Contract Farming and Rural Transformation: Evidence from a Field - - PowerPoint PPT Presentation

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Contract Farming and Rural Transformation: Evidence from a Field - - PowerPoint PPT Presentation

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Contract Farming and Rural Transformation: Evidence from a Field Experiment in Benin Aminou Arouna a Jeffrey D. Michler b Jourdain C. Lokossou c a Africa Rice Center (AfricaRice) b Department of Agricultural & Resource Economics, University of

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Contract Farming and Rural Transformation: Evidence from a Field Experiment in Benin

Aminou Arounaa Jeffrey D. Michlerb Jourdain C. Lokossouc

aAfrica Rice Center (AfricaRice) bDepartment of Agricultural & Resource Economics, University of Arizona cInternational Crops Research Institute for the Semi-Arid Tropics (ICRISAT)

CSAE Conference, Oxford, 17-9 March, 2019

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Introduction

Rural Transformation

◮ The process of development is defined by structural transformation (Lewis, 1954) ◮ Requires a transition from subsistence to commercial agriculture (Collier & Dercon, 2014) ◮ Commercialization entails:

◮ Increased farm size ◮ Increased productivity ◮ Increased market participation

◮ Should result in greater income for (surviving) farmers

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Introduction

Production Constraints

◮ Farmers face numerous production constraints that limit their ability to commercialize

◮ Lack access to credit (Berg, 2013; Stephens & Barrett, 2011) ◮ Produce below the production frontier (Hanna et al., 2014; Sherlund et al., 2002) ◮ Face price uncertainty due to limited access to output markets (de Janvry et al., 1991; LaFave & Thomas, 2016)

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Introduction

Contract Farming

◮ Vertical coordination between producer and processor

◮ Integrates farmer into the market ◮ Shifts price risk and capital expenses to processor

◮ Production contracts have become a popular mechanism

◮ Barrett et al. (2012), Bellemare & Bloem (2018), and Ton et al. (2018) review literature ◮ Maertens & Vande Velde (2017) in Benin

◮ To date, almost no RCT evidence on impact of contract farming

◮ Ashraf et al. (2009) - failed export crops scheme

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Introduction

Research Questions

  • 1. What is the impact of contract farming on...

1.1 Rice area planted (ha)? 1.2 Productivity (kg/ha)? 1.3 Market participation (% of rice sold)? 1.4 Rice income per capita (USD)?

  • 2. Which contract attributes are most effective at reducing risk and easing constraints?

2.1 Price guarantee 2.2 Technical assistance 2.3 Input loans

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Study Design

Study Location

◮ Entreprises de Services et Organisations de Producteurs de Bante (ESOP) ◮ Included 953 rice farmers in Benin ◮ Organized into 107 farmer groups (∼ 8 per group) ◮ Baseline in 2016 ◮ Randomization and contract signing mid 2016 ◮ Endline in early 2017

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Study Design

Contracts

◮ Treatment 1 (T1)

◮ Sets price ($0.27 kg) and quantity ◮ Rice variety (IR841) ◮ Date and location of collection

◮ Treatment 2 (T2)

◮ Everything in T1 ◮ Plus 3-5 visits from ESOP extension agents ◮ Provide direction on production decisions

◮ Treatment 3 (T3)

◮ Everything in T1 and T2 ◮ Plus input loans ◮ ∼ 45 kg of IR841 ◮ ∼ 150 kg of fertilizer

◮ Control (C)

◮ No contract

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Study Design

Experimental Design

Farm Households (n = 855) Treatment (n = 635) T1 (n = 114) ∼ 0.2 T2 (n = 252) ∼ 0.4 T3 (n = 269) ∼ 0.4 ∼ 0.75 Pure Control (n = 220) ∼ 0.25

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Study Design

Contracts

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Study Design

Balance Test

[T1-C] [T2-C] [T3-C] [T2-T1] [T3-T2] [T3-T1] Household size −0.888 −0.366 −0.142 0.523 0.224 0.747 (0.689) (0.546) (0.613) (0.804) (0.722) (0.846) Age of HoH (years) 1.647 0.969 −0.815 −0.678 −1.784 −2.462 (1.394) (1.147) (1.110) (1.572) (1.290) (1.541) Male HoH (=1) 0.077 −0.076 0.027 −0.152 0.103 −0.049 (0.080) (0.071) (0.063) (0.086) (0.067) (0.079) Experience (years) −0.327 1.582 −0.214 1.909 −1.796 0.113 (1.250) (0.840) (0.657) (1.467) (0.997) (1.364) Primary Edu (=1) −0.017 0.009 −0.021 0.027 −0.030 −0.004 (0.032) (0.024) (0.025) (0.031) (0.024) (0.030) Farming household (=1) 0.029 −0.005 0.000 −0.035 0.006 −0.029 (0.036) (0.031) (0.032) (0.040) (0.035) (0.040) Training in rice (=1) −0.334*** 0.100 0.023 0.434*** −0.077 0.357*** (0.063) (0.084) (0.090) (0.091) (0.111) (0.095) Member of assoc. (=1) −0.047 0.008 0.006 0.055 −0.002 0.053 (0.034) (0.020) (0.016) (0.036) (0.020) (0.031)

