Last updated on September 16, 2018
Both articles are by me and a coauthor. The first article (gated; email me for a copy) is a review of the economics literature on contract farming, in which Jeff Bloem and I look at whether participation in contract farming and agricultural value chains improves welfare. On the basis of the literature, our answer is “Most likely, but it’s hard to know for sure.”
Here is the abstract:
Although many urban areas around the world have grown steadily in recent years, the structural transformation, wherein an economy goes from relying primarily on agriculture and natural resources to relying primarily on manufacturing, has eluded many developing countries. In those countries, contract farming, whereby processors contract out the production of some agricultural commodity to growers, is often seen as a means of spurring the development of an agribusiness sector, and thus launch the structural transformation. As a result, economists and other social scientists have extensively researched contract farming over the last 30 years. We review the findings of the economics literature on contract farming and discuss its implications for development policy and research. In so doing, we highlight the methodological weaknesses that limit much of the literature on contract farming in answering questions of relevance for policy. Despite valiant research effort, many of the core features of contract farming imply substantial challenges for researchers aiming to study the question “Does contract farming improve welfare?” We conclude with a discussion of where we see the literature on contract farming evolving over the next few decades.
For me personally, three parts of the review stand out. The first is our discussion of how the use of randomization, though it would yield internally valid estimates, is unlikely to yield estimates that are of any use to a policy maker. In this context, randomization could be used to get an intent-to-treat estimate or a local average treatment effect, neither of which are terribly useful to a policy maker interested in knowing what the effect of participation in contract farming is for those who choose to participate (i.e., the average treatment effect on the treated) in a context where people cannot be forced to participate.
The second part that stands out, and the most valuable part of our review as far as I am concerned, is section 4, titled “A Research Agenda for Contract Farming.” There are a number of unresolved questions about contract farming and agricultural value chains in developing countries, and if I were just starting out and interested in the topic, those questions are what I would look at.
Finally, I like footnote 16, where we note that
The field of development economics has changed considerably over the last 20 years, to the point where few economists are only-development economists anymore. Most development economists nowadays do x and development, where x can be agricultural economics, health economics, labor economics, law and economics, population studies, etc. One of the few fields that has been left alone by development economists is that of industrial organization (IO), most likely because the (structural) empirical methods of IO economists are often viewed with suspicion by mainstream (i.e., reduced-form) development economists. But since the first markets to modernize in developing countries tend to be food markets—as incomes rise, the demand for food both takes off and changes radically (Bennett, 1941)—we believe the next few decades will see an explosion of development-and-IO studies. Good examples of the kind of work we have in mind are Atkin et al. (2018) and Macchiavello and Morjaria (2011).
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In the second article (ungated as I write this post), Sunghun Lim and I offer a discussion of the many forms the institution of contract farming can take, along with an empirical illustration using the data I collected in Madagascar in 2008. Here is the abstract:
Contract farming, wherein a processor contracts out the production of an agricultural commodity to a grower, is the first step toward more vertically coordinated—and thus more modern—agricultural value chains. As such, in principle contract farming is a necessary condition for the structural transformation of developing economies to occur. Yet contract farming is far from monolithic, and the institution takes on a variety of forms. In this article, we describe how the institution of contract farming varies in cross-sectional data covering 1,200 households across six regions of Madagascar, half of which are growers in contract farming agreements covering a dozen different crops. In this setting, participation in contract farming has been associated with increases in income, improvements in food security, and reductions in income variability. Given those presumed effects in this setting of participation in contract farming, we then look at the correlates in our data of participation in contract farming. as well as one’s willingness to pay to participate in contract farming as a grower in an attempt to better target policies aimed at encouraging participation in contract farming.