Logistic Analysis of Factors Motivating Smallholder Farmers To Engage In Contract Farming Arrangements With Processing Firms In Ghana

Abstract

Contract farming can be viewed as an embedded marketing and financial service mechanism employed by agribusinesses in developing countries to minimize input-output market imperfections particularly between producers and processors. Most smallholder farmers often do not have access to high end markets due to poor resources, lack of capacity and quality constraints. On the other hand, agri-food processing firms require consistent and reliable supply of adequate amounts and quality raw materials in a timely fashion to meet consumer demand. This underlying paradox has given rise to the study, which focuses on the contract relationship between smallholder farmers and fruit processing firms in Ghana. The study sought to analyze the factors that influence farmers to enter into contracts with processors. A logit model was used to analyze the factors that motivated/influenced smallholder farmers to enter into contracts with processing firms in Ghana. Both random and purposive sampling technique was used to select 140 smallholder farmers (contract and non-contract) from three major horticulture growing belts in Ghana. A Friedmans Test ranking showed that the key considerations for farmers to engage in contracts initially were type of crop produced, credit support and production experience whiles the need for assured markets and guaranteed price influenced their continued participation in contracts. The logit analysis indicated that farmers who cultivated small plots of land, had access to labor, and whose farms were further away from the firm were more likely to enter into contract arrangements with processing firms.

Key Words: Smallholder Farmers, Processors, Contract Farming, Motivation.