Abstract
Many studies show that participation in contract farming has positive impacts on farm productivity and incomes. Most of the literature, however, does not take into account that contracts vary in their specifications, making empirical evidence scarce on the diverse impacts of different types of contracts. In this study, we investigate the driving forces of participation in marketing and production contracts, relative to spot markets. We also study the extent to which different contract types add additional benefits to smallholder farmers, using recent survey data of 389 cashew farmers in Ghana. To account for selection bias arising from observed and unobserved factors, we apply a multinomial endogenous switching regression method and implement a counterfactual analysis. The empirical results demonstrate that farmers who participate in production contracts obtain significantly higher cashew yields, cashew net revenues, and are more food secure compared to spot market farmers. We also find substantial heterogeneity in the impact of marketing and production contracts across scale of operation. Small sized farms that participate in production contracts tend to benefit the most. Marketing contracts, however, do not appear to benefit cashew farmers.
Sorting into Contests: Evidence from Production Contracts
