Last updated on September 6, 2015
Back in March, I was asked by Clemson University’s Michael Vassalos to contribute to a special issue of Choices, the Agricultural and Applied Economics’ outreach magazine, on the theme of agricultural contracts.
After some discussion, it was determined that I would write on the welfare impacts of participation in contract farming for smallholder farmers in developing countries. The special issue also includes nice articles on current trends in agricultural contracts, the economics of agricultural contract grower protection legislation, and risk and the use of contracts by vegetable growers.
My article, titled “Contract Farming: What’s In It for Smallholder Farmers in Developing Countries?,” was published last Friday in Choices. After discussing the theoretical pros and cons of participating in contract farming for smallholder farmers in developing countries and whether the institution does make them better off, I offer some skeptical thoughts about the policy relevance of the empirical findings (including my own) on the welfare impacts of contract farming:
The bulk of the evidence suggests that participating in contract farming improves the welfare of those who choose to participate (Wang, Wang, and Delgado, 2014). Yet because the identification problem—correlation is not causation—remains as thorny as ever, one has to keep in mind the distinct possibility that publication bias has molded what we know of the welfare impacts of contract farming. Null findings—in this case, findings that show no association between participation in contract farming and welfare—tend not to get published. Findings that tend to go against the dominant view—in this case, findings that would show a negative association between participation in contract farming and welfare—are perhaps even more difficult to publish than findings of no association. Hence, the publication process might lead to a surfeit of findings showing a positive association between participation in contract farming and welfare. …
Whether policy implications can be derived from the foregoing depends on one’s willingness to believe the findings in the literature. … If, given the issues discussed above—limited internal validity, external validity, or potential publication bias—one is more skeptical about the findings of the empirical studies discussed above, then there are few if any policy implications. This is especially the case considering that the literature has so far had little to say about the potential benefits of contract farming for those who did not choose to participate. As a consequence, it might be unwise to encourage the participation in contract farming of households who do not already do so. In that case, it is perhaps best to leave growers and processors alone, without trying to nudge one party or the other in any specific direction …