Effects of Contract Farming on Small-Holder Soybean Farmers’ Income in the Eastern Corridor of the Northern Region, Ghana

Abstract

Contract farming is a form of vertical coordination largely aimed at correcting the market failure associated with spot markets that arise due to imperfect information. While some studies have argued that contract farming improves access to ready markets by smallholder farmers, other studies have suggested that contract farming lowers the incomes of smallholder farmers because the contractors wield greater market power over the farmers. In Ghana there has been few or no work carried out in this area to ascertain whether it is beneficial to farmers or not. This study assesses the effects of contract farming on small-holder soybean farmers’ incomes in the Eastern corridor of the Northern Region, Ghana. The specific objectives were: to identify the factors influencing farmers’ participation in contract farming; to identify the determinants of income of soybean farmers in the region and finally to determine whether contract farming enhances farmers’ income compared to non-contract farming. The treatment effects model was used for the analysis. A sample size of 340 soybean farmers (contract and non-contract) was used in the study. Estimation of the effect of contract farming on income shows that participation in contract farming does not necessarily improve small-holder farmers’ income. Factors influencing farmers’ participation in contract farming, the conclusion is that; accesses to ready market, credit and extension service positively affect participation. The study recommended among others that companies or firms should permit farmers to make a percentage of sales on an extra-contractual basis when prices of soybeans rise this will enable farmers to benefit when prices are at its peak and contractual arrangements should be flexible and allow for the renegotiation of contracts when there are significant changes in market conditions.

Keywords: Contract farming, Contractual arrangement, Smallholder farmer, Income