Contracting Out of Poverty: Experimental Approaches to Innovation in Agricultural Markets with Small Farmers

Abstract: This project is carried out jointly with the International Food Policy Research Institute (IFPRI) and other partners. Poor farmers are often left out of high-value markets for horticultural and livestock products. They may not be able to compete with larger farmers who can provide firms with consistent quantities of high-quality products. These barriers to entry for small farms may be due to the fact that they cannot exploit economies-of-scale in production, but also to their inability of a small farmer to commit to a contract. At the time of sale, if market prices are higher than contracted prices, farmers may renege and sell in the open market. This project suggests innovative contract structures to solve this problem and open markets to small farmers of high-value products in developing countries. These contract structures are implemented in a field setting under randomized conditions in Vietnam, Tanzania, and Peru. The contracts are applied in several rural communities selected through a typology of micro regions that also serve as a scaling up device of the results. The project will show which contract structures work under what conditions and will measure improvements to overall farmer welfare (income and poverty levels). The results will be applicable to contract farming in other developing countries as well.

Researchers involved: Christoph Sänger,Matin Qaim, Maximo Torero, Manfred Zeller, and other partners at IFPRI, University of Hohenheim, and other organizations

Funding: BMZ/GTZ through IFPRI