Choice of Contract Farming Strategies, Productivity, and Profits: Evidence from High-Value Crop Production

Abstract

Contracting firms attach conditions to producer contracts. These conditions can be attached to inputs, output, or both inputs and outputs. This study examines the impact of the choice of contract farming (CF) conditions on the productivity and profitability of ginger growers. Using farm-level data from Nepal collected in 2015 from 611 sampled farmers and the selectivity-corrected multinomial endogenous switching regression (MESR) method, the study found that ginger growers increased yield by 16%, 19%, and 15% by participating in CF with input conditions (IC), with output conditions (OC), and with input and output conditions (BC), respectively. Additionally, ginger growers increased profits by 46%, 63%, and 40% by participating in CF with IC, OC, and BC, respectively. The study found that the price difference in spot and contract markets, distance to market and transportation facilities, and farm location are important factors affecting participation in any form of CF (IC, OC, and BC). Finally, smallholders should be encouraged to adopt CF with OC.