Economics of contracts in African food systems: evidence from the malt barley sector in Ethiopia

Abstract

Foreign direct investment (FDI) facilitates modernization of domestic agri-food systems in emerging economies through increased use of vertical coordination. This paper sheds lights on how international brewer investments in African food systems affect smallholder market participation and value chain development. In particular, we analyze the impact of contracts among malt barley producers in Ethiopia. Using cross-sectional survey data, we employ inverse probability-weighted regression adjustment (IPWRA) and propensity score matching (PSM) techniques to analyze the economic impact of contracting. We find that contrary to popular belief, contracting has positive and significant impact on malt barley production, intensification, commercialization, quality improvement, and farm gate prices, ultimately resulting in increased net income and spillover into the productivity of other food crops.

Mapping of Malt Barley, Malt and Beer Production Value Chains in Northern Ethiopia

“…The result is similar to Weldeyohanis et al 13 who suggested that farmers are the main value chain actors in the malt barley production value chain and perform most of the primary functions by receiving inputs from input suppliers. Contracting of farmers with buyers has its own positive and significant implication on intensification, malt barley production, quality improvement and commercialization regarding increasing producersʼ income 17 . All malt barley producers in the study area were smallholder farmers having different land sizes.…”

“…Improved malt barley seeds, fertilizer and pesticides are the major agricultural inputs that are commonly used by malt barley producers 17 .…”

Contract farming and producer organisations in modern retail vegetable value chains: evidence from Indonesia

“…The presence of POs in contract farming can be beneficial and can help to create more efficient VC mechanisms to comply with food quality and safety requirements (Moustier et al, 2010, Tefera and Bijman, 2021, Mwambi et al, 2020. As POs are organisations that are formed by farmers, their key function is to provide goods and services to their members (Bijman, 2016).…”

“…In practice, however, CFAs and POs are often combined in agri-food chains, where contracts are often entered with the PO rather than with individual farmers. The PO acts as intermediary, providing coordination among farmers and between the farmers and the buyer (Fischer and Qaim, 2012, Jia and Huang, 2011, Mugwagwa et al, 2018, Tefera and Bijman, 2021. This thesis addresses this knowledge gap by analysing combinations of contracting and PO in value chains, particularly how these combinations link smallholders with modern retail markets, increase food quality, increase safety performance and build quality relationships.…”

“…When attempting to enter the modern retail market, smallholders in developing countries are often constrained by quality requirements (Royer et al, 2016, Jaffee andHenson, 2005). However, contract farming arrangements including the provision of financial services, farming inputs, quality control measures, inspections and market information, can improve the quality and safety of farmers' produce (Boselie et al, 2003, Key and Runsten, 1999, Dries et al, 2009, Tefera and Bijman, 2021. Alongside vertical coordination (VC) via contracts, other institutional arrangements, such as horizontal coordination (HC) through a producer organisation (PO), can help alleviate the concerns faced by smallholders who attempt to link up with modern food chains.…”