New evidence regarding the effects of contract farming on agricultural labor use

Contractual agreements between smallholder farmers and agribusiness companies have gained in importance in many developing countries. While productivity and income effects of contracting in the small farm sector were analyzed in many previous studies, labor market and employment effects are not yet well understood. This is an important research gap, especially against the background of continued population growth and structural transformation. Here, we investigate the effects of two types of contractual agreements between large international processing companies and smallholder farmers on agricultural labor use, household labor allocation, and hired labor demand in Ghana's palm oil sector. We use cross‐sectional survey data and a willingness‐to‐pay approach to control for unobserved heterogeneity between farmers with and without contracts. We find that agricultural labor intensity is substantially reduced through the contracts, because contracting in Ghana is associated with the adoption of labor‐saving procedures and technologies. Simple marketing contracts lead to reallocation of the saved household labor to off‐farm employment, whereas resource‐providing contracts lead to a stronger reallocation of labor within the farming enterprise. Household labor is more affected by labor savings than hired labor.     

Quantifying and understanding land cover changes by large and small oil palm expansion regimes in the Peruvian Amazon

With rapid increases in global food demand and production, oil palm expansion constitutes a major emerging challenge for forest conservation in Amazonia and other tropical forest regions. This threat is evident in the Peruvian Amazon, where local and national incentives for oil palm cultivation along with growing large-scale investments translate into accelerated oil palm expansion. Environmental sustainability of oil palm cultivation in the Peruvian Amazon is contingent on policy incentives for expansion onto already-cleared lands instead of biodiverse, high carbon primary rainforests. Previous research indicates that while industrial plantations use less land area than local smallholders, companies have a higher tendency to expand into primary rainforests. However, the motivations behind these differing expansion scenarios remain unclear. In this study we combine data from optical and radar satellite sensors with training information, field discussions, and review of public documents to examine the policy incentives and spatial patterns associated with oil palm expansion by smallholders and industries in one of Peru’s most rapidly changing Amazonian landscapes: the Ucayali region of the city of Pucallpa. Based on our satellite-based land cover change analysis, we found that between 2010 and 2016, smallholders utilized 21,070 ha more land area for oil palm than industries but industrial expansion occurred predominantly in old growth forests (70%) in contrast to degraded lands for smallholders (56%). Our analysis of national policies related to oil palm expansion reveal policy loopholes associated with Peru’s “best land use” classification system that allow for standing forests to undergo large-scale agricultural development with little government oversight. We conclude that both sectors will need careful, real-time monitoring and government engagement to reduce old-growth forest loss and develop successful strategies for mitigating future environmental impacts of oil palm expansion.     

Contract farming and smallholder incentives to produce high quality: experimental evidence from the Vietnamese dairy sector

In emerging markets for high‐value food products in developing countries, processing companies search for efficient ways to source raw material of high quality. One widely embraced approach is contract farming. But relatively little is known about the appropriate design of financial incentives in a small farm context. We use the example of the Vietnamese dairy sector to analyze the effectiveness of existing contracts between a processor and smallholder farmers in terms of incentivizing the production of high quality milk. A framed field experiment is conducted to evaluate the impact of two incentive instruments, a price penalty for low quality and a bonus for consistent high quality milk, on farmers’ investment in quality‐improving inputs. Statistical analysis suggests that the penalty drives farmers into higher input use, resulting in better output quality. The bonus payment generates even higher quality milk. We also find that input choice levels depend on farmers’ socio‐economic characteristics such as wealth, while individual risk preferences seem to be less important. Implications for the design of contracts with smallholders are discussed.     

Differential livelihood impacts of oil palm expansion in Indonesia

In this article, the impacts of oil palm adoption on livelihoods of smallholder farm households are analyzed. The study builds on survey data from Sumatra, Indonesia. Treatment‐effects and endogenous switching regression models suggest that smallholder households benefit from oil palm adoption on average. Part of the benefit stems from the fact that oil palm requires less labor than rubber, the main alternative crop. This allows oil palm adopters to allocate more labor to off‐farm activities and/or to expand their farmland. For households with a low land‐to‐labor ratio, rubber is typically a more lucrative crop than oil palm. Depending on various social and institutional factors, households’ access to land, labor, and capital varies, contributing to impact heterogeneity. Welfare gains associated with oil palm are more pronounced among households that have formal land titles and access to additional land to expand their farm size during the process of adoption.     

