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Impact of Contract Farming on Smallholder Poultry Farmers’ Income in Kenya

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  • Wainaina, Priscilla W.
  • Okello, Julius Juma
  • Nzuma, Jonathan M.
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    Abstract

    Contract farming is a form of vertical coordination largely aimed at correcting the market failure associated with spot markets that arise due to imperfect information. However there is still no consensus in the literature on the impact of contract farming on the welfare of smallholder farmers. While some studies have argued that contact farming improves access to ready markets by smallholder farmers, other studies have suggested that contract farming lowers the incomes of smallholder farmers because the contractors wield greater market power over the farmers. Consequently, it is seen as a blessing by some and a necessary evil by others. This study uses a propensity score matching technique to shed light on the impact of contract farming on smallholder farmers. The study also examines the conditioners of participation in contract farming. It uses data collected from 180 smallholder poultry farmers stratified by participation in contract production. The study finds that, on average, contracted farmers earned more net revenue per bird compared to the independent farmers, by approximately 27 percent, and as such participating in contract farming could improve the welfare of these small holder poultry farmers. The study discusses the policy implications of the findings.

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    File URL: http://purl.umn.edu/126323
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    Bibliographic Info

    Paper provided by International Association of Agricultural Economists in its series 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil with number 126323.

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    Date of creation: 2012
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    Handle: RePEc:ags:iaae12:126323

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    Keywords: Contract farming; smallholder farmers; impact; propensity score matching; poultry production; Kenya.; Agribusiness; Institutional and Behavioral Economics;

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    1. Liane Faltermeier & Awudu Abdulai, 2009. "The impact of water conservation and intensification technologies: empirical evidence for rice farmers in Ghana," Agricultural Economics, International Association of Agricultural Economists, vol. 40(3), pages 365-379, 05.
    2. Miyata, Sachiko & Minot, Nicholas & Hu, Dinghuan, 2009. "Impact of Contract Farming on Income: Linking Small Farmers, Packers, and Supermarkets in China," World Development, Elsevier, vol. 37(11), pages 1781-1790, November.
    3. Rehber, Erkan, 1998. "Vertical Integration In Agriculture And Contract Farming," Working Papers 25991, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
    4. Caliendo, Marco & Kopeinig, Sabine, 2005. "Some Practical Guidance for the Implementation of Propensity Score Matching," IZA Discussion Papers 1588, Institute for the Study of Labor (IZA).
    5. Akhter Ali & Awudu Abdulai, 2010. "The Adoption of Genetically Modified Cotton and Poverty Reduction in Pakistan," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(1), pages 175-192.
    6. Warning, Matthew & Key, Nigel, 2002. "The Social Performance and Distributional Consequences of Contract Farming: An Equilibrium Analysis of the Arachide de Bouche Program in Senegal," World Development, Elsevier, vol. 30(2), pages 255-263, February.
    7. Phil Simmons & Paul Winters & Ian Patrick, 2005. "An analysis of contract farming in East Java, Bali, and Lombok, Indonesia," Agricultural Economics, International Association of Agricultural Economists, vol. 33(s3), pages 513-525, November.
    8. Singh, Sukhpal, 2002. "Contracting Out Solutions: Political Economy of Contract Farming in the Indian Punjab," World Development, Elsevier, vol. 30(9), pages 1621-1638, September.
    9. Judy L. Baker, 2000. "Evaluating the Impact of Development Projects on Poverty : A Handbook for Practitioners," World Bank Publications, The World Bank, number 13949, October.
    10. Birthal, Pratap S. & Joshi, P. K. & Gulati, Ashok, 2005. "Vertical coordination in high-value commodities," MTID discussion papers 85, International Food Policy Research Institute (IFPRI).
    11. Becerril, Javier & Abdulai, Awudu, 2010. "The Impact of Improved Maize Varieties on Poverty in Mexico: A Propensity Score-Matching Approach," World Development, Elsevier, vol. 38(7), pages 1024-1035, July.
    12. Minot, Nicholas, 1986. "Contract Farming and Its Effect on Small Farmers in Less Developed Countries," Food Security International Development Working Papers 54740, Michigan State University, Department of Agricultural, Food, and Resource Economics.
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