Contract farming and its effect on small farmers in less developed countries

Contract farming - agricultural production carried out according to an agreement between farmers and a buyer that places conditions on the production and marketing of a commodity - can relieve constraints felt by small farmers such as access to credit, TA, and inputs and the availability of markets. The paper begins with a review of the theory of contract production: the economic rationale for contracting and the conditions under which it is likely to arise. This discussion focuses on the problems of market coordination and the role of information. Second, a large body of literature on actual contract farming schemes is reviewed and patterns identified. This includes an overview of contract farming in the United States (where it accounts for 17% of crop and livestock production) and a comparision of schemes in Latin America, Africa, and Asia. The final section summarizes the paper"s theoretical and empirical results and provides some conclusions regarding the impact of contract farming on small farmers. It also advances a number of hypotheses for further research. Annexes include inventories of contract farming schemes in Africa, Asia, and Latin America, as well as a 6-page bibliography. (Author abstract, modified)