Impact of Contract Farming on Farmers’ Income in the Food Value Chain: A Theoretical Analysis and Empirical Study in Vietnam

This study empirically analyzes the influence of contract farming on income and farming difficulties in Vietnam by using the econometric models and theoretically identifying the affecting mechanism of contract farming on income, sustainability, and welfare by using the qualitative method. The empirical results show that contract farming insignificantly impacts farms’ income while it can facilitate farming activities and decrease difficulties. The factors of education—head, gender of head, type of crop, and technology may affect farmers’ income. The impacting mechanism of contract farming on income, sustainability, and welfare is theoretically proposed as follows: Contract farming initially impacts the intermediate factors such as cooperative, market access, knowledge and skill, product quality, technology, and support. These factors then affect capacity, linkage, quality, and certification which can enhance farmers’ competitiveness. In the long term, stronger competitiveness, higher price, increasing productivity, and lower cost may significantly improve income, sustainability, and welfare. In general, contract farming may have positive impacts on income, sustainability, and welfare in the medium term and long term. In the short term, the result is not significant due to the similar or lower price comparing with the spot market price, growing production cost, decreasing productivity, and weak contract performance. The findings may help policymakers decide how to expand contract farming and its benefits. Economic scholars can test and compare both quantitative and qualitative findings in other contexts.