Use of Contracts by Prairie Agricultural Producers

The objective of the research reported in this paper was to assess current trends in the use of contracts by agricultural producers in the Canadian Prairies and determine the factors affecting farmers’ contracting behaviour. Two surveys – one a mailout and one online that yielded a combined 587 usable responses – were used to gather data pertaining to producers’ use of marketing contracts, production contracts, and technology use agreements (TUAs). It was found that such contracts are used frequently by farmers and generally well‐understood. Farmers also indicated they mostly believe they are fairly treated by contracts, but that contracting firms’ rights are carefully protected by contract terms. Econometric analysis indicated that a farmer’s decision to contract is affected by farm type, the mix of crops grown by the operation, net income including off‐farm income, how long the respondent has been farming, and their level of risk aversion. A second econometric model discovered that a farmer’s previous use of contracts, the amount of the contract that the respondent actually reads, the ease with which a contract can be understood, the fact that producers are not indifferent to the existence of enforcement mechanisms, the presence of a dispute settlement mechanism, whether the contracting firm determines inputs to be used, and the provision of a fieldman exert statistically significant effects on the types of contracts used.