Virtual Research Seminar - Assessing Farmers’ and Buyers’ Preferences for Contracts – Insights from Cotton and Tea Contract Schemes in Malawi
Organized by IFPRI-Malawi
Date: Wednesday, August 19, 2020
Time: 02:00 pm - 03:30 pm (CAT)
Presenter slides and a blog will be available in the days following the event.
While contract farming provides opportunities to link smallholder farmers to markets, its sustainability depends on how the interests of both farmers and buyers are addressed. Previous studies analyzed farmers’ preferences for contracts, but buyers’ preferences for contracts and design attributes are hardly examined. A recent study by Dennis O. Ochieng from IFPRI-Malawi fills this gap by examining farmers’ and buyers’ preferences for contracts and design attributes using a discrete choice experiment with 505 cotton farmers and 512 tea farmers in southern Malawi. Willingness to pay for improvement of contract attributes is then estimated using a mixed logit model.
Results show that both farmers and buyers prefer contract arrangements to open marketing and have similar preferences for many design attributes. However, there are clear differences in preference for payment mode, where farmers prefer spot payments while buyers prefer delayed payments. Further, while both parties desire better quality, there are no standardized grading systems for the two crops in Malawi. Consequently, buyers are skeptical of farmers’ ability to produce quality products while farmers are distrustful of buyers’ grading systems. Even though buyers are open to offer contracts that provide inputs or insurance to farmers, there are no information sharing platforms to guide them in contracting farmers thus exposing buyers to risks of contract default.
Sustainable contract schemes require designing contracts that are acceptable to both farmers and buyers by balancing risks between the parties. Successful contract relationships must cultivate mutual trust by developing standardized grading systems and information sharing platforms, supported by stronger contract enforcement mechanisms to mitigate against side-selling.
Presenter
- Dennis O. Ochieng, Associate Research Fellow, IFPRI-Malawi
Moderator
- Bob Baulch, Program Leader, IFPRI-Malawi
