How intermediaries' power affects contract farming decisions: evidence from the medicinal and aromatic plant sector in Albania

Purpose - In the debate on rural development, contract farming (CF) is pointed out as a mechanism that reduces constraints on farmers' access to resources and improves farmers' welfare. However, the role of intermediaries' power in farmers' contracting decisions has not been investigated thoroughly. Considering that intermediaries' power affects farmers' businesses, livelihoods, risk and profit sharing, it becomes imperative to understand its effects on contracting decisions. Thus, the purpose of this paper is to investigate the dimensions over which intermediaries exercise the power they hold over farmers and how these power dimensions influence farmers' participation in CF. Design/methodology/approach - A survey was conducted in the leading Albanian MAP production region, Malësi e Madhe, with 168 sage producers interviewed using a structured questionnaire. Exploratory factor analysis (EFA) is employed to develop measures for the latent variables of the study (e.g. intermediaries' power), and a logit regression is used to assess CF determinants. Findings - The study finds that intermediaries exercise their power over different dimensions of farmers' activities, namely profit margin and activities related to product quality. The results point out that intermediaries' exercised power over farmers' margins and product quality-related activities decreased farmers' likelihood to engage in CF. On the other hand, a farmer's commitment to the intermediary and investment in specific assets increased the likelihood of participation. Furthermore, the analysis shows that CF does not leave small farmers out of high-value agricultural commodity chains (HVAC) for highly labour-intensive crops. Research limitations/implications - The analysis focuses only on one sector with export orientation. Generalisation to other sectors is limited due to the specific features of the MAPs value chain. Originality/value - The paper expands the debate on CF by adding the concept of intermediaries' power and its different dimensions of influence on farmers' participation in CF.