AbstractsLaw & Legal Studies

Impact of contract farming on smallholders in Ethiopia: the case of chickpea growers

by Samuel Tigistu Seba

Institution: Lincoln University
Year: 2016
Keywords: smallholders; inclusive contract farming; impact assessment; contracting; contracts; smallholder farmers; developing countries; Ethiopia; chickpeas
Posted: 02/05/2017
Record ID: 2093430
Full text PDF: http://hdl.handle.net/10182/7114


Contract farming (CF) is an institutional arrangement by which agribusinesses replace or supplement primary agricultural production with supply from smallholders. In developing countries where farms are typically small and resource poor, questions have been asked about its impact on smallholders, particularly the poorest. This study examined these aspects of a Contract Farming Arrangement (CFA) between a chickpea processing firm and a farmers’ cooperative union in central Ethiopia. A random sample of 95 growers was drawn from a list of CF participants. In addition, a representative sample of 114 households was drawn from seven counties where the CFA was active. A subset of non-participating households with characteristics similar to those of participants was identified as a control group using propensity scores predicted by a logit model. The logit model indicated that the CFA was biased against farmers who were relatively poor, risk averse and short of farming skills and experience. However, there was no evidence that participation was influenced by gender, education, farm size or household labour endowments. Univariate comparisons revealed significant differences in key outcomes between participants and households in the control group. A multivariate ‘treatment’ model estimated to isolate the impact of the CFA found that participation had a substantial positive impact on household cash revenue (ETB 3,658 per adult equivalent) and net cash income (ETB 3,411 per adult equivalent) earned from crop production. Local Average Treatment Effects (LATEs) computed for ‘complier’ households were also sizeable for these outcomes at ETB 2,879 and ETB 1,896 per adult equivalent respectively. Participants attributed increases in net income to improved seed, a stable product price, higher yields and a guaranteed market. Descriptive analysis of other perceived outcomes suggested that participants also benefited from improved food security and better access to preferred markets, credit, new technology, information and technical advice. Levels of satisfaction with the terms and administration of the CFA were high. Interventions that improve farming skills and mitigate risk are recommended to enhance inclusiveness. Efforts to strengthen producer organisations, cooperative unions and the legal infrastructure required to enforce contracts are also recommended.