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Study Design

Treatment Effect

Simple Mean Difference (SMD) yir = α + δSMDTi + Xirβ + ρr + ǫir Analysis of Covariance (ANCOVA) yir = α + δANCOVATi + µyir,pre + Xir,preβ + ρr + ǫir

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Study Design

Hypothesis Testing

◮ Cluster standard errors at farmer group level ◮ Multiple Hypothesis Testing

◮ Possible that significant results emerge due to chance, not actual treatment effects ◮ Bonferroni (1935) adjustment ◮ Holm (1979) adjustment ◮ List et al. (2018) step-wise correction ◮ Anderson (2008) sharpened q-values

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Results

Treatment Effects of Farming Contract

Rice area (ha) Productivity (kg/ha) Market participation (%) Rice income pc (USD) SMD ANCOVA SMD ANCOVA SMD ANCOVA SMD ANCOVA (1) (2) (3) (4) (5) (6) (7) (8) Treatment effect 0.179*** 0.178*** 480.2*** 472.5*** 34.79*** 34.83*** 139.6*** 139.2*** (0.057) (0.057) (106.2) (105.8) (2.433) (2.440) (32.05) (32.64) Ctrl Mean Dep. Var 0.772 1,652 24.96 60.70 Observations 855 855 855 855 855 855 855 855 R2 0.07 0.07 0.09 0.10 0.50 0.50 0.25 0.25 Arrondissement FE Yes Yes Yes Yes Yes Yes Yes Yes Household Covariates Yes Yes Yes Yes Yes Yes Yes Yes

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Results

Treatment Effects of Each Contract Characteristics

Bonferroni-adjusted p-values for Wald tests between coefficient estimates

Rice area (ha) Productivity (kg/ha) Market participation (%) Rice income pc (USD) SMD ANCOVA SMD ANCOVA SMD ANCOVA SMD ANCOVA (1) (2) (3) (4) (5) (6) (7) (8) Difference between T2 & T1 0.105 0.102 1.000 1.000 0.001*** 0.001*** 0.628 0.617 Difference between T3 & T1 1.000 1.000 1.000 1.000 0.000*** 0.000*** 0.013** 0.013** Difference between T3 & T2 0.009*** 0.008*** 0.286 0.283 0.000*** 0.000*** 0.000*** 0.000*** Observations 855 855 855 855 855 855 855 855 R2 0.08 0.08 0.10 0.10 0.55 0.55 0.29 0.29 Arrondissement FE Yes Yes Yes Yes Yes Yes Yes Yes Household Covariates Yes Yes Yes Yes Yes Yes Yes Yes

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Results

Differences Between Contract Characteristics

Price guarantee [T1-C] SMD ANCOVA Ctrl Mean Dep. Var Rice area 0.040 0.037 0.772 (0.095) (0.095) Productivity 455.2*** 447.3*** 1,652 (164.5) (161.6) Market participation 20.05*** 19.40*** 24.96 (2.844) (2.779) Rice income 55.92** 56.33** 60.70 (23.95) (24.74)

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Results

Differences Between Contract Characteristics

Extension training [T2-T1] SMD ANCOVA T1 Mean Dep. Var Rice area

  • 0.115**
  • 0.117**

1.008 (0.056) (0.056) Productivity

  • 110.6
  • 99.35

2,133 (110.6) (110.2) Market participation 8.949*** 8.729*** 51.13 (2.122) (2.117) Rice income

  • 22.21
  • 20.10

190.3 (22.32) (21.39)

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Results

Differences Between Contract Characteristics

Input loans [T3-T2] SMD ANCOVA T2 Mean Dep. Var Rice area 0.129*** 0.132*** 0.904 (0.040) (0.040) Productivity 160.1** 155.9** 2,036 (79.68) (76.92) Market participation 10.86*** 10.88*** 57.25 (1.637) (1.634) Rice income 106.1*** 106.1*** 146.5 (18.83) (18.85)

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Results

Differences Between Contract Characteristics

Extension & loans [T3-T1] SMD ANCOVA T1 Mean Dep. Var Rice area 0.023 0.023 1.008 (0.048) (0.049) Productivity 112.7 109.4 2,133 (108.9) (106.8) Market participation 16.75*** 16.40*** 51.13 (2.072) (1.994) Rice income 90.78*** 92.22*** 190.3 (24.85) (25.34)

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Conclusions

Conclusions

  • 1. What is the impact of contract farming on...

1.1 Farm size (ha)? Positive 1.2 Productivity (kg/ha)? Positive 1.3 Market participation (% of rice sold)? Positive 1.4 Rice income per capita (USD)? Positive

  • 2. Which contract attributes are most effective at reducing risk and easing constraints?

2.1 Price guarantee Large 2.2 Extension training Little to none 2.3 Input loans Large

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Conclusions

Implications

◮ Contracts with extension services appear to generate little to no value for farmers, under-performing the other contracts ◮ Contracts that provide input loans typically have the largest positive effect, especially in terms of income ◮ But contracts with just a price guarantee frequently produce results indistinguishable from contracts with input loans ◮ Appears that once farmers are insulated from price risk, they can solve their capital constraints and reduce their technical inefficiency ◮ Processors can potentially greatly reduce their operating costs by just offering contracts with a guaranteed price

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