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Why Do Farmers Contract or Not?

Author

Listed:
  • Sudha Narayanan

    (International Food Policy Research Institute)

Abstract

This chapter elaborates on the second element of a two-sided selection process that eventually sorts farmers into contract farmers and non-participating farmers. While firms try to sort heterogeneous farmer types based on location, reliability, size, soil quality and so forth, farmers’ perceptions of the benefits and risks associated with contract farming and its spillovers drive farmers' propensity or willingness to contract or be considered by firms for contracting. Farmers might factor in several issues such as entry costs, family size, perceived returns to the contract crop relative to alternative uses of land and labor, social learning and beliefs about impact on soil fertility and quality, health and so on. At this stage, it is not simply a matter of firms picking farmers. The identification of contract suppliers is contingent on the farmers being willing to contract. In many contexts, farmers, when presented with the option of contracting, make considered decisions on whether to contract and how much exposure they wish to have to the contract firm or for the contract crop, which may be a new or exotic crop.

Suggested Citation

  • Sudha Narayanan, 2025. "Why Do Farmers Contract or Not?," Palgrave Studies in Agricultural Economics and Food Policy,, Palgrave Macmillan.
    • Handle: RePEc:pal:psachp:978-3-031-76487-5_7
    DOI: 10.1007/978-3-031-76487-5_7
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