Contracting by Small Farmers in Commodities with Export Potential: Assessing Farm Profits of Lentil Growers in Nepal

This study is undertaken to quantify the benefits of contract farming (CF) on farmers’ income in a case where new market opportunities are emerging for smallholder farmers in Nepal. CF is emerging as an important form of vertical coordination in the agrifood supply chain. The prospec t for CF in a country like Nepal with accessibility issues, underdeveloped markets, and a lack of amenities remains ambiguous . Contractors find it difficult to build links in these cases , particularly when final consumers have quality and safety requiremen ts. However, a lack of other market opportunities makes the contracts more sustainable. The latter happens if there are product -specific quality advantages because of agroecology and, more important , lack of side -selling opportunities. C oncerns remain about monoposonistic powers of the buyers when small farmers do not have outside options. Results of this study show that CF is significantly more profitable (8 1 percent greater net income) than independent production, the main pathway being higher yield a nd price realization . The positive impact of CF on farmers’ profits can help Nepal in harnessing the growing demand for pulses , especially in neighboring international markets, like India .