Towards Understanding the Ghanaian Farmer’s Decision to Enter a Contract with a Buyer

Ghanaian farmers often engage in formal or informal contracts with buyers of their product. Because the illiteracy rate among farmers is high and because of the appeal of side-selling (where farmers can sell at a higher price to someone other than the contract buyer), these agreements have historically been oral and therefore difficult to enforce. In this study, we use a choice experiment to determine which contract attributes make farmers more or less likely to enter into one. Farmers choose among proposed contracts that vary by whether they are written, the specified pricing structure, one’s familiarity with the buyer, whether side-selling is permitted, and whether the buyer provides support in the form of seed, fertilizers, or pesticides. We find that farmers are much more likely to enter written contracts and that they do not appear to prefer contracts that permit side-selling. They will avoid contracts that specify a quality criterion for their product, even if they will be paid more for better quality product. Familiarity with the buyer is also important for entering a contract. This study was funded by the Ghanaian Ministry of Food and Agriculture to inform the establishment of an arbitration mechanism for agricultural contracts.