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Does the Contract Type Matter? Impact of Marketing and Production Contracts on Cashew Farmers’ Farm Performance in Ghana

Caroline Dubbert and Awudu Abdulai

Abstract

Many studies show that participation in contract farming has positive impacts on farm productivity and incomes. Most of the literature, however, does not take into account that contracts vary in their specifications, making empirical evidence scarce on the diverse impacts of different types of contracts. In this study, we investigate the driving forces of participation in marketing and production contracts, relative to spot markets. We also study the extent to which different contract types add additional benefits to smallholder farmers, using recent survey data of 389 cashew farmers in Ghana. To account for selection bias arising from observed and unobserved factors, we apply a multinomial endogenous switching regression method and implement a counterfactual analysis. The empirical results demonstrate that farmers who participate in production contracts obtain significantly higher cashew yields, cashew net revenues, and are more food secure compared to spot market farmers. We also find substantial heterogeneity in the impact of marketing and production contracts across scale of operation. Small sized farms that participate in production contracts tend to benefit the most. Marketing contracts, however, do not appear to benefit cashew farmers.

JEL codes: Q13; Q17; O13; C31

Corresponding author: Caroline Dubbert, MSc, Department of Food Economics and Consumption Studies, University of Kiel, Olshausenstraße 40, 24118 Kiel, Germany, E-mail:
Awudu Abdulai is Co-author.

Funding source: Foundation fiat panis

  1. Research funding: We are grateful for the funding of our field survey in Ghana provided by Foundation fiat panis. The funder had no role in study design, data collection, analysis, as well as decision to publish or preparation of the manuscript.

Appendix

A1:

Instrument validity test of farm radius and perception of contract farming.

BFG impact specifications chi2 P > chi2
First-stage
Contract types 27.81a 0.000
Second-stage
Cashew yields
Spot market 3.74 0.153
Marketing contract 5.87 0.053
Production contract 0.25 0.882
Farm net revenues
Spot market 1.75 0.416
Marketing contract 4.32 0.115
Production contract 0.75 0.686
Prices
Spot market 7.82 0.020
Marketing contract 3.32 0.190
Production contract 2.27 0.321
Hungry season
Spot market 1.12 0.571
Marketing contract 0.40 0.820
Production contract 1.09 0.580

  1. ameans significant at 1% level, respectively.

A2:

Impact of SM, MC, and PC on outcomes (BFG model).

