Contract farming configuration: Smallholders’ preferences for contract design attributes
While Contract Farming (CF) can enhance smallholders’ income in developing countries, empirical research on the motivation of smallholders to participate in CF is scarce. This paper explores farmer preferences for particular contract design attributes. We combined analytical hierarchy process and discrete choice experiments to investigate the importance of contract design attributes. On the basis of data collected among potato farmers in Ethiopia, we found that input market uncertainty is more important than output market uncertainty in smallholders’ decision to participate. Farmers tend to minimize their risk by opting for the buyer firm above the state and NGOs as providers of seed, inputs, and technical assistance. The results imply that the success of a CF scheme depends on the willingness of the firm to incorporate the preferred contract design attributes. Institutional intervention in the input market could induce agribusiness firms to offer attractive contracts for smallholders.
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