Institutional and systemic barriers: Towards a sustainable transformation of soybean contract farming in Northwestern Ethiopia

Soybean contract farming is increasingly encouraged for agricultural sustainability and transformation, and improved smallholder welfare in Ethiopia. Despite the contemporary significance and economic advantages of soybeans for farmers, current yields consistently fall short of their potential, and local sources struggle to meet growing demand. This research investigates the institutional and systemic constraints of the soybean contract in Metema, West Armachio, and Quara districts. Previous studies usually use a reductionist approach, investigating isolated factors and thus failing to explore the multifaceted interdependent nature of these farming systems. To address existing knowledge and methodological gaps, this research employs an inclusive, multilevel analytical apprpach within a transaction cost theoretical framework, utilizing a cross-sectional design. A multi-stage sampling procedure is employed to collect data from 369 smallholder farmers, comprising 170 contract farming participants and 199 non-participants. The bivariate Tobit model findings confirm that poor seed quality, lack of enforceability, low contract price, and limited market power are critical systemic constraints of soybean contract farming in the study areas. To address the problems, the responsible bodies should resolve oligopsony market issues by strengthening farmers’ multi-purpose cooperatives and employing anti-collusion measures to ensure market fairness. Policymakers must establish a clear legal framework that mandates strict contract enforceability, competitive pricing, and the use of collateral requirements to build farmer trust. Finally, securing good-quality inputs from certified suppliers through a fair contract model is crucial to promote sustainable growth and structural transformation within Ethiopian agriculture.Author summary: Despite its economic value, the productivity of soybeans in Ethiopia lags significantly behind global standards, imposing a heavy fiscal burden due to expensive edible vegetable oil imports. To resolve this, the government has encouraged contract farming (CF) as a strategic instrument to link smallholder soybean producers with reliable markets. However, a productivity paradox continues where high market demand occurs, yet local soybean yields and producers’ satisfaction remain low. This research employed a mixed-methods approach, combining qualitative interviews with a bivariate Tobit econometric approach, to explore the systemic constraints influencing smallholder farmers in northwestern Ethiopia. The study found that soybean contract farming success is eroded by critical systemic problems: lack of legal contract enforcement, poor seed quality, and the occurrence of oligopsony, in which illegal buyer groups manipulate smallholders through biased pricing. The findings revealed that while specific training can increase soybean yields, the true sustainability and development depend on the supply of certified seeds, competitive pricing, and transparency. To empower local farmers and ensure food security, this study recommends immediate policy interventions to formalize the seed supply system, strengthen legal protections for agreements, and regulate market brokers.