Economic impact of contract farming on income of smallholder farmers: case study of Paprika contract farming in Mbozi district,Tanzania
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Date
2011
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Publisher
Sokoine University of Agriculture
Abstract
This study provides empirical evidence on economic impact of contract farming on
the income of smallholder farmers of non traditional crops. Specifically it analyses
the requirements for farmers’ participation, factors that determine income and effect
of paprika contract farming on household income and identifies constraints and
prospects of contract farming. A cross section research design was adopted and a
purposeful sampling procedure was used to select villages and wards and a total of
150 farmers were selected randomly for interview. Using probit model, results show
that access to credit, livestock ownership, marital status and access to extension
services increase the probability of farmers’ participation in contract farming at
(p<0.05). Leadership, distance from the village office, household size and ownership
of irrigated land were found to have negative effect while land ownership, household
family labour, education level, and gender were found to have positive effect on
participation but not significant. The results confirm the hypothesis that households
with large endowment tend to participate in contract farming. Using Heckman model
and OLS estimation, the results also show that contract farming increased the average
income of smallholder farmers by TAS. 108 815 per annum per household and is
significant at (p<0.05). Results further show that cost of transport and production
costs had a negative effect on income from paprika farming and is significant at
(p<0.05). These results clearly show that contract farming has the potential of raising
smallholder farmers’ income. The study however recommends provision of inputs
subsidy, provision of extension services, creating a strong legal framework protecting
both farmers and contracting firms as important issues in order for smallholder
farmers to participate and benefit from contract farming. The study also recommends
to the government and NGOs to support formation of stronger farmers’ organizations
in order to improve their bargaining power.
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Keywords
Farming income, Smallholder farmers, Mbozi district, Tanzania, Contract farming