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The Heterogeneous welfare impacts of participation in contract farming schemes: Evidence from Southern India

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  • Sudha Narayanan

    ()
    (Indira Gandhi Institute of Development Research)

Abstract

Assessing the extent of welfare gains from participation in contract farming arrangements is important to be able to make a case for promoting contract farming as a way for smallholders to capitalize on the opportunities okered by modern supply chains. At the same time, empirical accounts of contract farming schemes in developing countries not only suggest high mortality rates but also show that many schemes have high farmer exit or attrition rates, indicating that farmer experiences might be variable. This paper demonstrates the heterogeneity of welfare impacts of contract farming participation by estimating an endogenous switching model using survey data for 474 farmers in four commodity sectors, gherkins, papaya marigold and broiler. The study shows that net welfare gains vary widely both across contract commodities and across farmers within a commodity sector. While contracting in papaya and broiler are associated with improvements in net prolt per month for those participating and potential improvements of 47 and 123 for current non-participants, the impacts for gherkins and marigold are more ambiguous. The standard deviation of point estimates of treatment ekects is quite large indicating variability in welfare gains from contracting to dikerent farmers even within the same commodity sectors. It is therefore important to recognize that notwithstanding the sign of average treatment ekects, contract farming arrangements have diverse impacts on income for individual farmers.

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Paper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2012-019.

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Length: 44 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:ind:igiwpp:2012-019

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  1. Maertens, Miet & Swinnen, Johan F.M., 2009. "Trade, Standards, and Poverty: Evidence from Senegal," World Development, Elsevier, vol. 37(1), pages 161-178, January.
  2. 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).
  3. Justo Manrique & Kalu Ojah, 2003. "The demand for housing in Spain: an endogenous switching regression analysis," Applied Economics, Taylor & Francis Journals, vol. 35(3), pages 323-336.
  4. Adamchik, Vera A. & Bedi, Arjun S., 2000. "Wage differentials between the public and the private sectors: evidence from an economy in transition," Labour Economics, Elsevier, vol. 7(2), pages 203-224, March.
  5. 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.
  6. Bellemare, Marc F., 2010. "As You Sow, So Shall You Reap: The Welfare Impacts of Contract Farming," MPRA Paper 23638, University Library of Munich, Germany.
  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. Michael Lokshin & Zurab Sajaia, 2004. "Maximum likelihood estimation of endogenous switching regression models," Stata Journal, StataCorp LP, vol. 4(3), pages 282-289, September.
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