Poverty is prevalent among small farms in transition economies such as the Lao PDR, where market failures prevail and subsistence production is the norm. Contract farming is emerging as a promising tool to facilitate market linkages and provide the necessary support that enables small farms to transition to commercial production. Using data from a household survey of 332 contract farmers and 253 non-contract farmers, this study attempts to empirically assess the potential of contract farming as a development tool to increase small farm incomes and reduce rural poverty.
The findings suggest that contract farming can be an effective private-sector-led mechanism to facilitate the transition to commercial agriculture. In addition to bringing foreign direct investment into the rural sector, contract farming can be an effective tool to improve the profitability and raise the incomes of small farmers, thereby reducing poverty in rural areas with limited market development
