Impacts of Contract Farming on the Income and Output of Smallholder Coffee Farmers: The Case of Oromia Region, Jimma Zone, and Limmu Sekka Wereda

Abstract

Contract farming is a form of vertical coordination primarily aimed at improving the productivity
and income of smallholder farmers. However, the empirical evidence that the economic and social
benefits of this type of agriculture for smallholder farmers are mixed and questionable. Therefore,
this study was conducted to evaluate the impact of contract farming on the income and output of
small-scale coffee growers. Both descriptive statistics and propensity score matching were used
to analyze the data. The study's findings show that the contract farming program has resulted in
a significant increase in coffee income and average productivity of households engaged in
contract farming. The results show that access to credit, access to training and land used for coffee
production significantly influence household participation in contract farming. Contrary to our
expectations, access to extension did not have a significant impact on household participation in
contract farming. The distance to market of the control group was slightly shorter than that of the
treated group. We conclude that the contracting company needs more work to improve these two
important variables.