In the last five years, contract farming has become an increasingly common way for small producers in developing countries to ensure the supply of inputs, obtain new technologies, and gain access to markets. While these three elements are important to increasing productivity in developing country agricultural, little knowledge exists regarding 1) which element is most vital to the agent (farmer), 2) which is most vital to the principal, 3) and what are the relevant welfare impacts on both sides. In this project, we will work with a local NGO to develop and offer three different types of contracts designed to provide answers to these questions.
Rice farming is relatively new to Benin and productivity there lags behind productivity levels in Asia. Government, policy analysts, NGOs, development agencies, and research institutes have invested heavily in rice production and all have proposed numerous reasons why output remains low. Three key potential reasons emerge from a review of this literature. First is that output markets are thin, making farmers uncertain of their ability to sell their harvest at a profitable price. This uncertainty limits investment in inputs and depresses productivity. Second is that, since rice cultivation is relatively new to Benin, farmers lack the skills and knowledge to cultivate rice in a highly productive way. Without skills training or technical backstopping, farmers remain below the global production possibilities frontier. Third is that farmers are credit constrained and unable to purchase improved inputs when they are needed. Working with a local NGO that is already engaged in contract rice farming, we have developed three types of contracts designed to uncovered what are the binding constraints to rice production in Benin.