Unpacking Indonesia’s independent oil palm smallholders: An actor-disaggregated approach to identifying environmental and social performance challenges

Processes of globalization have generated new opportunities for smallholders to participate in profitable global agro-commodity markets. This participation however is increasingly being shaped by differentiated capabilities to comply with emerging public and private quality and safety standards. The dynamics within Indonesia’s oil palm sector illustrate well the types of competitive challenges smallholders face in their integration into global agro-commodity chains. Because of public concern over the poor social and environmental performance of the sector, many governments, companies and consumers are attempting to clean up the value chain through self-regulatory commitments, certification and public regulation. As a result, many of Indonesia’s oil palm smallholders face compliance barriers due to informality and poor production practices, and threaten to become alienated from formal markets, which could in turn lead to a bifurcation of the oil palm sector. Recognizing that many oil palm smallholders lack compliance capacity, myriad public and private actors have begun designing initiatives to address compliance barriers and enhance smallholder competitiveness. However, failure to properly account for the heterogeneity of the smallholder oil palm sector will undermine the effectiveness and scalability of such initiatives. By developing a typology of independent smallholder oil palm farmers in Rokan Hulu district, Riau province, this article reveals the wide diversity of actors that compose Indonesia’s smallholder oil palm economy, the types of compliance barriers they face and the sustainable development challenges they pose. In doing so, this article illustrates how global agro-commodity chains can drive agrarian differentiation and offer new insights into the complex dynamics of agricultural frontier expansion.     

Contract farming,contract design and smallholder livelihoods*

Contract farming has gained in importance in many developing countries. Previous studies analysed effects of contracts on smallholder farmers’ welfare, yet mostly without considering that different types of contractual relationships exist. Here, we examine associations between contract farming and farm household income in the oil palm sector of Ghana, explicitly differentiating between two types of contracts, namely simple marketing contracts and more comprehensive resource-providing contracts. Moreover, we look at different income sources to better understand how both contracts are linked to farmers’ livelihood strategies. We use cross-sectional survey data and regression models. Issues of endogeneity are addressed through measuring farmers' willingness-to-participate in contracts and using this indicator as an additional covariate. Farmers with both types of contracts have significantly higher household incomes than farmers without a contract, yet with notable differences in terms of the income sources. Farmers with a marketing contract allocate more household labour to off-farm activities and thus have higher off-farm income. In contrast, farmers with a resource-providing contract have larger oil palm plantations and thus higher farm incomes. The findings suggest that the two contract types are associated with different livelihood strategies and that disaggregated analysis of different income sources is important to better understand possible underlying mechanisms.     

Endogenous institutional innovation and agroindustrialization on the Peruvian coast

This paper presents an analysis of endogenous institutional innovations that have recently emerged in the agroindustrial zone of Chincha, on the coast of Peru. These innovations include: (1) contracts between agroindustrial firms and large farmers, introduced by the firms themselves to assure timely delivery and compliance with strict requirements implied by the emerging demanding quality and safety standards for agro‐export of processed asparagus; (2) management services exchanged for labor supervision and land collateral in share tenancy contracts between a management company and “farmer companies” of small cotton farmers. These contracts introduced by the management company illustrate those described theoretically by Eswaran and Kotwal [Am. Econ. Rev. 75 (3), 352–367]. The nature and importance of these institutional changes are twofold: (1) They were induced institutional innovations driven by the requirements of agroindustrialization itself. (2) Together they had ambiguous employment and income impacts (tending to the negative). On the one hand, the emergence of asparagus and firm‐farm contracts reduced employment through exclusion of small farms and shifts to capital‐intensive crops. On the other hand, the reinforcement of smallholder cotton and the emergence of farmer companies increased employment and income of smallholders. The institutional innovation allowed them to reduce risk and increase profits and thus access some of the benefits of agroindustrialization and globalization. While processing firm‐farm contracts are common in Peru, as is the presence of NGOs bringing subsidized credit, the private management firm innovation is rare and new in Peru and apparently also in the region, and of great interest. In fact, policymakers and NGOs have recently discovered that this innovation is taking place and are asking hard questions about whether this innovation can and will be diffused. The interest in the private for‐profit institutional change is sharpened by growing doubts about how economically sustainable and widespread a response NGO help can be to small farmers in maintaining their participation in income‐enhancing agroindustrialization. Moreover, with changes in land laws and markets the fluidity of the situation is apparent, with agroindustrial firms even starting to ask themselves whether contracts with large farms are necessary and best.     

