Impacts of Contract Farming on the Income and Output of Smallholder Coffee Farmers: The Case of Oromia Region, Jimma Zone, and Limmu Sekka Wereda

Abstract

Contract farming is a form of vertical coordination primarily aimed at improving the productivity and income of smallholder farmers. However, the empirical evidence that the economic and social benefits of this type of agriculture for smallholder farmers are mixed and questionable. Therefore, this study was conducted to evaluate the impact of contract farming on the income and output of small-scale coffee growers. Both descriptive statistics and propensity score matching were used to analyze the data. The study's findings show that the contract farming program has resulted in a significant increase in coffee income and average productivity of households engaged in contract farming. The results show that access to credit, access to training and land used for coffee production significantly influence household participation in contract farming. Contrary to our expectations, access to extension did not have a significant impact on household participation in contract farming. The distance to market of the control group was slightly shorter than that of the treated group. We conclude that the contracting company needs more work to improve these two important variables.