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The Effectiveness of Contract Farming in Improving Smallholder Giel Ton Sam Desiere The effectiveness of contract Wyste Vellema farming in improving smallholder Sophia Weituschat income and food security in low- and Marijke D’Haese middle-income countries A mixed-method systematic review August 2017 Systematic Agriculture Review 38 About 3ie The International Initiative for Impact Evaluation (3ie) is an international grant-making NGO promoting evidence-informed development policies and programmes. We are the global leader in funding, producing and synthesising high-quality evidence of what works, for whom, how, why and at what cost. We believe that using better and policy-relevant evidence helps to make development more effective and improve people’s lives. 3ie systematic reviews 3ie systematic reviews appraise and synthesise the available high-quality evidence on the effectiveness of social and economic development interventions in low- and middle- income countries. These reviews follow scientifically recognised review methods, and are peer-reviewed and quality assured according to internationally accepted standards. 3ie is providing leadership in demonstrating rigorous and innovative review methodologies, such as using theory-based approaches suited to inform policy and programming in the dynamic contexts and challenges of low- and middle-income countries. About this review The effectiveness of contract farming in improving smallholder income and food security in low- and middle-income countries: a mixed-method systematic review, was submitted in partial fulfilment of the requirements of grant SR6.1088 awarded under Systematic Review Window 6. This review is available on the 3ie website. 3ie is publishing this technical report as received from the authors; it has been formatted to 3ie style, however the tables and figures have not been reformatted. 3ie will also publish a brief of this review, designed for use by decision makers, which is forthcoming. This review will also be published in the Campbell Collaboration Library and will be available here. All content is the sole responsibility of the authors and does not represent the opinions of 3ie, its donors or its board of commissioners. Any errors are also the sole responsibility of the authors. Comments or queries should be directed to the corresponding author, Giel Ton, [email protected] Funding for this systematic review was provided by 3ie’s donors, which include UK aid, the Bill & Melinda Gates Foundation, Hewlett Foundation and 16 other 3ie members that provide institutional support. Suggested citation: Ton, G, Desiere,S, Vellema, W, Weituschat, S and D’Haese, M 2017. The effectiveness of contract farming in improving smallholder income and food security in low- and middle-income countries: a mixed-method systematic review. 3ie Systematic Review 38. London: International Initiative for Impact Evaluation (3ie). 3ie systematic review executive editors: Edoardo Masset and Beryl Leach Production manager: Angel Kharya Assistant production manager: Akarsh Gupta Cover design: John F McGill and Akarsh Gupta © International Initiative for Impact Evaluation (3ie), 2017 The effectiveness of contract farming in improving smallholder income and food security in low- and middle-income countries: a mixed-method systematic review Giel Ton Wageningen Economic Research Sam Desiere Ghent University Wytse Vellema Ghent University Sophia Weituschat Wageningen University Marijke D’Haese Ghent University 3ie Systematic Review 38 August 2017 Plain language summary Contract farming is a sales arrangement between a farmer and a firm, agreed before production begins, which provides the farmer with resources or services. Many governments and donors promote contract farming as part of agricultural development policies. This systematic review analysed the evidence in the literature on income effects for smallholders. The review included all studies with an econometric design to reduce selection bias in effect estimates. The meta-analysis covered 26 empirical instances of contract farming in 13 developing countries. The contracts varied widely, with varying service packages provided by the firm to the farmers. When we consider these studies representative for enduring contract farming arrangements, the average income effect would be in the confidence interval of 23 to 54%. However, we show that this estimate is upward biased. We show that non- significant effects are systematically underreported in the literature. Moreover, all studies assessed the effectiveness of the contractual arrangement when these had already survived the start-up problems. Nevertheless, the findings point to the need for substantial income effects for contract farming arrangements to survive over time. Firms need to offer smallholders above-local market prices, especially in annual crops, and when no cooperative is involved as the intermediary between the firm and the farmers. The poorest farmers are rarely participating in contract farming arrangements; we show that, in 62% of the cases covered by the review, the contract farmers had significantly larger landholdings or more assets than the average farmers in the region. i Executive summary Background Contract farming is used by an increasing number of firms as a preferred modality to source products from smallholder farmers in low and middle-income countries. Quality requirements of consumers, economies of scale in production or land ownership rights are common incentives for firms to offer contractual arrangements to farmers. Prices and access to key technology, key inputs or support services are the main incentives for farmers to enter into these contracts. There is great heterogeneity in contract farming, with differences in contracts, farmers, products, buyers, and institutional environments. The focus of this review lies on contract farming, defined as: a contractual arrangement for a fixed term between a farmer and a firm, agreed verbally or in writing before production begins, which provides material or financial resources to the farmer and specifies one or more product or process requirements for agricultural production on land owned or controlled by the farmer, which gives the firm legal title to (most of) the crop or livestock — Adapted from Prowse, 2012:12 The last decade shows a rapid increase in studies that use quasi-experimental research designs to assess the effects of specific empirical instances of contract farming on smallholders. The objective of this systematic review was to distill generalised inferences from this rapidly growing body of evidence. Objectives The review synthesised the studies in order to answer two questions: • Question 1: What is known about the effect size of contract farming on income and food security of smallholder farmers in low- and middle-income countries? • Question 2: Under which enabling or limiting conditions are contract farming arrangements effective for improving income and food security of smallholders Search methods A comprehensive electronic search was applied to Scopus, CAB Abstracts, Econlit, Web of Science, Tropag & Rural, and Agricola between 30 September and 21 October 2015. Snowballing the reference list in review articles and other repositories of research (e.g. worldwidescience.org, FAO, World Bank, Google Scholar) added more studies to the review. The search results were uploaded in EPPI Reviewer 4 and screened for relevance and the rigour of analysis of the effect estimates, in order to combine these results in a meta-analysis of effectiveness. The main terms used to identify the pool of studies within which we expected to find studies that covered the effectiveness of contract farming arrangements were: contract farming, nucleus estate, cooperative, producer organisation, pre-harvest agreement, value chain, farm-firm, outgrower, and vertical integration. ii Selection criteria Each study selected for the meta-analysis was required to resolve the counterfactual, that is, to use a comparison group to mimic the expected situation of farmers not having a contract. When assessing net-effects, the characteristics of groups with or without a contract needed to be fairly similar. Ideally, the only difference was the condition of having a contract or not. Because firms tend to offer contracts to farmers having certain characteristics and farmers self-select when they accept or reject the offer, econometric methods are required to credibly assess the net-effects of contract farming. To be included in the review, studies needed to analyse the impact of the intervention on income or food security of smallholder farmers. However, only one study was found with food security as an outcome variable (Bellemare and Novak 2016); all other studies included focused on income effects. The review, therefore, has a focus on the income effects of contract farming and a meta-analysis explored this outcome. Data collection and analysis The electronic search retrieved 8,529 unique studies. After the full-text screening, 195 studies were found to present research on contract farming. We excluded all papers that did not study the effectiveness of contract farming. The remaining set of papers was referred to as the core set and consisted of 75 studies that presented quantitative outcomes on smallholder farmers. Of the 75 studies in the core set, most did not meet the criteria for methodological and econometric rigour and had to be excluded from the meta-analysis. The meta-analysis was based on data from 22 studies, covering 28 empirical instances of contract farming, two of which had insufficient
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