Smallholder Supply Response to Marketing Board Activities in a Dual Channel Marketing System: The Case of Zambia

In recent years, parastatal grain marketing boards have re‐emerged as important elements of grain markets in eastern and southern Africa, yet little is known about how farmers are responding to their scaled up activities. This article develops a conceptual model of farmers’ production decisions in the context of dual output marketing channels (government and private sector) when output prices at harvest time and the availability of one of the marketing channels are unknown at planting time. It then applies the model to the case of Zambia and uses nationally representative household‐level panel survey data to estimate the effects of the Food Reserve Agency (FRA), the government parastatal maize marketing board, on smallholder crop production and fallow land. The FRA buys maize from smallholders at a pan‐territorial price that typically exceeds market prices in major maize producing areas. Results suggest that increases in the farmgate FRA maize price raise farmer maize price expectations, which induces a supply response. Smallholders respond to an increase in the FRA price by extensifying their maize production. On average, a 1% increase in the FRA price is associated with 0.06% increases in smallholders’ maize area planted and quantity harvested. There is also some evidence that farmers reduce the area of land under fallow in response to FRA incentives but there is no evidence of reductions in the area planted to other crops.     

Discouraging Rainforest Transformation: An Ex-ante Policy Impact Analysis

Despite extensive efforts made by national and international certification agencies, Indonesian smallholder farmers’ participation in palm oil certification schemes adoption remains low. A fundamental obstacle is the smallholder practice of rainforest transformation into oil palm plantation which is forbidden by the agencies. In this context, we investigate three policies that could lead to a reduction in rainforest deforestation by smallholders: price premium on certified palm oil; the provision of environmental information; contributor recognition. In order to evaluate the influence of the policies ex-ante, we conduct a social dilemma experiment involving rubber and oil palm smallholders in Jambi Province, Sumatra, Indonesia. The findings indicate that the price premium and provision of context-specific environmental information could reduce rainforest transformation. However, a statistically significant effect of contributor recognition was not found.     

Smallholder agriculture in transition economies

In this paper, we analyse how smallholder farms have evolved during the transition process in former communist countries and how this process has differed across countries and commodities. The role of smallholders in agriculture differs among transition countries, and this diversity is due to a combination of factors, including capital, labour and land endowments, income levels, scale economies, market imperfections, and reform choices. Institutions to access inputs and sell outputs affect the efficiency and survival of smallholders. In the past decade, the share of smallholders in land use and production has declined significantly as younger and more dynamic smallholders have become integrated in modern value chains, whereas older, less dynamic farmers have (semi‐)retired, producing only for household consumption.     

Is Oil Palm Expansion a Challenge to Agroecology? Smallholders Practising Industrial Farming in Mexico

Agroecology has become a powerful alternative paradigm for rural development. In contrast to conventional approaches, this paradigm shifts the emphasis from technology and markets to local knowledge, social justice and food sovereignty, to overcome rural poverty and environmental degradation. However, the spread of this approach faces several obstacles. This paper deals with one of these obstacles: the ‘preference’ of smallholders for industrial farming. We specifically analyse the widespread uptake up of oil palm by smallholders in Chiapas. Contrary to agro‐ecological assumptions, oil palm proved favourable to smallholders in Chiapas because of historical and contemporary state–peasant relations and the advantageous economic circumstances within the oil palm sector. Based on this research, we identify four challenges for agroecology: (i) the existence of contradictory interests within the peasantry as a result of social differentiation; (ii) the role of the state in making conventional development models relatively favourable to smallholders; (iii) the prevalence of modernization ideologies in many rural areas; and (iv) the need for this paradigm to acknowledge smallholders' agency also when engaged in industrial farming. These challenges need to be tackled for agroecology to offer viable alternatives in a context of agro‐industrialization.     

The complex dynamics of smallholder technology adoption: the case of SRI in Madagascar

This article explores the dynamics of smallholder technology adoption, with particular reference to a high‐yielding, low external input rice production method in Madagascar. We present a simple model of technology adoption by farm households in an environment of incomplete financial and land markets. We then use a probit model and symmetrically censored least squares estimation of a dynamic tobit model to analyze the decisions to adopt, expand, and disadopt the method. We find that seasonal liquidity constraints discourage adoption by poorer farmers. Learning effects—both from extension agents and from other farmers—exert significant influence over adoption decisions.     

