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As You Sow, So Shall You Reap: The Welfare Impacts of Contract Farming

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  • Bellemare, Marc F.

Abstract

What is the impact of participation in agricultural value chains on the welfare of smallholders? Contract farming, wherein a processing firm delegates its production of agricultural commodities to growers, is often viewed as a means of increasing smallholder welfare in developing countries. Because the problem posed by the nonrandom participation of grower smallholders in contract farming has so far not been dealt with convincingly, however, whether participation in contract farming actually increases smallholder welfare is still up for debate. This paper uses an experimentally derived nonparametric measure of willingness to pay to enter contract farming to control for actual participation in contract farming. Using data from Madagascar, results indicate that participation in contract farming is associated with a 10- to 16-percent increase in income; a 15-percent decrease in income volatility; a two-month decrease in the duration of the hungry season; and a 31-percent increase in the likelihood of receiving a formal loan.

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  • Bellemare, Marc F., 2010. "As You Sow, So Shall You Reap: The Welfare Impacts of Contract Farming," MPRA Paper 27259, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27259
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    More about this item

    Keywords

    Contract Farming; Welfare; Grower-Processor Contracts; Outgrower Schemes;
    All these keywords.

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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