Smallholder Farmers' Dissatisfaction with Contract Schemes in Spite of Economic Benefits: Issues of Mistrust and Lack of Transparency

Abstract

Contract farming is typically seen as a useful mechanism to help smallholders in overcoming market access constraints. However, in spite of economic benefits, high smallholder dropout rates from contract schemes are commonplace. We use quantitative and qualitative data from Ghana to show that smallholder farmers benefit from a resource-providing contract in terms of higher yields and incomes, but that most of them still regret their decision to participate in the contract scheme and would prefer to exit if they could. The analysis underlines that research focusing on narrowly defined economic indicators alone cannot explain farmers' satisfaction with contracts and their dropout behaviour. The main problem in the contract scheme is insufficient information provided by the company. Farmers do not understand all the contract details, which leads to substantial mistrust. Farmers believe that the company behaves opportunistically, for instance during the output weighing procedure, and these beliefs are significantly correlated with the farmers’ wish to exit. We conclude that issues of mistrust and lack of transparency can contribute to breakdowns of smallholder contract schemes and that such issues should receive more attention in future research on contract farming.