Does Formal Contract Farming Improve the Technical Efficiency of Livestock Farmers? A Case Study of Fattening Pig Production in Hanoi, Vietnam

Contract farming has become a sustainable strategy in agriculture around the world. Formal farming contract in pig production is one of the priorities of the Vietnamese Government for livestock development. Due to the differences in husbandry methods, a comparison of the technical efficiency between contract and noncontract pig farms has not been studied in Vietnam yet. This study attempts to do so and proposes implications for the sustainable development of pig production in Vietnam. In this study, we surveyed 201 pig farms (63 contract farms and 138 noncontract farms) in Hanoi, Vietnam, and applied data envelopment analysis (DEA) with a meta-frontier. Under group frontiers, the technical efficiency of the contract and noncontract farms are 96.11% and 88.64%, respectively. However, the meta-technology ratios of the two groups are 82.30% and 99.99%, respectively, which means that contract farms’ technical efficiency is lower than noncontract farms. An interesting finding is that although the technical efficiency of contract farms is lower than noncontract farms, their annual pig income is significantly higher, making contract farming attractive to farmers. Results of Tobit regression models showed that land rent is one of the important factors that reduce the technical efficiency of both contract and noncontract farms. This result implies that the Vietnamese government should revise the land limit policy so that farms can own more land. Another finding is that the high feed price reduces the technical efficiency of noncontract farms. The policy implication from this finding is that the Vietnamese government should develop domestic raw material areas for feed production to lessen the dependence on imported raw materials from abroad, which contributes to reducing the feed prices in Vietnam.