Small Farmers, Big Business: Contract Farming and Rural Development

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Singh also compares contract farming arrangements in the Indian state of Punjab, and he also finds that those smallholder farmers who participate in contract farming have higher incomes. The issue with both studies by Goldsmith and Singh , however, is that they ignore the fact that it is entirely possible that those smallholders who elect to participate in contract farming may have already been better off than those smallholders who elect not to participating in contract farming prior to their participation.

This is known as the selection problem, and not only does it threaten the internal validity of empirical findings, it is also challenging to address in practice. Warning and Key were the first to attempt to deal with the self-selection of growers into contract farming in a study of peanut contract farming in Senegal, and they find that participants in contract farming did, indeed, have significantly higher incomes than nonparticipants.

Another common issue in the literature on contract farming is the lack of external validity. That is, researchers tend to focus on a single crop or on a single region, with little to no implications for other crops or regions. Simmons, Winters, and Patrick were the first to aim for more external validity by looking at three contracted commodities—maize, poultry, and rice—in three different locations in Indonesia, and they find that those households who participated in contract farming as poultry breeders and maize growers had better returns to capital than nonparticipants.

Likewise, Miyata, Minot, and Hu looked at apple and onion contract farming arrangements in China, and found that participation in contract farming was associated with higher incomes.

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Minten, Randrianarison, and Swinnen looked at contract farming over green vegetables in the capital region of Madagascar. The advantage of their study is that, although they looked at income, they also considered other indicators of welfare, namely income variability and the duration of the hungry season, finding that households who participated in contract farming were better off along all those indicators. Aiming for external validity, Bellemare studied contract farming over more than 10 contracted crops across six regions of Madagascar. Using field-experimental methods to deal with the selection problem, he found that contract farming appeared to lead to a percent increase in income. Yet even those field-experimental methods are not immune from criticism, and they do not guarantee the identification of causal effects from contracting farming. The bulk of the evidence suggests that participating in contract farming improves the welfare of those who choose to participate Wang, Wang, and Delgado, Yet because the identification problem—correlation is not causation—remains as thorny as ever, one has to keep in mind the distinct possibility that publication bias has molded what we know of the welfare impacts of contract farming.

Null findings—in this case, findings that show no association between participation in contract farming and welfare—tend not to get published. Findings that tend to go against the dominant view—in this case, findings that would show a negative association between participation in contract farming and welfare—are perhaps even more difficult to publish than findings of no association.

Hence, the publication process might lead to a surfeit of findings showing a positive association between participation in contract farming and welfare.

Whether policy implications can be derived from the foregoing depends on one's willingness to believe the findings in the literature. If one takes the positive findings discussed above at face value—that is, as having both internal and external validity—then one should logically argue for policies that facilitate the emergence of or support contract farming. Concretely, this could be as simple as a policy wherein a government subsidizes the expansion of a processing firm's contracting activities to areas where or groups with whom it does not already contract, or it could be as complex as a legal reform that provides better legal recourse for both parties to a contract farming agreement in order to make contract farming agreements more likely to be sustained or to emerge at all.

If, given the issues discussed above—limited internal validity, external validity, or potential publication bias—one is more skeptical about the findings of the empirical studies discussed above, then there are few if any policy implications. This is especially the case considering that the literature has so far had little to say about the potential benefits of contract farming for those who did not choose to participate.

As a consequence, it might be unwise to encourage the participation in contract farming of households who do not already do so. In that case, it is perhaps best to leave growers and processors alone, without trying to nudge one party or the other in any specific direction, and to invest instead in better evidence and replication studies to better inform future policy options.

Ashraf, N. Bellemare, M. Barrett, and D. Bijman, J. Bolwig, S.

Gibbon, and S. Briones, R. Dedehouanou, S. Swinnen, and M. Elabed, G.


Carter, and C. Fafchamps, M. Glover, D. Martin's Press, New York. Goldsmith, A. Grosh, B.

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Bibliographic Information

Miyata, S. Minot, and D. Narayanan, S. Oya, C. Porter, G. Rao, E. Simmons, P. Winters, and I. Book Authors Journal Authors. Buy eBook.

Small Farmers, Big Business

Buy Hardcover. FAQ Policy. About this book This book deals with an agricultural production and marketing system known as contract farming CF. Show all. Table of contents 8 chapters Table of contents 8 chapters Introduction Pages Glover, David et al.

Contract Farming and Rural Development

Therefore, it is likely to have a posi- 6 Conclusions tive impact on contract farming participation. The results show that all variables, except SOF, are significantly influence the performance of BCF at five percent level of significance. According to D'Silva , contract farming has tremendous potential to boost the agricultural sector in Malaysia to be on par with other sectors that exist in an economy. Agricultural Economics Indian Dairyman, 59 4 Set up My libraries How do I set up "My libraries"? Participation As discussed above, contract farming fosters inequalities Several studies have examined the issue of contract farming par- among the contract participants.

Conclusions Pages Glover, David et al. Policy Implications Pages Glover, David et al. Show next xx.