Contract Farming in Uganda: Its Role in the Commercialization of Smallholder Agriculture and Sustainable Development of the Sorghum, Sunflower and Rice Value Chains

The use of contract farming has greatly expanded in Uganda mainly due to the promotional efforts of agribusinesses. The motivation of this study was to examine the role of contract farming in the commercialization of smallholder agriculture and sustainable development of agro-chains in Uganda by using sunflower, sorghum, and rice contract schemes as case studies. Three separate surveys of randomly selected 246 sorghum, 197 sunflower, and 242 rice contract participant and non-participant farmers were conducted. Primary data was collected using standardized questionnaires on respective farmer socio-economics, crop partial budgets, and contract participation. Data was then analyzed using a Heckman two-step method to control for selection bias in farmer contract participation. Using the probit regression model in the first step, it was generally found that farmer contract participation was positively associated with group membership in all studied schemes. In the second stage, General Least Squares estimates showed that the inverse mills ratio significantly and positively affected the profits obtained by sorghum and sunflower farmers. Profits were significantly higher for contracted than non-contracted farmers by 16% (sorghum) and 12% (sunflower). Farm size, access to extension, and age of farmer were other factors that influenced farmer profits. Effectiveness of contract farming in boosting participation and profitability of smallholders could be enhanced through promotion of farmer groups to enhance their bargaining power and delivery of critical inputs.