This study examines the contribution of contract farming within the system of farmer
organization to household agricultural income. By going through the details of system of
farmer organization’s contract farming and conducting statistical analysis, it is found that the system of farmer organization’s contract farming is an inclusive system. The difference of farmers’ agricultural assets holding does not determine farmers’ contract participation. This system helps farmers to gain more bargaining power in negotiating with their business partners. Moreover, it helps farmers to be more proactive in farming business. Rather than solely relying on agricultural outsourcing or waiting for the investment from outside, farmers mobilize their own resources through their organization to start the business. It is proved that farmer organization could work independently (i.e., it plays as contractors) with other market
intermediaries where there is no potential business partners and could also be able to interact well with market potential business partners (i.e., it plays either as contract intermediary or as co-contractors). For the study of contribution of contract farming to household agricultural income, it is to compare the agricultural household income of contract participants and non-contract participants. To avoid the overestimation, treatment-effects model is used to correct the bias. The result confirms that contract farming significantly raises household agricultural income. Farmer organization’s contract farming does not only strengthen the position of farmers in the market and raising household agricultural income, it is also adaptable. It could be applied by its own or integrated into other contract farming models.
The farmer organization’s contract farming system also has its own weakness, i.e., the
limitations of input supply capacity to its contract farmers. It takes time to enhance this
supply capacity because farmers have limited resources—the source for its supply capacity enhancement—for investment and they need time to build their confidence in their
investment with their organization. This system could also be hard to realize without supports from government agencies and Non Governmental Organizations (NGOs) because private firms have less incentive to mobilize this kind of autonomous organization that is not under their control or has no permanent linkage with their business.
This empirical study suggests that contract farming of farmer organization should be
promoted. Government agencies that work closely with agriculture sector and rural
development, and NGOs should consider their investments and support to the mobilization
and enhancement of farmer organization’s contract farming. Policy makers should help
farmer organization to obtain its legal business entity. This would help farmer organization to access to services and resources from other stakeholders such as government, bank, private sector, and NGOs.
