SP C1: Contract Farming and Contract Design

High requirements in modern supply chains call for tighter coordination between agribusiness firms and farmers, often resulting in contracts. Contractual relationships can range from simple marketing agreements via production and resource-providing contracts to arrangements where a firm employee performs specific knowledge-intensive on-farm tasks such as pesticide applications. Yet, contracts are not without problems. This is particularly true in a developing country small farm context because of technical and financial constraints, high transaction costs, and other market imperfections. Also, the contracting parties have to deal with issues of trust, product quality, and various possible forms of contract breach. These problems can lead to firms bypassing smallholders in their procurement strategies, a trend already observed in some developing countries. While there is growing case study evidence of the effects of contract farming in different situations, relatively little is known about how the design of contracts can influence incentive structures and help reduce transaction costs. This gap is addressed in Subproject C1, using economic experiments and survey data from smallholder environments in developing countries.

Topics of doctoral research:

• Contracting smallholder farmers: Impacts on poverty, nutrition, and health
• Can farmer collective action improve the success of contract arrangements?
• Contract farming, risk, and technology adoption: evidence from the African small farm sector

Doctoral researchers involved:

Doctoral researchers of the first cohort:
Sebastian Kunte

Doctoral researchers of the second cohort:
Sabine Fischer

Doctoral researchers of the third cohort:
Jorge Luis Sellare

Principal investigators/supervisors:
Matin Qaim, Meike Wollni, Claudia Keser