Impacts of tenancy arrangements on investment and efficiency: evidence from Pakistan

In this article, we use farm‐level data from the Punjab Province in Pakistan to analyze the impact of three tenancy contracts on investment in soil‐improving and productivity‐enhancing measures and farm productivity. A multivariate tobit model that accounts for potential substitutability and complementarity of investment options, as well as endogeneity of tenure arrangements was employed in the empirical analysis. Our empirical results indicate that land tenure arrangements influence farmers’ decisions to invest in soil‐improving and productivity‐enhancing measures. In particular, owner‐cultivators with secured tenancy arrangements were found to be more likely to invest in soil‐improving and productivity‐enhancing measures, compared to those on leased contracts. We also find that output per hectare was highest on land cultivated by owners and lowest on land under sharecropping tenancy, lending support to the Marshallian inefficiency hypothesis.     

Seed Market Privatisation and Farmers’ Access to Crop Technologies: The Case of Hybrid Pearl Millet Adoption in India

In India, pearl millet is a typical subsistence crop. Nonetheless, use of hybrid seeds is widespread. The first pearl millet hybrids were introduced in 1965 by the public sector. Yet, starting in the late 1980s, market liberalisation led to an increasing role of private companies in seed development and distribution. Although several studies showed that proprietary pearl millet hybrids are more productive than public hybrids and open‐pollinated varieties, the impacts of privatisation on farmers’ technology access and overall innovation rates are not yet well understood. This paper analyses the dynamics of adoption using duration models and farm survey data collected in the state of Maharashtra. The results show that education, short distances to main information sources and good market infrastructure speeded up the adoption of pearl millet hybrids. Likewise, the increasing role of private seed companies had a positive and accelerating effect on technology diffusion in the small farm sector.     

Policy instruments for sustainable land management: the case of highland smallholders in Ethiopia

Degradation of land continues to pose a threat to future food production potential in many developing economies. Various approaches, mainly based on command‐and‐control policies, have been tried (with limited success) in the past to encourage adoption of erosion‐control practices by farm households. High transactions costs and negative distributional impacts on the welfare of the poor limit the usefulness of standards and taxes for soil and water conservation. One innovative approach is the use of interlinked contracts which create positive incentives for land conservation. This study analyses the social efficiency of such policies for erosion‐control in the Ethiopian highlands using a non‐separable farm household model. Incentive contracts linked with conservation seem to be promising approaches for sustainable resource use in poor rural economies. This may suggest that conservation programs should give greater consideration to better fine‐tuning and mix of policies that help achieve both economic and environmental objectives.     

Deprived land-use intensification in shifting cultivation: the population pressure hypothesis revisited

This article provides a theoretical framework, based on optimal control theory, to analyze farm households' land‐use intensification decisions in forest‐based shifting cultivation (slash‐and‐burn) agroecosystems. The main results from the analysis generally coincide with the “Population Pressure Hypothesis” (PPH) as an important driver of soil degradation due to the so‐called “fallow crisis” or “deprived land‐use intensification” in shifting cultivation. However, the model also shows, from a supply perspective, that such a vicious circle of lower yields and greater forest land clearing may be avoided when the production elasticity of on‐farm labor outweighs the elasticity of substitution between farm labor and soil fertility. Furthermore, using data from shifting cultivating households from Yucatán, Mexico, we calibrate the effect of changes in population density. The numerical analysis suggests that by contrast to better‐off households, when population density increases, poorer shifting cultivating households' optimal labor allocation strategy is to further extensify land use by clearing more forest in the village common property land, or ejido land.     

村集体在建立规模化家庭农场结构中的角色作用

文章基于土地流转背景下,以吉登斯的结构化理论为基础,构建以家庭农场主、土地流出户、村集体、地方政府为行动者的家庭农场结构,探讨在地方政府的引导与监督下,村集体与家庭农场主、土地流出户利益博弈的过程。分析村集体为了实现集体资产的保值增值,与家庭农场结构产生互动。村集体的行为既受到外部政策制度方面的约束,又受到内部管理自主性的约束;村集体通过自己的能动性反作用于家庭农场结构,最大限度地弥补外部政策制度的缺失,通过自己的实践经验突破家庭农场结构的内部制约。促使家庭农场结构不断改变,产生新的规则与资源,再形成新的结构,并在实践中接受新的调整与改变,经历新结构化过程,保持着动态的变迁。在与家庭农场结构的互动过程中,村集体发挥着沟通协调、经营协助、中介桥梁、引导服务等角色作用,实现农村集体经济的健康发展。同时促进家庭农场结构中各行动者利益的实现。     

