The Impact of Contract Farming: Experimental Evidence from Kenya

This project relies on a collaboration with a large Kenyan contract farming company to provide an experimental evaluation of the impact of this form of outsourcing on performance, plot productivity and farmers' incomes.

Academics and policymakers have looked at contract farming - i.e. "an agreement between one or more farmers and a contractor for the production and supply of agricultural products under forward agreements, frequently at predetermined prices" (Eaton and Shepherd, 2011) -  as a promising option to foster commercialization of smallholder-based agriculture. As a form of outsourcing, contract farming can exploit increasing returns to scale in processing, transport and branding (often missing in spot markets), while preserving smallholder land property rights and avoiding the establishment of large plantations. Further, by tying input loans to the contract, contract farming can help overcome barriers to the adoption of high return technologies. Yet, despite the growing diffusion of these schemes, no experimental evaluation of them exists.

This project relies on a collaboration with a large Kenyan contract farming company to provide an experimental evaluation of the impact of this form of outsourcing on performance, plot productivity and farmers' incomes.The researchers plan to use a randomized roll-out design with village-level randomization. The company will identify a set of potential villages to target for expansion and the randomization process will then select a subset of these villages for actual expansion during the study phase. Being a pilot project, the sample will limited to 20 villages. Outcomes of interest will include not only agricultural production, income and profits, but also farmer technology adoption and input intensity. Lastly, the impact of the contract farming scheme on food security will be evaluated, as well as operating costs and benefits to the company of providing the scheme.

As mentioned above, there is large interest in contract farming among academics, donors and policymakers. Among others, the results may have significant relevance for the numerous donors and international institutions that are heavility involved in agricultural value chain funding, like the Bill and Melinda Gates Foundation, the IFAD and FAO.