IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Contract farming configuration: Smallholders’ preferences for contract design attributes

  • Abebe, Gumataw K.
  • Bijman, Jos
  • Kemp, Ron
  • Omta, Onno
  • Tsegaye, Admasu
Registered author(s):

    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.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0306919213000110
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Food Policy.

    Volume (Year): 40 (2013)
    Issue (Month): C ()
    Pages: 14-24

    as
    in new window

    Handle: RePEc:eee:jfpoli:v:40:y:2013:i:c:p:14-24
    Contact details of provider: Web page: http://www.elsevier.com/locate/foodpol

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
    2. Dhar, Ravi, 1997. " Consumer Preference for a No-Choice Option," Journal of Consumer Research, University of Chicago Press, vol. 24(2), pages 215-31, September.
    3. Bellemare, Marc F., 2010. "Agricultural Extension and Imperfect Supervision in Contract Farming: Evidence from Madagascar," MPRA Paper 23788, University Library of Munich, Germany.
    4. Bebbington, Anthony, 1997. "New states, new NGOs? crises and transitions among rural development NGOs in the Andean region," World Development, Elsevier, vol. 25(11), pages 1755-1765, November.
    5. Jonathan Levin, 2000. "Relational Incentive Contracts," Working Papers 01002, Stanford University, Department of Economics.
    6. 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.
    7. Getaneh, Wubalem & Bekabil, Fufa, 2008. "Integrating Small Scale Farmers into Bread Wheat Marketing Chain through Contract Farming in Ethiopia," 2007 Second International Conference, August 20-22, 2007, Accra, Ghana 52101, African Association of Agricultural Economists (AAAE).
    8. Porter, Gina & Phillips-Howard[malt], Kevin, 1997. "Comparing contracts: An evaluation of contract farming schemes in Africa," World Development, Elsevier, vol. 25(2), pages 227-238, February.
    9. Graeme A. Hodge & Carsten Greve, 2009. "PPPs: THE PASSAGE OF TIME PERMITS A SOBER REFLECTION," Economic Affairs, Wiley Blackwell, vol. 29(1), pages 33-39, 03.
    10. Herath, Deepananda & Weersink, Alfons, 2009. "From Plantations to Smallholder Production: The Role of Policy in the Reorganization of the Sri Lankan Tea Sector," World Development, Elsevier, vol. 37(11), pages 1759-1772, November.
    11. Rachael E. Goodhue, 2011. "Food Quality: The Design of Incentive Contracts," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 119-140, October.
    12. Barrett, Christopher B., 2008. "Smallholder market participation: Concepts and evidence from eastern and southern Africa," Food Policy, Elsevier, vol. 33(4), pages 299-317, August.
    13. Getaw Tadesse & Atle G. Guttormsen, 2011. "The behavior of commodity prices in Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 42(1), pages 87-97, 01.
    14. Barrett, Christopher B. & Bachke, Maren E. & Bellemare, Marc F. & Michelson, Hope C. & Narayanan, Sudha & Walker, Thomas F., 2012. "Smallholder Participation in Contract Farming: Comparative Evidence from Five Countries," World Development, Elsevier, vol. 40(4), pages 715-730.
    15. Klaus Deininger, 2003. "Land Policies for Growth and Poverty Reduction," World Bank Publications, The World Bank, number 15125.
    16. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
    17. Vermeulen, Hester & Kirsten, Johann F. & Sartorius, Kurt, 2008. "Contracting arrangements in agribusiness procurement practices in South Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 47(2), June.
    18. Alem, Yonas & Söderbom, Måns, 2012. "Household-Level Consumption in Urban Ethiopia: The Effects of a Large Food Price Shock," World Development, Elsevier, vol. 40(1), pages 146-162.
    19. Umali-Deininger, Dina, 1997. "Public and Private Agricultural Extension: Partners or Rivals?," World Bank Research Observer, World Bank Group, vol. 12(2), pages 203-24, August.
    20. Dambala Gelo & Steven F. Koch, 2011. "Does One Size Fit All? Heterogeneity in the Valuation of Community Forestry Programs?," Working Papers 248, Economic Research Southern Africa.
    21. Brent Hueth & Ethan Ligon, 1999. "Producer Price Risk and Quality Measurement," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 512-524.
    22. Poulton, Colin & Dorward, Andrew & Kydd, Jonathan, 2010. "The Future of Small Farms: New Directions for Services, Institutions, and Intermediation," World Development, Elsevier, vol. 38(10), pages 1413-1428, October.
    23. Masakure, Oliver & Henson, Spencer, 2005. "Why do small-scale producers choose to produce under contract? Lessons from nontraditional vegetable exports from Zimbabwe," World Development, Elsevier, vol. 33(10), pages 1721-1733, October.
    24. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-35, May.
    25. Michelson, Hope & Reardon, Thomas & Perez, Francisco Jose, 2010. "Small Farmers and Big Retail: trade-offs of supplying supermarkets in Nicaragua," Staff Papers 62124, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    26. Hueth, Brent & Wolf, Stephen & Ligon, Ethan, 2001. "Policing Mechanisms in Agricultural Contracts," Staff General Research Papers 5257, Iowa State University, Department of Economics.
    27. Christopher F Baum & Austin Nichols & Mark E Schaffer, 2011. "Evaluating one-way and two-way cluster–robust covariance matrix estimates," German Stata Users' Group Meetings 2011 02, Stata Users Group.
    28. Minten, Bart & Randrianarison, Lalaina & Swinnen, Johan F.M., 2009. "Global Retail Chains and Poor Farmers: Evidence from Madagascar," World Development, Elsevier, vol. 37(11), pages 1728-1741, November.