Exploring land use changes and the role of palm oil production in Indonesia and Malaysia

This study compiles and analyses national-level data on land use change (LUC) and its causes in Indonesia and Malaysia over the past 30 years. The study also explores the role that palm oil has played in past LUC and that projected growth in palm oil production may play in LUC until 2020 and suggests strategies to minimize negative effects. Data collection for the study revealed that the quality and quantity of data on LUC on a national scale over time are low. Despite these uncertainties, the overview of past LUC indicates that large changes in land use have occurred in Indonesia and Malaysia. In Indonesia, LUC can primarily be characterized by forest cover loss on 40 million ha (Mha) of land, a 30% reduction in forest land. Deforestation in Malaysia has been smaller in both absolute and relative terms, with a forest cover loss of nearly 5 Mha (20% reduction in forest land). Other large changes in Malaysia occurred in permanent cropland (excluding oil palm), which has decreased rapidly since the early 1990s, and in land under oil palm cultivation, which experienced a sharp increase. Projections of additional land demand for palm oil production in 2020 range from 1 to 28 Mha in Indonesia. The demand can be met to a large extent by degraded land if no further deforestation is assumed. In Malaysia, expansion projections range from 0.06 to 5 Mha, but only the lowest projection of oil palm expansion is feasible when only degraded land may be used. The role of palm oil production in future LUC depends on the size of the projected expansion as well as agricultural management factors such as implementation of best management practices, earlier replanting with higher yielding plants, and establishment of new plantations on degraded land. The current use of degraded land needs to be investigated in order to reduce possible indirect LUC, land tenure conflicts, or other social impacts. In addition to minimizing direct and indirect LUC by the palm oil sector, measures that reduce deforestation triggered by other causes must also be implemented. A key element for doing so is better planning and governance of land use, which entails more appropriate demarcation of forest land and protection of land that still has forest cover, improved monitoring of land use, and more research to uncover the complexities and dynamics of the causes and drivers of LUC.     

Factors influencing the use of alternative land cultivation technologies in Swaziland: Implications for smallholder farming on customary Swazi Nation Land

Poor land preparation and late planting are among the factors responsible for the decline in food production on customary Swazi Nation Land (SNL). While efforts are being made to develop an improved national land cultivation programme, this process can be helped by identifying factors that influence farmers to use alternative technologies for land cultivation. Using cross-section data collected in 2009 from a random sample of 210 farmers in Komati, three land cultivation technologies were identified; (i) use of tractors; (ii) use of draught animals; and (iii) use of hand hoes. For a country like Swaziland where human health problems, particularly HIV/AIDS, make manual labour a scarce resource, the use of tractors is regarded as a modern technology that can achieve time and labour savings. The empirical evidence from this study indicates that the use of tractors is significantly influenced by household wealth and size of arable land used by households. However, given that land holdings on customary land are generally small, sparsely distributed and often fragmented, tractor hire service providers face relatively high overhead and transaction costs. Furthermore, investment in mechanised farming by individual SNL households is constrained by the lack of secure tenure. Given these challenges, this study makes recommendations for creating an enabling environment that could promote the adoption of improved land cultivation methods by smallholders on customary SNL.     

Which smallholders are willing to adopt Acacia mangium under long-term contracts? Evidence from a choice experiment study in Indonesia

Smallholder ownership of forests has grown rapidly over the last 25 years, leading to global forest transition; however, incentives are required to keep smallholders growing trees under long-term afforestation contracts. This article reports on smallholders’ willingness to join afforestation programs, growing Acacia mangium under contract on their private farmland. In a Choice Experiment, we examine the effects of policy attributes of afforestation contracts, including contract duration, labour participation, timber insurance, training opportunities, road improvement, and expected income. We report the marginal value of changes in monetary terms. A scale-extended latent class model was used to analyse preference heterogeneity in data of 323 smallholders from three different regions in Indonesia (West Kalimantan, Yogyakarta, and South Sumatera). These regions are at different forest transition stages. Our results indicate that there are four latent preference classes, which value attributes of the contract differently. Individual characteristics (risk orientation, tree growing experiences, and occupation), and regional differences explain the probability of preference class membership. Our findings have important implications for enhancing afforestation strategies that improve social welfare of smallholders in various forest transition stages.