Event recap: Assessing Farmer's and Buyers' Preferences for Contracts: Insights from Cotton and Tea Contract Schemes in Malawi
IFPRI Malawi virtual research seminar presentation by Dennis O. Ochieng, August 19, 2020
While contract farming reduces market uncertainties, stabilizes prices and provides opportunities to link smallholder farmers to markets, its viability depends on how the preferences of both farmers and buying companies are addressed. On August 19, Dennis Ochieng, Research Fellow at IFPRI Malawi, presented the results of a recent study on contract preferences in cotton and tea schemes in southern Malawi. The study analyzed similarities and differences between farmers’ and companies’ preferences for contracts and design attributes as well as farmers’ willingness to accept contracts through a discrete choice experiment.
A multistage sampling procedure was used to select 505 cotton farmers, 512 tea farmers, as well as farmers association officials and company contract managers from Chikwawa and Mulanje districts. These two districts are the main cotton and tea producing districts in Malawi. Kadale Consultants then conducted semi-structured interviews and a discrete choice experiment with sample participants during the second half of 2019. The choice experiment consisted of 30 choice cards (Figure 1) with attributes related to price, delivery point, quality grade, payment mode, and additional benefits such as farm inputs provision, funeral or crop insurance. Each farmer was presented with six cards and asked to choose one option from each card. The resulting data was were then analyzed using a mixed logit model.
Figure 1: Sample of a choice card used in the experiment with the cotton farmers
The study uncovered interesting similarities and differences between farmers’ and companies’ preferences. Both farmers and companies preferred contract arrangements to open marketing. Farmers desired higher prices and most companies were willing to offer higher prices for better quality supplies. Farmers strongly preferred contracts providing inputs/insurance as additional benefit and most companies were open to incorporating such benefits into their contracts, although conditional on certain terms. The study also found important differences in preference. Farmers clearly preferred cash payments on delivery while companies preferred to make delayed payments. Also, farmers preferred to deliver either at the company’s collection points or company’s premises whereas companies preferred to collect from the farmgate to limit side-selling.
Ochieng concluded his presentation with six key messages:
- Farmers and companies generally prefer contracts to open marketing.
- Farmers and companies prefer contracts providing inputs/insurance.
- Companies wish for a shared information platform to guide their selection of farmers into the schemes and for farmers to recommend companies to contract with. Stronger contract (legal) enforcement mechanisms are needed along with information sharing platforms to promote contract farming.
- Both farmers and companies prefer to trade high quality products. However, companies are pessimistic about obtaining quality products while farmers are distrustful of company grading systems. This underlines the importance of developing standardized grading systems.
- Companies prefer delayed payments under contracts while farmers prefer spot payments. Here, advance cash payments to farmers will facilitate farmer retention and minimize side-selling.
- The design of industry-wide contract templates would benefit from incorporating some of the critical attributes identified by this study.
Much of the discussion after the presentation focused on how a shared platform for contract farmers and companies could be implemented in practice.
The presentation slides can be found below.
Click here to download the presentation as pdf document. (511 KB)
The study ‘Beyond the Passbook Relationship: Assessing preferences for contracts among cotton and tea farmers and companies in Malawi’ can be found here. A synopsis published as IFPRI Malawi Policy Note 37 ‘Towards Designing Better Contracts: Assessing Contract Preferences of Small Farmers and Buyers' is available here.
