmers and buyers make advance agreements on volume, quality, time of delivery, use of inputs, and price or pricing formula. This article critically reviews the literature on CF to assess how it contributes to improving production efficiency and income of farmers in general and of small-scale farmers in particular. Although our review focuses on literature in developing countries because of its predominance, we refer to literature in developed countries (primarily the United States) to gain a deeper understanding of the impacts of CF. We find that although CF contributes to the improvement of farmers' income by introducing new crops and production methods, there is room for strengthening its effects on poverty reduction through policy.

The effectiveness of contract farming in improving smallholder income and food security in low- and middle-income countries: a mixed-method systematic review

“…Our findings agree with those of Prowse (2012), Wang et al (2014b), Minot and Ronchi (2015), and Otsuka et al (2016). Oya (2012) does not mention the role of previous collective marketing experience, though he does emphasise the importance of collective action for the negotiation capacities of farmers when contracting with the firm.…”

“…In our conclusion that participation in contract farming tends to be biased towards the better-off farmers, we coincide with Wang et al (2014b), Prowse (2012:85), and Otsuka, Nakano and Takahashi (2016). These reviews found that although most contract farming schemes target and include small farms, most included farms are larger.…”

“…Other literature strongly indicated the positive effects of contract farming pilots for sector-wide technological innovation in the area of incidence (Euler, Schwarze, Siregar et al 2016, Otsuka, Nakano and Takahashi 2016, Schipmann and Qaim 2010, especially in the adoption of new crops, cultivation practices, post-harvest handling and access to new markets. We could not assess potential negative effects of, for example, indebtedness, land 'grabbing', gender discrimination and crop intensification, whereas these are key concerns for organisations that are critical of contract farming, as for example ActionAid (2015).…”

“…The meta-analysis covered studies discussed in earlier literature reviews (Minot and Ronchi 2015, Otsuka et al 2016, Oya 2012, Prowse 2012, Wang et al 2014b). Three of these reviews had similar objectives to our review, namely to derive inferences about effects on income, selecting only econometric studies (Minot and Ronchi 2015, Otsuka et al 2016, Wang et al 2014b.…”

“…Three of these reviews had similar objectives to our review, namely to derive inferences about effects on income, selecting only econometric studies (Minot and Ronchi 2015, Otsuka et al 2016, Wang et al 2014b. Two other reviews were less restrictive and reviewed a broader body of evidence (Oya 2012, Prowse 2012.…”