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| Title: | Contract Farming in Africa: An Application of the New Institutional Economics |
| Author: | Grosh, Barbara |
| Year: | 1994 |
| Periodical: | Journal of African Economies |
| Volume: | 3 |
| Issue: | 2 |
| Period: | October |
| Pages: | 231-261 |
| Language: | English |
| Geographic terms: | Africa Kenya |
| Subjects: | contract farming Economics and Trade Agriculture, Natural Resources and the Environment Development and Technology |
| External link: | https://jae.oxfordjournals.org/content/3/2/231.full.pdf |
| Abstract: | Contract farming, which is characterized by a contract between a farmer and a firm that will process and/or market the farmer's crop, is a growing phenomenon in Africa. This paper first provides background information on the nature and scope of contract farming in Africa and on how it has been viewed by social scientists. Using the New Institutional Economics, which compares the advantages of alternative forms of governance (e.g. spot markets, contracting and vertically integrated plantation culture in this case), it then discusses ways in which contracting overcomes several market failures common in African agriculture. However, contracting would have disadvantages in some situations, and carries a potential for abuse. The author outlines the conditions that make contracting the preferred form of market organization, as well as conditions under which it should not be encouraged. She focuses on the experience of contract farming in Kenya, where contract farming is used most heavily, and is facilitated by a number of parastatal processing firms (such as the Kenya Tea Development Authority) which utilize contracts. She concludes that in the face of a range of market failures, contract farming has the potential to provide a Pareto-improving form of governance, and can be used to increase the income available to the rural sector. Bibliogr., notes, ref., sum. |
