Contract farming is widely perceived as a means of increasing welfare in developing countries. Because of smallholder self-selection in contract farming, however, it is not clear whether contract farming actually increases grower welfare. In an effort to improve upon existing estimates of the welfare impacts of contract farming, this paper uses the results of a contingent-valuation experiment to control for unobserved heterogeneity among smallholders. Using data across several regions, firms, and crops in Madagascar, results indicate that a 1-percent increase in the likelihood of participating in contract farming is associated with a 0.5-percent increase in household income, among other positive impacts.
Bibliographical noteFunding Information:
I am grateful to David Stifel for invaluable help with the data as well as to Stefano Paternostro for making data collection possible and Eliane Ralison for coordinating the work of the survey team. I thank Jean-Marie Baland, Zack Brown, Catherine Guirkinger, Jonathan Kaminski, Bob Myers, Subhrendu Pattanayak, Vincenzo Verardi, Christian Vossler, and Ying Zhu for helpful comments. I am also grateful to seminar participants at Hebrew University, Leuven, Michigan State, and Namur as well as participants at the 2010 SCC-76 “Economics and Management of Risk in Agriculture and Natural Resources” conference and the 2011 Africa Growth Forum at the Brookings Institution for their comments. This paper was written while I was on leave at the University of Namur, whose generous financial support I wish to acknowledge. I have also benefited from a seed grant from the Duke Center for International Development for preliminary work. All remaining errors are mine.
- Contract farming
- Grower-processor contracts
- Outgrower schemes