Unlocking the potential of contract farming: a dynamic exploration of mutual benefits for agribusiness enterprises and farmers in Ghana

Camillus Abawiera Wongnaa, Peter Addai, Esther Narh and Dadson Awunyo-Vitor

Journal of Enterprising Communities: People and Places in the Global Economy, 2025, vol. 20, issue 2, 449-476

Abstract: PurposeThis study aims to investigate the viability of contract farming agreements, focusing on the Golden Star Oil Palm Plantation project in the Western region of Ghana. It explores whether these agreements benefit both farmers and contracting companies, addressing a key issue in agribusiness management: the equitable distribution of risks and rewards.Design/methodology/approachThe research uses cross-sectional data from 210 oil palm producers in Ghana’s western region. The analysis combines descriptive statistics with both discounted (net present value [NPV], benefit-cost ratio [BCR] and internal rate of returns [IRR]) and undiscounted (payback period) measures to evaluate the project’s worth.FindingsThe research finds that oil palm production under contract farming is financially viable for both farmers and agribusiness companies, as indicated by positive NPV, BCR and IRR values. However, sensitivity analysis shows that the project’s viability is highly sensitive to changes in financial conditions, emphasizing the need for supportive policies and risk management strategies.Practical implicationsPolicymakers should focus on creating supportive frameworks, such as improved access to credit and inputs, to enhance the viability and fairness of contract farming arrangements. In addition, this study highlights the importance of implementing risk management strategies and sustainable practices to ensure long-term success and resilience in the sector.Social implicationsThis research emphasizes contract farming’s potential to empower smallholder farmers by increasing income, reducing poverty and promoting rural development. It also underscores the importance of equitable benefit distribution and sustainable practices, which can enhance social cohesion, gender inclusion and food security.Originality/valueThis study is original in its comprehensive evaluation of contract farming in oil palm production, using both discounted and undiscounted measures, and advocating for governmental and financial support to promote sustainable agricultural development.

Keywords: Contracting agribusiness companies; Contract farming; Farmers; Mutual benefits; Oil palm production (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jecpps:jec-04-2024-0061

DOI: 10.1108/JEC-04-2024-0061

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