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Contract farming, contract design and smallholder livelihoods

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  • Anette Ruml
  • Catherine Ragasa
  • Matin Qaim

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.

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  • Anette Ruml & Catherine Ragasa & Matin Qaim, 2022. "Contract farming, contract design and smallholder livelihoods," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(1), pages 24-43, January.
    • Handle: RePEc:bla:ajarec:v:66:y:2022:i:1:p:24-43
    DOI: 10.1111/1467-8489.12462
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    References listed on IDEAS

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    3. 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.
    4. Melaku, Astewale Bimr & Qaim, Matin & Debela, Bethelhem Legesse, 2023. "Maternal employment in high-value agriculture and child nutrition: Evidence from the Ethiopian cut-flower industry," Discussion Papers 338968, University of Bonn, Center for Development Research (ZEF).
    5. Junjin Chen & Hong Zhou, 2023. "The Role of Contract Farming in Green Smart Agricultural Technology," Sustainability, MDPI, vol. 15(13), pages 1-14, July.
    6. 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.
    7. 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.

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