Small farmers in sub-Saharan Africa, like those in other developing regions, face a number of
constraints that limit their productivity. First, they lack information about production
methods and market opportunities, particularly for new crops and varieties. Often farmers are familiar with subsistence crops and perhaps a few widely grown cash crops, but they have less experience with high-value commodities whose market demand is growing significantly. Second, even with sufficient information about profitable investments, small farmers often lack the necessary financial reserves to invest in new crops, and their access to credit is limited by the lack of collateral. This constrains their ability to make even profitable investments in tree crops or other crops that have expensive input requirements. Third, small farmers operating near subsistence are understandably more risk averse than larger farmers.
They often prefer to assure themselves a minimum supply of food before expanding
commercial production for an uncertain market. Contract farming has attracted the interest of researchers and policymakers because it has the potential to solve several of these constraints simultaneously. This paper has three objectives:
to describe the economic rationale for contract farming as a way to organize
agricultural production,
to describe the conditions under which contract farming is likely to make economic
sense and to emerge as a marketing institution,
to review the empirical experience with contract farming in developing countries,
emphasizing its impact on small-scale farmers in sub-Saharan Africa, and
to draw some conclusions and policy implications to promote contract farming as part of an efficient and equitable system of agricultural market institutions.
