Effect of Contract Farming on Smallholder Farmers' Green Leaf Tea Production in Tanzania

Abstract

This paper investigates the impact of contract farming on green leaf tea output among Tanzanian smallholder farmers. Data from 393 growers from Mbeya and Njombe regions were collected in a cross-sectional survey and analysed descriptively using IBM Statistics Version 26. A multiple linear regression model was used to test the null hypothesis. The findings show that contract farming engagement (β=140.102; P=0.058) positively impact production. Moreover, household size (β=2.268; P=0.903) and gender (β=294.978; P=0.000) positively impact green leaf tea production. Besides, age (β=-2.719), education (β=-3171.868), and farm size (β=-20.866) all negatively impact production, but education only was statistically significant at P=0.002. We conclude that, contract farming has a favourable impact on green leaf tea production and suggests recognising its potential for farmers’ growth. Besides, its nuanced importance and borderline P value (0.058) prompts further research on contract design, capacity-building, and market dynamics. Additionally, this paper highlights nuanced effects of farmer attributes. While household size and gender positively influences production, age, education, and larger farms negatively impact it. A comprehensive approach to tea production optimization, considering age-appropriate practices, education-specific interventions, and efficient farm management, is crucial. Further investigation into the combined effects of age, education, and gender is suggested for holistic insights.

Does Transaction Cost Affect Farmers' Participation in Contract Farming? Empirical Evidence From Tanzania's Tea Subsector

“…Theoretically, contract farming as a form of vertical integrated is considered to be critical in addressing various challenges faced by farmers and processors as a result of different failures in spot markets (Dogeje& Ngaruko, 2023;Arouna et al, 2021;Ngaruko, 2012). This study hinges on the transaction cost theory to explain farmers' decision to participate in contract farming in the tea subsector.…”

“…Similarly, a study by Meemken and Bellemare (2019) in six developing countries (Bangladesh, Nigeria, Mozambique, Côte d'Ivoire, Uganda, and Tanzania) found that farmers engaged in contracting farming had higher income, precisely 10 percent more than those not engaged in this arrangement. Likewise, a study in Tanzania by Dogeje and Ngaruko (2023) revealed that contract farming positively influences Greenleaf tea production. These studies underscore that contract farming is critical to improved farmers' performance.…”

“…Contract farming is a renowned form of vertical integration that benefits farmers by providing them access market for their agricultural products, while buyers are assured a steady supply of the products they demand. Contract farming also helps farmers to overcome various production challenges, including access to extension services, inputs, and production technologies like irrigation and mechanisation (Dogeje & Ngaruko, 2023;Arouna et al, 2021;Ncube, 2020). It is argued that contract farming accounts for about 15 percent of agricultural output in industrialised nations and is a common method of vertical integration.…”