Contract farming: opportunity cost and tradeâ€ offs
Marc Bellemare ()
Agricultural Economics, 2018, vol. 49, issue 3, 279-288
An important literature has established that participation in contract farming leads to higher incomes and has a number of other beneficial effects on the welfare of participating households. Yet no one has looked at the opportunity cost of and the various tradeâ€ offs involved in participating in contract farming. I look at the relationship between participation in contract farming and income from (i) livestock, (ii) labor markets, (iii) nonfarm businesses, and (iv) agricultural sources other than livestock and contract farming and (v) unearned income. Using data from Madagascar, I find that participation in contract farming is associated with a 79% decrease in how much income per capita the average household derives from labor markets and a 47% decrease in how much income per capita it derives from nonfarm businesses, but also with a 51% increase in how much income per capita the average household derives from agricultural sources other than livestock and contract farming, possibly due to technological spillovers. Thus, even though contract farming has been shown to improve welfare in multiple ways in this context, it looks as though those gains come at the cost of an â€œagricultural involutionâ€ on the part of participating households, who seem to turn away from nonâ€ agricultural activities. This has important implications for structural transformation narratives.
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