The Implications of Contract Farming for Smallholder Households in Uganda

Abstract

Poverty is prevalent in the small-farm sector of many Sub-Saharan African countries, and agricultural productivity in the region has continued to dwindle. A large literature suggests that contract farming – a preharvest agreement between farmers and buyers – can facilitate market participation, improve household welfare, and promote rural development. These findings have influenced the development policy debate by suggesting contract farming as a possible route out of Africa’s well-advertised problem of agricultural stagnation and decline. This paper test this notion by exploring the implications of contract farming for smallholder households in Uganda. I focus on the implications of contract farming for household income, labor demand, and investment behavior, finding that contract farmers obtain higher incomes than their counterparts without contracts. Contract farmers also exhibit increased demand for hired labor, which suggests the contract farming stimulates employment, and are more likely to make beneficial investments in their farm or business. These findings provide evidence of the positive implications of contract farming for Ugandan smallholders, which is relevant to a wide range of policy debates concerning agricultural productivity and rural development in Uganda.