Overview of Smallholder Contract Farming in Developing Countries
AbstractAn agribusiness firm’s choice to expand activities through contract farming rather than plantations, buying directly from open markets or other means reflects differences in transaction costs found in different types of procurement systems. Smallholders may enter contracts to reduce transaction costs of accessing new markets, borrowing, managing risk, acquiring information or increasing employment opportunities. The success of contracts reflects both the contracting environment and management practices. The contracting environment includes the strength of markets for contracted output, government macro policies, technical sophistication in production and attenuation of land ownership while important management elements are farm groups, selection of participants for contracts, managing contract default and conflict resolution. Direct benefits from contracting accrue to smallholders from improved access to markets, improved technology, better management of risk and opportunities for employment of family members. Indirect benefits occur from empowerment of women and increased commercial acumen on the part of smallholders. Contract farming has the potential to improve the welfare of smallholders however it is not a sufficient condition for such improvement. Smaller farmers can be excluded from contracts because of selection bias by agribusiness firms awarding contracts to larger farms, be adversely affected by the second-round effects of contracts on incomes and prices and suffer from narrowing of markets that lie outside of contracts. Institutional developments that might ameliorate this type of exclusion are anti-trust legislation, policies to directly improve the contracting environment, policies to address specific problems smallholders face in entering contracts and participation by NGOs in contract facilitation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA) in its series Working Papers with number 02-04.
Length: 27 pages
Date of creation: 2002
Date of revision:
Contact details of provider:
Postal: Agricultural Sector in Economic Development Service FAO Viale delle Terme di Caracalla 00153 Rome Italy
Phone: +39(6) 57051
Fax: +39 06 57055522
Web page: http://www.fao.org/es/esa/
More information through EDIRC
Agrarian reform; Agricultural economics; Carbon cycle; Incentives; Land economics; Land management; Land use; Poverty; Production economics; Rural development; Rural population;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Key, Nigel & Runsten, David, 1999. "Contract Farming, Smallholders, and Rural Development in Latin America: The Organization of Agroprocessing Firms and the Scale of Outgrower Production," World Development, Elsevier, vol. 27(2), pages 381-401, February.
- Porter, Gina & Phillips-Howard[malt], Kevin, 1997. "Comparing contracts: An evaluation of contract farming schemes in Africa," World Development, Elsevier, vol. 25(2), pages 227-238, February.
- Andrew Dorward, 2001. "The Effects of Transaction Costs, Power and Risk on Contractual Arrangements: A Conceptual Framework for Quantitative Analysis," Journal of Agricultural Economics, Wiley Blackwell, vol. 52(2), pages 59-73.
- de Janvry, Alain & Fafchamps, Marcel & Sadoulet, Elisabeth, 1991. "Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained," Economic Journal, Royal Economic Society, vol. 101(409), pages 1400-417, November.
- Stiglitz, Joseph E, 1974.
"Incentives and Risk Sharing in Sharecropping,"
Review of Economic Studies,
Wiley Blackwell, vol. 41(2), pages 219-55, April.
- D. Glover, 1990. "Contract Farming And Outgrower Schemes In East And Southern Africa," Journal of Agricultural Economics, Wiley Blackwell, vol. 41(3), pages 303-315.
- Ponte, Stefano, 2000. "From Social Negotiation to Contract: Shifting Strategies of Farm Labor Recruitment in Tanzania Under Market Liberalization," World Development, Elsevier, vol. 28(6), pages 1017-1030, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gustavo Anríquez) The email address of this maintainer does not seem to be valid anymore. Please ask Gustavo Anríquez to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.