Who gets supply contracts and how do they impact suppliers? The case of small chickpea growers in Ethiopia’s Oromia region

Abstract

Contract farming, a form of vertical coordination between an agribusiness firm and farmers, has considerable potential for integrating smallholders into value chains. However, questions have been asked about its impact on smallholders, particularly the poorest. This study examined these aspects of a contract farming arrangement (CFA) between a chickpea processing firm and a farmers’ cooperative union in central Ethiopia. A random sample of 95 growers was drawn from a list of participating farmers. In addition, a representative sample of 114 households was drawn from seven counties where the CFA was active. A subset of non-participating households with characteristics similar to those participating in the CFA was identified as a control group using propensity scores predicted by a logit model. The logit model indicated that the CFA was biased against farmers who were relatively poor, risk averse and who lacked farming skills and experience. However, there was no evidence that participation was influenced by gender, education, farm size or household labour endowments. Univariate comparisons revealed significant differences in key outcomes between participants and households in the control group. A multivariate ‘treatment’ model estimated to isolate the impact of the CFA found that participation had a substantial positive impact on household cash revenue (USD183/adult equivalent) and net cash income (USD171/adult equivalent) earned from crop production. Participants attributed increases in net income to improved seed, a guaranteed market with a stable price, and higher levels of output. Descriptive analysis of other perceived outcomes suggested that participants also benefitted from improved food security and better access to technology, advice, preferred markets, credit and social networks.