Institutional Response of Contract Farming: Its Implications on the Peasantry in Less Developed Countries

Abstract

Contract farming is basically a wide field that may not be exhaustively covered within the limitations of the word count and the time provided. As a result, this paper considers the neoclassical perspective of how poor farmers make production decisions that maximize their welfare subject to the resource constraints that face them. It then explores how the institutions emerge to mitigate the shortcomings of the neoclassical theory that grossly ignores the role of institutions in its analysis. The term contract as applied includes both written and oral agreements between commercial buyers and farmers. This paper does not take into account the operations of marketing parastatals and legal monopolies that do not operate on commercial basis. This is deliberately done to maintain the main thrust of neoclassical economics of free market operations and maintain the profit maximization under conditions of perfect competition as the main objective of the economic agents involved in the contract. Owing to similarities of the structure of contract farming in the different geographical locations globally, the paper addresses the analysis from a generic point of view.