Do land ownership and contract farming matter? Evidence from a large-scale investment in Ghana

With the rising demand for agricultural land it becomes incrementally important to design land deals as a win-win for investors and the local population. Accordingly, our in-depth analysis focuses on two aspects: (i) the effects of inclusive business models, and (ii) the importance of secure land use rights for farmers adjacent to large-scale, land-based investment. We analyse empirically the case of an oil palm investment in the Eastern Region of Ghana in 2010 comparing contracted outgrowers and independent oil palm farmers. Although we argue that the contractual treatment was allocated as in a quasi-natural experiment, we introduce an instrumental variable (IV) to remove possible doubts. Thus, we exploit the fact that highly affected outgrowers rather tend to position themselves, whereas less affected independent farmers respond rather in a rather neutral manner to a retrospective question on their satisfaction with the investment’s establishment. To avoid correlations with the error term, we suggest the absolute value of the deviation from a neutral response as instrument. We find that contract farming has a significantly negative effect on short-term measurements like agricultural household income and plot profit per acre, while its effect on long-term measurements like asset endowment and perceived future security is significantly positive. Analyses reveal moreover, that complete property rights, as well as solely the right to use the land as collateral, have a significantly positive effect on both short-term and long-term measurements.