Contract Farming and Multidimensional Poverty

Abstract: Poverty is a common phenomenon among rural smallholder farmer households in developing countries. A large corpus of literature suggests that contract farming -a pre-harvest agreement between farmers and buyers- can improve smallholder farmers' welfare through improved access to markets and thereby promote rural development. These findings have shaped policy recommendations. Existing studies usually focus on a single component of household welfare and concentrate on a single crop, contract scheme, or geographical area. In this thesis, the impact of contract farming on multidimensional poverty is investigated. By employing nationally representative data for six developing countries, the results are generalizable beyond a single crop type, contract scheme, or geographical area. Using household and location fixed effects, the implications of contract farming on a multidimensional poverty index are discussed. The paper finds that contract farming is associated with a decrease in poverty among smallholder farmers in developing countries. Yet, major impact differences appear between countries. Therefore, the results challenge the notion that contract farming unambiguously improves welfare.