Cashew yields Net revenues
SM MC PC SM MC PC
Age 0.010 (0.008) 0.107 (0.047) −0.012 (0.019) 0.015 (0.011) 0.050 (0.067) −0.021 (0.040)
Gender 0.223 (0.370) −4.294 (2.125) 0.297 (1.270) 0.015 (0.472) −2.053 (2.813) 0.053 (2.460)
Education 0.007 (0.029) 0.300 (0.153) −0.076 (0.080) 0.023 (0.040) 0.129 (0.267) −0.145 (0.104)
Farm size −0.430 (0.228) −0.053 (0.622) −1.630 (1.015) −0.380 (0.279) 0.951 (1.421) −0519 (1.337)
Property rights −0.002 (0.008) 0.011 (0.017) −0.026 (0.035) 0.001 (0.010) −0.014 (0.031) −0.024 (0.051)
Fertile soil 0.588b (0.228) −2.552 (1.226) 0.591 (0.884) 0.482 (0.290) −0.579 (2.340) 1.529 (1.274)
Market −0.045 (0.266) 2.123 (1.279) −0.114 (0.739) 0.017 (0.328) 0.785 (1.542) −0.306 (1.223)
Intercropping 0.268 (0.357) −3.970 (1.891) 0.082 (1.928) 0.571 (0.435) −1.183 (2.278) 1.716 (3.083)
Mobile phone 0.268 (0.426) −5.984 (2.560) 1.095 (1.165) 0.072 (0.575) −2.561 (3.654) 1.175 (1.798)
Motorbike 0.205 (0.326) −0.054 (0.989) −0.168 (1.713) 0.399 (0.375) 0.406 (1.125) 0.963 (2.472)
Off-farm work −0.250 (0.272) 0.212 (1.282) −0.232 (1.688) −0.322 (0.314) 0.104 (1.607) −1.084 (2.478)
Labor days 0.013 (0.008) 0.019 (0.024) −0.031 (0.032) 0.010 (0.010) 0.034 (0.048) −0.025 (0.049)
Nkoranza 1.101 (0.489) 0.055 (1.480) 0.639 (2.880) 1.007a (0.583) 1.028 (2.040) 2.728 (4.704)
Wenchi 1.511c (0.496) −4.587 (2.650) 1.502 (2.186) 1.320a (0.641) −0.102 (4.165) 3.493 (3.836)
Techiman 1.389c (0.458) −3.443 (2.271) 1.741 (2.098) 1.192b (0.542) −0.563 (3.309) 3.730 (3.445)
Access to credit −0.058 (0.169) 1.237 (0.825) 0.045 (0.602) 0.132 (0.238) 0.917 (1.195) 0.014 (0.891)
Extension service 0.491 (0.270) −2.378 (1.383) 0.591 (0.703) 0.459 (0.334) −0.745 (2.117) 1.280 (1.112)
Selection bias correction terms
m(P 1) −1.534 (0.966) −3.826 (4.433) 4.317 (5.131) −0.613 (1.313) 2.188 (7.430) 1.770 (7.231)
m(P 2) −4.774 (3.142) 2.237 (2.641) −8.068a (4.406) −1.920 (3.618) −1.732 (5.745) −12.652b (5.499)
m(P 3) −2.909 (2.441) −0.042 (2.358) −4.383 (4.075) −0.348 (2.994) 2.296 (4.253) −2.494 (6.128)
Constant 2.663c (1.050) 0.348 (6.578) 18.29 (15.006) 4.652c (1.376) 10.536 (11.870) 11.158 (22.666)
Prices Hungry season
SM MC PC SM MC PC
Age −0.001 (0.001) 0.003 (0.007) −0.004 (0.0049) −0.008 (0.016) 0.043 (0.061) −0.008 (0.034)
Gender 0.018 (0.033) −0.186 (0.246) 0.124 (0.239) −0.111 (0.604) −2.142 (2.507) 0.428 (1.800)
Education −0.002 (0.003) 0.017 (0.021) 0.008 (0.014) 0.020 (0.049) 0.095 (0.224) 0.106 (0.129)
Farm size 0.016 (0.023) 0.057 (0.115) −0.073 (0.159) −0.273 (0.300) −0.152 (1.220) −1.229 (1.280)
Property rights 0.000 (0.001) 0.002 (0.003) −0.003 (0.005) −0.001 (0.010) −0.002 (0.028) −0.036 (0.036)
Fertile soil 0.016 (0.026) −0.114 (0.204) −0.090 (0.142) −0.156 (0.400) −0.550 (2.042) −1.359 (1.380)
Market 0.014 (0.027) 0.114 (0.158) −0.111 (0.137) 0.219 (0.408) 1.090 (1.481) 0.221 (1.371)
Intercropping 0.021 (0.035) −0.146 (0.231) −0.153 (0.332) −0.551 (0.513) −1.589 (2.035) −2.789 (2.711)
Mobile phone −0.004 (0.040) −0.159 (0.329) 0.031 (0.256) −0.267 (0.673) −1.830 (3.092) −0.199 (1.667)
Motorbike 0.027 (0.031) −0.059 (0.112) −0.134 (0.280) −0.741b (0.513) −0.362 (0.936) −1.579 (2.316)
Off-farm work −0.029 (0.027) −0.029 (0.134) 0.168 (0.268) −0.057 (0.492) −0.003 (0.942) 1.300 (2.362)
Labor days 0.001 (0.001) −0.001 (0.005) −0.002 (0.005) −0.020 (0.014) 0.005 (0.040) −0.075 (0.046)
Nkoranza 0.057a (0.060) −0.097 (0.232) −0.383 (0.562) −0.888a (0.766) −0.375 (2.026) −4.257 (3.878)
Wenchi 0.057 (0.057) −0.299 (0.435) −0.291 (0.446) −1.505c (0.788) −3.174 (3.762) −4.943 (3.138)
Techiman 0.071b (0.048) −0.234 (0.289) −0.262 (0.453) −1.511c (0.711) −3.052 (2.938) −4.261 (2.998)
Access to credit −0.017 (0.020) 0.010 (0.124) 0.036 (0.094) 0.097 (0.330) 0.016 (1.228) −0.031 (0.852)
Extension service 0.018 (0.025) −0.080 (0.195) −0.054 (0.108) −0.167 (0.381) −1.495 (1.606) −0.406 (1.003)
Selection bias correction terms
m(P 1) 0.092 (0.092) −0.130 (0.919) 0.110 (0.865) −0.011 (1.293) 2.550 (7.024) 5.571 (6.974)
m(P 2) 0.053 (0.341) 0.317 (0.541) −0.562 (0.799) 1.423 (4.144) 1.688 (4.425) −1.919 (4.578)
m(P 3) 0.419 (0.255) −0.145 (0.490) −0.373 (0.736) −4.126 (3.778) 0.212 (4.492) −6.169 (4.912)
Constant 1.709c (0.122) 1.236 (0.898) 2.919 (1.723) 3.769b (1.825) 2.647 (10.612) 24.956 (13.135)

  1. m(P ij ) refers to the correction term described in Equations (3a)(3c). Bootstrapped standard errors in parentheses. n = 389, The reference district is Bole. SM, spot market; MC, marketing contract; PC, production contract, standard errors in parentheses. a, b and cmean significant at 10, 5, and 1% levels, respectively.

A3:

Ordered logit estimation for the duration of the hungry season by contract types (first-stage).

Duration of the hungry season
Coefficient Std. Err. z-Value
Age −0.013a 0.009 −1.71
Female headed HH −0.102 0.301 −0.34
Education −0.025 0.026 −0.98
Farm size −0.328a 0.198 −1.65
Property rights −0.001 0.005 −0.14
Fertile soil 0.279 0.201 1.39
Access to market 0.266 0.308 0.86
Intercropping −0.078 0.285 −0.27
Mobile phone 0.112 0.248 0.45
Motorbike −0.338 0.232 −1.46
Off-farm work −0.518a 0.320 −1.62
Labor days −0.002 0.001 −0.43
Nkoranza −0.217 0.410 −0.53
Wenchi −1.011b 0.413 −2.45
Techiman −1.405b 0.472 −2.98
Access to credit −0.326 0.255 −1.28
Extension service −0.028 0.222 −0.13
Marketing contract 0.409 0.312 1.31
Production contract −0.580a 0.313 −1.85
Number of observations 389
Wald chi2 (18) 151.18
Prob > chi2 0.000
Pseudo R2 0.0766
Log likelihood −462.328

  1. Base category is spot market. a, bmean significant at 10 and 1% levels, respectively.

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Received: 2020-12-14
Accepted: 2021-02-19
Published Online: 2021-03-04

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