Neighborhood Effects on Side-Selling in Contract Farming: A Spatial Econometric Approach

Takeshi Aida, Daichi Shimamoto and Kiyoyasu Tanaka

No 1003, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: Contract farming—agreements between farmers and buyers on agricultural production—often faces the challenge of contractual default because neighboring farmers may share information on more attractive price offers from non-contract buyers and coordinate actions to side-sell contract crops. This paper examines neighborhood effects on contractual enforcement in contract farming of organic Kampot pepper, a high-value crop in Cambodia. Using a spatial econometric framework, we demonstrate that side-selling by neighboring farmers significantly increases the probability of individual farmers engaging in side-selling, reflecting positive neighborhood effects. To clarify the underlying mechanisms, we develop a simple theoretical model of neighborhood effects. Our findings underscore the need for policy interventions aimed at curbing the diffusion of side-selling and strengthening the institutional sustainability of contract farming arrangements.

Keywords: Contract; farminglSide-selling|Contractual; default|Peer; effects|Spatial; econometrics (search for similar items in EconPapers)
JEL-codes: C21 L14 Q12 Q13 (search for similar items in EconPapers)
Date: 2026-03
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Published in IDE Discussion Paper = IDE Discussion Paper, No.1003. 2026-03

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