Contracting out of poverty: Experimental approaches to innovation in agricultural markets with small farmers

Torero, Máximo; Hill, Ruth Vargas; Viceisza, Angelino

Contracting out of poverty: Experimental approaches to innovation in agricultural markets with small farmers

Autores

Torero, Máximo

Hill, Ruth Vargas

Viceisza, Angelino

Editor

International Food Policy Research Institute

Descripción

Poor, rural farmers are often left out of the market. 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 the inability of small farmers to exploit economies-of-scale in production and to their inability to commit to a contract. Although contract farming has proven to be an effective way of integrating farmers into domestic and international markets, its benefits have gone mainly to medium-sized and relatively more educated farmers. The reasons why smaller and less educated farmers have been excluded from contract farming include size limitations and fixed costs, the significant monitoring costs needed to reduce the probability of small farmers reneging on their contracts, and the limited power of small farmers in contract enforcement, which may limit small farmers’ ability to invest in such arrangements or benefit from them. While for technological barriers to contract farming are real and important, it is also crucial to highlight evidence which shows that incentives-based problems are partially responsible for the failure of contract farming.