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Contract farming, contract design and smallholder livelihoods

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  • Ruml, Anette
  • Ragasa, Catherine
  • Qaim, Matin

Abstract

Contract farming has gained in importance in many developing countries. Previous studies analysed effects of contracts on smallholder farmers’ welfare, yet mostly without considering that different types of contractual relationships exist. Here, we examine associations between contract farming and farm household income in the oil palm sector of Ghana, explicitly differentiating between two types of contracts, namely simple marketing contracts and more comprehensive resource-providing contracts. Moreover, we look at different income sources to better understand how both contracts are linked to farmers’ livelihood strategies. We use cross-sectional survey data and regression models. Issues of endogeneity are addressed through measuring farmers’ willingness-to-participate in contracts and using this indicator as an additional covariate. Farmers with both types of contracts have significantly higher household incomes than farmers without a contract, yet with notable differences in terms of the income sources. Farmers with a marketing contract allocate more household labour to off-farm activities and thus have higher off-farm income. In contrast, farmers with a resource-providing contract have larger oil palm plantations and thus higher farm incomes. The findings suggest that the two contract types are associated with different livelihood strategies and that disaggregated analysis of different income sources is important to better understand possible underlying mechanisms.

Suggested Citation

  • Ruml, Anette & Ragasa, Catherine & Qaim, Matin, 2021. "Contract farming, contract design and smallholder livelihoods," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(01), January.
    • Handle: RePEc:ags:aareaj:342982
    DOI: 10.22004/ag.econ.342982
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    1. is not listed on IDEAS
    2. Junjin Chen & Hong Zhou, 2023. "The Role of Contract Farming in Green Smart Agricultural Technology," Sustainability, MDPI, vol. 15(13), pages 1-14, July.
    3. Diedong, Joshua & Anang, Benjamin Tetteh & Danso-Abbeam, Gideon, 2024. "Welfare effect of rice outgrower scheme participation: empirical evidence from northern Ghana," World Development Perspectives, Elsevier, vol. 36(C).
    4. Mai Chiem Tuyen & Prapinwadee Sirisupluxana & Isriya Bunyasiri & Pham Xuan Hung, 2022. "Perceptions, Problems and Prospects of Contract Farming: Insights from Rice Production in Vietnam," Sustainability, MDPI, vol. 14(19), pages 1-22, September.
    5. Mai Chiem Tuyen & Prapinwadee Sirisupluxana & Isriya Bunyasiri & Pham Xuan Hung, 2022. "Stakeholders’ Preferences towards Contract Attributes: Evidence from Rice Production in Vietnam," Sustainability, MDPI, vol. 14(6), pages 1-21, March.
    6. Melaku, Astewale Bimr & Qaim, Matin & Debela, Bethelhem Legesse, 2024. "Maternal employment in high-value agriculture and child nutrition: Evidence from the Ethiopian cut-flower industry," Food Policy, Elsevier, vol. 128(C).
    7. Koudima Bokoumbo & Mikémina Pilo & Magnan Petit Katanlé Kasseba, 2025. "Contract farming and sustainability: the case of organic soybean producers in Togo," SN Business & Economics, Springer, vol. 5(7), pages 1-28, July.
    8. Kopp, Thomas & Dsouza, Alwin & Mishra, Ashok K., 2024. "The relation between contract type and market power: Evidence from a high-value crop in India," Food Policy, Elsevier, vol. 127(C).
    9. repec:ags:aaea22:335848 is not listed on IDEAS
    10. Mingyong Hong & Jiao Long & Wenjun Zhuo, 2023. "Clan Networks, Spatial Selection, and Farmland Transfer Contracts: Evidence from China," Land, MDPI, vol. 12(8), pages 1-17, July.
    11. Van der Borght, Kim & Milian Gómez, Jorge Freddy, 2024. "Public and common interest in sustainable contract farming," World Development Perspectives, Elsevier, vol. 33(C).
    12. Melaku, Astewale Bimr & Debela, Bethelhem Legesse & Qaim, Matin, 2023. "Women’s employment in high-value agriculture and child nutrition: Evidence from the Ethiopian cut-flower industry," 2023 Annual Meeting, July 23-25, Washington D.C. 335848, Agricultural and Applied Economics Association.
    13. Ranran Hu & Hongwei Fang & Weizhong Liu, 2025. "How Do Vertical Alliances Form in Agricultural Supply Chains?—An Evolutionary Game Analysis Based on Chinese Experience," Sustainability, MDPI, vol. 17(17), pages 1-25, September.
    14. Saparova, Gulkaiyr & Khan, Ghulam Dastgir & Joshi, Niraj Prakash, 2024. "Linking farmers to markets: Assessing small-scale farmers' preferences for an official phytosanitary regime in the Kyrgyz Republic," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 696-708.
    15. Yiming Zhang & Rui Yang & Kai Zhao & Xiangzhi Kong, 2023. "Fertilizer Application in Contract Farming: A Risk Analysis," Land, MDPI, vol. 12(8), pages 1-20, July.

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