A new article (ungated version here) in World Development crystallized a few of the thoughts I have been mulling over regarding contract farming and the participation of smallholders in agricultural value chains in developing countries–an area where I have done a bunch of work, and wherein I am still doing work.
First, the abstract of the article:
Considerable empirical work relates participation in contract farming with farm profitability. However causation is far from settled as few studies control for endogeneity of participation. Moreover the link between contract farming and equity is ambiguous as the association between contract farming and farmer endowments is mixed. This case study of smallholders in the tobacco industry addresses these issues, and seems to be the first such econometric application in the Philippines. Based on a treatment effects regression, contract farming increases profitability, with participation biased toward smaller farm sizes, supporting the positive role of contract farming toward inclusive growth in rural areas.
Those findings are not surprising–people would not be participating in agricultural value chains if it weren’t profitable, and small farms being more productive than larger ones, it stands to reason that companies want to work with smallholder farmers first and foremost.
Second, a few miscellaneous thoughts:
- Okay, so a large literature now finds that participation in agricultural value chains makes growers better off. Now what? As a matter of policy recommendation, “more contract farming” is empty and meaningless. And “setting up incentive programs to increase participation in agricultural value chains” is no better. Why would we encourage people to do something they did not want to do in the first place? In the US, we have encouraged people to do something they did not want to do in the first place (i.e., owning a house) and in 2008, it led to the worst recession this country had ever seen. Policy makers love to talk about contract farming and agricultural value chains, but it isn’t clear what they can actually do beyond talking about it, and it isn’t clear that doing anything is desirable either. Contracts are complicated because they involve more than one party. Forcing contract farming to happen would probably be as effective as forcing two people who don’t really like each other to get married.
- That said, sometimes it’s okay to study stuff just to know about human behavior. Not all research in the social sciences should have policy implications. In policy schools, people tend to be obsessed with “policy implications,” but social scientists often ask questions about behavior, and not everyone does impact evaluation.
- What is the importance of publication bias here? I mean, a paper that would show that participation in contract farming or agricultural value chains has no discernible impact on welfare (and, I suspect a paper that would show that participation has negative effects) would be unlikely to get published anywhere, and so what we end up with is a body of “knowledge” that mainly consists of evidence about the positive welfare effects of the institution. The only exception I know of is my coauthor Sudha Narayanan’s 2014 Food Policy article.