Impacts of contract farming in domestic grain chains on farmer income and food insecurity. Contrasted evidence from Senegal

Contract farming in export chains may upgrade producers’ livelihoods thanks to the access to improved inputs and high-value markets. We tested the hypotheses that contracts in domestic grain chains improve farmers’ incomes and reduce food insecurity. We studied the rice value chain in Senegal, where the national agricultural bank and rice millers draw up production and marketing contracts. We applied instrumental variables and propensity score matching models to a dataset of 470 observations to correct selection bias. We found that as a financial device, marketing contracts had no impact on agricultural practices, product quality or income but reduced food insecurity by mitigating price seasonality. Production contracts had a positive impact on the income of producers who were excluded from bank credit but included implicit interest and insurance costs, meaning that these producers make less profit than those financed by the bank. Policies supporting the modernization of domestic grain value chains in West Africa should promote credit insurance systems and support the negotiation of an incentive price in contracts.