Abstract
Contract farming has often been associated with an increase in the income of participating households. It is unclear, however, whether contract farming increases other aspects of household welfare. We use data from six regions of Madagascar and a selection-on-observables design in which we control for a household’s marginal utility of participating in contract farming, which we elicited via a contingent valuation experiment, to show that participating in contract farming reduces the duration of a household’s hungry season by about eight days on average. Moreover, participation in contract farming makes participating households about 18% more likely to see their hungry season end at any time. Further, we find that these effects are more pronounced for households with more children, and for households with more girls. This is an important result as children—especially girls—often bear the burden of food insecurity. Key words: Contract farming, outgrower schemes, grower-processor contracts, agricultural value chains, food security. JEL codes: L24, 013, O14, Q12.
Generated Summary
This study investigates the impact of contract farming on food security, specifically focusing on the reported duration of the hungry season experienced by households in Madagascar. The research employs a selection-on-observables design, utilizing data from six regions and a contingent valuation experiment to control for households’ marginal utility of participating in contract farming. The methodology involves ordinary least squares (OLS) and duration models, along with propensity score matching (PSM) to assess the robustness of the findings. The core equation estimates the effect of contract farming participation on the reported duration of the hungry season, controlling for various factors and utilizing willingness to pay (WTP) data to address potential endogeneity. The analysis also explores treatment heterogeneity, examining whether the effects vary based on the number and gender of children in the household. The study’s scope is limited to the context of Malagasy agriculture, focusing on how contract farming affects the length of the hungry season, a key indicator of food insecurity.
Key Findings & Statistics
- The average reported duration of the hungry season for households not participating in contract farming is 3.7 months, while for those participating, it is 3.3 months.
- Approximately half of the surveyed households participate in contract farming.
- The average household size in the sample is between five and six individuals.
- The dependency ratio is 0.452 for non-participants and 0.446 for participants.
- The average household head is 43 years old, with 6 years of education, and over 20 years of agricultural experience.
- Nearly 30% of household heads are members of a farm organization.
- Average annual household income is approximately $968.
- Contract farming participants have an income about 65% higher than non-participants.
- The value of agricultural equipment and tools owned by contract farming participants is about twice as much as non-participants.
- The average reported duration of the hungry season decreases by approximately eight days (0.28 months) for the average household in the data.
- Participation in contract farming increases the likelihood that a household’s hungry season will end at any given time by about 18%.
- Female-headed households experience hungry seasons that are about three weeks longer.
- Households with more children experience a greater reduction in the duration of the hungry season. For every child, the duration decreases by about six days.
- The likelihood of exiting the hungry season increases by 6% and 7% for households with more children.
- Households with more girls see a greater reduction in the duration of the hungry season; it decreases by about one week for every girl.
- The likelihood of exiting the hungry season increases by 12% and 14% for households with more girls.
- In OLS regression, the coefficient on the contract farming dummy is -0.277, suggesting an eight-day decrease in the hungry season.
- In Cox proportional hazards and survival time regression, the hazard ratio is 0.166 (17%) and 0.188 (19%), suggesting that participation in contract farming makes households more likely to exit the hungry season.
- In the OLS specification, the WTP dummies are jointly significant.
- The ATE ranges from -0.127 to -0.272, representing a reduction in the length of the hungry season by four to eight days.
- The ATT ranges from -0.194 to -0.305, indicating a reduction in the length of the hungry season by six to nine days.
Other Important Findings
- The beneficial effects of participation in contract farming are more pronounced for households with more children, especially girls, who often bear the burden of food insecurity.
- The study found that participation in contract farming is associated with greater decreases in the reported duration of the hungry season the more children there are in the household.
- The benefits of contract farming on food security are especially pronounced for households with more kids of either gender and more elderly women.
- The study suggests that policies that lower barriers to entering contract farming agreements for households with children, and particularly girls, may lead to big gains in terms of food security.
Limitations Noted in the Document
- The study’s internal validity is limited by the reliance on the identification strategy, which, while robust to various specifications, is based on observational data.
- The study only measures one aspect of food insecurity: the reported length of time during which at least one household member goes without eating three meals a day.
- The results are specific to the context of Madagascar and may not be generalizable to other regions or crops.
- The study acknowledges that responses to the WTP experiment may not perfectly capture respondents’ actual willingness to participate in contract farming.
- The analysis relies on a selection-on-observables design, which is an assumption that is untestable.
- The study’s reliance on a single measure of food insecurity limits the scope of the findings.
Conclusion
The research underscores the potential of contract farming to improve food security in the context of Madagascar, revealing that participation in contract farming is associated with a reduction in the length of the hungry season and an increased likelihood of households exiting the hungry season. “Our results show that participation in contract farming is associated with a reduction in the reported duration of the hungry season by about eight days for the average household, and that it increases the likelihood that a household will exit the hungry season at any point in time by about 18%, on average.” The findings highlight that these effects are more pronounced for households with more children, especially girls, suggesting that policies aimed at reducing barriers to contract farming for these households could yield significant improvements in food security. The study’s reliance on observational data and a single measure of food insecurity, however, warrants caution in interpreting the results as a definitive causal relationship. The authors acknowledge that their identification strategy is limited. Moreover, the study’s focus on a single aspect of food insecurity, the reported duration of the hungry season, also limits the scope of the conclusions, and suggest further research on the impact of agricultural value chains on nutrition and food security. Despite these limitations, the research offers insights into the role of contract farming in addressing food insecurity, particularly in vulnerable populations. “From a policy perspective, our findings suggest that policies that facilitate the development of agricultural value chains, beyond their direct welfarist effect on the incomes of those who participate as growers, can also have indirect nonwelfarist effects on those same growers’ food security.”