IMPACT OF CONTRACT FARMING ON MAIZE FARM HOUSEHOLDS’ WELFARE IN THE NORTHERN REGION OF GHANA

Abstract

A producer and a buyer enter into a two-party contract when they practice contract farming. A buyer commits to purchasing output from a producer at a predetermined price, quality and timing (Bellemare & Bloem, 2018). In many nations around the globe, contract farming is used to link smallholders’ farmers to profitable markets for higher incomes and better living conditions (Barrett et al., 2012). Early in the nineteenth century, the North American agricultural sector saw the introduction of contract farming, which later expanded to developing nations in the 1960s. Their initial focus was on cash crops but later diversified to cover non-cash crops (Watts, 1994). Contract farming emerged on the African continent as part of the current trend of nationalization of developing countries agriculture sectors. And as a result, international businesses are looking for alternatives to direct ownership of farms in developing nations (Minot, 2011). Contract farming emerged in sub-Saharan Africa to support development of agriculture through technology transfer from developed countries to less developed African agricultural sector (FAO, 2001). Furthermore, contract farming was implemented to aid African nations in achieving food security and eradicating poverty because it has the potential to raise farmers’ revenue (Warning & Key, 2002). Contract farming is greatly considered as a fundamental mechanism for growing employment and productiveness, increasing global food security, improving social welfare, improving technology and in improving food quality. It is a strategy to assist farmers to overcome multiple production and marketing constraints like lack of finance, crop insurance, insufficient access to inputs, low market premium for produce, and lack of technical and managerial skills in handling business. Contract farming also helps in risk management, macroeconomic stability, improve producer livelihood, and overcome market failures. In many developing nations, contract farming has lately gained popularity as a means to support the coordination of the agricultural supply chain (Mishra et al., 2018). Contract farming helps assist smallholder farmers in becoming more integrated into recently emerging value networks, which are thought to be a key factor in rural development and the reduction of poverty (Bellemare & Bloem, 2018; Otsuka et al., 2016). Similarly, a vast body of literatures has explored the effects of contract farming on smallholder incomes (Andersson et al., 2015; Bellemare, 2012; Maertens & Swinnen, 2009; Maertens & Vande Velde, 2017; Rao & Qaim, 2011; Ruml et al., 2020; Wang et al., 2014). When the impact of contract farming on food security were examined, it was discovered that contract farming helps smallholder householder households in Madagascar experience less hunger for shorter periods of time (Bellemare & Novak, 2017). Also, Mishra et al. (2018) found that contract onions farmers in India spend more on food than comparable household without contracts. According to Soullier & Moustier (2018), Senegal’s rice deal reduces price seasonality, enhancing food security. However, the recent rise in contract farming has sparked intense discussion about the welfare and financial advantages it offers smallholders, necessitating a number of studies on the topic (Warning & Key 2002). Furthermore, contract farming has been challenged as a method for businesses to abuse unequal power relationships with farmers. Contract farming allow large agricultural businesses to take advantage of less expensive labour in rural communities therefore transferring their risk to farmers. Smallholders may be overlooked because businesses prefer to work with large farmers, aggravating inequality for small and marginal farmers in rural areas. Furthermore, a contract farming with input provision and fixed price may be view as a bad contract farming because it restricts farmers access to better source of improved certified seed, fertilizer, loan, technical assistance and the liberty to sell in other markets where they will get higher price and revenue. Similarly, other studies contend that the advent of contract farming in sub Saharan Africa was as a result of the profit potential for contracting businesses in the continent. According to Rehber (2007), businesses buy agricultural products at low prices, process them, and sell them at higher prices. However, the purpose of the research is to investigate the factors that determines farmers’ participation in contract farming, the effects of contract farming on household welfare and challenges that farmers in Ghana’s northern region experience when engaging in contract farming.