Contract-farming in Staple Food Chains: The Case of Rice in Benin

Abstract

Abstract In this paper, we analyze the impact of smallholder participation in a contract-farming scheme in the rice sector in Benin. We use data from a cross-sectional farm-household survey and different propensity score matching estimations to reveal how participation in a contract-farming scheme affects smallholder rice production. We find that contract-farming results in expansion of the rice area, intensification of rice production, increased commercialization of rice, and higher farm-gate prices, and ultimately contributes to rice output growth and increased income. Our findings imply that contract-farming can contribute to upgrading the rice supply chain and the development of the rice sector in Benin. Promoting and supporting the spread of contract-farming schemes in the sector might be an effective way to contribute to reaching the government goals of expanding rice production to become self-sufficient and improving rice quality to compete with imported rice. While there is a large empirical literature on contract-farming in high-value and commodity export sectors, studies on contract-farming in staple food sectors are very scarce. Our results document that contract-farming for staple food crops can be sustainable and benefit smallholder farmers; which is against theoretical expectations that contracting for staple food crops is not feasible because of contract-enforcement problems that stem from a low value of produce, low storage and transport costs, and a larger number of buyers in the chain. Our study contributes to understanding the role that contract-farming might play in the much needed upgrading of domestic and staple food crop sectors in developing countries.