    29. Dorward, Andrew & Kydd, Jonathan & Morrison, Jamie & Urey, Ian, 2004. "A Policy Agenda for Pro-Poor Agricultural Growth," World Development, Elsevier, vol. 32(1), pages 73-89, January.
    30. Rehber, Erkan, 1998. "Vertical Integration In Agriculture And Contract Farming," Working Papers 25991, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
    31. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, March.
    32. Tripathi, R.S. & Singh, Ram & Singh, Sube, 2005. "Contract Farming in Potato Production: An Alternative for Managing Risk and Uncertainty," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 18(2005).
    33. Mar�a Bielza & Alberto Garrido & José M. Sumpsi, 2007. "Feasibility of a cash forward contract: An application to the French and Spanish potato sectors," Agribusiness, John Wiley & Sons, Ltd., vol. 23(2), pages 245-261.
    34. Kirsten, Johann F. & Sartorius, Kurt, 2002. "Linking Agribusiness And Small-Scale Farmers In Developing Countries: Is There A New Role For Contract Farming?," Working Papers 18025, University of Pretoria, Department of Agricultural Economics, Extension and Rural Development.
    35. Marcel Fafchamps & Bart Minten, 1999. "Relationships and traders in Madagascar," Journal of Development Studies, Taylor & Francis Journals, vol. 35(6), pages 1-35.
    36. Peter Bogetoft & Henrik Ballebye Olesen, 2002. "Ten rules of thumb in contract design: lessons from Danish agriculture," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 29(2), pages 185-204, June.
    37. Chang, Jae Bong & Moon, Wanki & Balasubramanian, Siva K., 2012. "Consumer valuation of health attributes for soy-based food: A choice modeling approach," Food Policy, Elsevier, vol. 37(3), pages 335-342.
    38. 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.
    39. Warning, Matthew & Key, Nigel, 2002. "The Social Performance and Distributional Consequences of Contract Farming: An Equilibrium Analysis of the Arachide de Bouche Program in Senegal," World Development, Elsevier, vol. 30(2), pages 255-263, February.
    40. Lajili, Kaouthar & Barry, Peter J. & Sonka, Steven T. & Mahoney, Joseph T., 1997. "Farmers' Preferences For Crop Contracts," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 22(02), December.
    41. Poole, Nigel D. & Del Campo Gomis, Francisco J. & Julia Igual, Juan F. & Vidal Gimenez, Fernando, 1998. "Formal contracts in fresh produce markets," Food Policy, Elsevier, vol. 23(2), pages 131-142, April.
    42. Ghodsypour, S. H. & O'Brien, C., 1998. "A decision support system for supplier selection using an integrated analytic hierarchy process and linear programming," International Journal of Production Economics, Elsevier, vol. 56(1), pages 199-212, September.
    43. David Boselie & Spencer Henson & Dave Weatherspoon, 2003. "Supermarket Procurement Practices in Developing Countries: Redefining the Roles of the Public and Private Sectors," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1155-1161.
    44. Eric Ruto & Guy Garrod, 2009. "Investigating farmers' preferences for the design of agri-environment schemes: a choice experiment approach," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 52(5), pages 631-647.
    45. Matthieu Delpierre, 2009. "Farm Input Use in a Context of Liquidity Constraints and Contract Unenforceability," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 18(3), pages 496-528, June.
    46. H. Holly Wang & Yanping Zhang & Laping Wu, 2011. "Is contract farming a risk management instrument for Chinese farmers?: Evidence from a survey of vegetable farmers in Shandong," China Agricultural Economic Review, Emerald Group Publishing, vol. 3(4), pages 489-505, November.
    47. Reardon, Thomas & Barrett, Christopher B. & Berdegué, Julio A. & Swinnen, Johan F.M., 2009. "Agrifood Industry Transformation and Small Farmers in Developing Countries," World Development, Elsevier, vol. 37(11), pages 1717-1727, November.
    48. Tesfaye, Abonesh & Brouwer, Roy, 2012. "Testing participation constraints in contract design for sustainable soil conservation in Ethiopia," Ecological Economics, Elsevier, vol. 73(C), pages 168-178.
    49. Sergio Colombo & Nick Hanley & Javier Calatrava-Requena, 2005. "Designing Policy for Reducing the Off-farm Effects of Soil Erosion Using Choice Experiments," Journal of Agricultural Economics, Wiley Blackwell, vol. 56(1), pages 81-95.
    50. Farrington, John, 1995. "The changing public role in agricultural extension," Food Policy, Elsevier, vol. 20(6), pages 537-544, December.
    51. Key, Nigel & Runsten, David, 1999. "Contract Farming, Smallholders, and Rural Development in Latin America: The Organization of Agroprocessing Firms and the Scale of Outgrower Production," World Development, Elsevier, vol. 27(2), pages 381-401, February.
    52. Singh, Sukhpal, 2002. "Contracting Out Solutions: Political Economy of Contract Farming in the Indian Punjab," World Development, Elsevier, vol. 30(9), pages 1621-1638, September.
    53. Henson, Spencer & Masakure, Oliver & Boselie, David, 2005. "Private food safety and quality standards for fresh produce exporters: The case of Hortico Agrisystems, Zimbabwe," Food Policy, Elsevier, vol. 30(4), pages 371-384, August.
    54. Sartorius, Kurt & Kirsten, Johann, 2007. "A framework to facilitate institutional arrangements for smallholder supply in developing countries: An agribusiness perspective," Food Policy, Elsevier, vol. 32(5-6), pages 640-655.
    55. Poulton, Colin & Macartney, Jon, 2012. "Can Public–Private Partnerships Leverage Private Investment in Agricultural Value Chains in Africa? A Preliminary Review," World Development, Elsevier, vol. 40(1), pages 96-109.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:jfpoli:v:40:y:2013:i:c:p:14-24. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.