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Contract Farming as an Institution for Integrating Rural Smallholders in Markets for Livestock Products in Developing Countries: (I) Framework and Applications

Pro-Poor Livestock Policy Initiative: A Living from Livestock









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    Document
    Contract Farming as an Institution for Integrating Rural Smallholders in Markets for Livestock Products in Developing Countries: (II) Results in Case Countries
    Pro-Poor Livestock Policy Initiative: A Living from Livestock
    2009
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    This report provides an assessment of the efficiency and effectiveness of contract farming as an institution for integrating rural smallholders in markets for livestock products, using detailed reviews of particular case studies on contract farming in India, Thailand, the Philippines and Viet Nam, and in which the principal author participated. Two forms of contracts engaged in by producers and market intermediaries existed: formal and informal contracts. In general, formal contracts were writte n contracts between an integrator company and a farmer, where the rights and obligations of each party were strictly defined. Informal contracts were unwritten but nevertheless binding agreements between a farmer and his market intermediary, which could either be a trader for inputs or outputs, or with a cooperative which he is a member of, on the provision of inputs or the marketing of output, or both.
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    Transaction Costs, Institutions and Smallholder Market Integration: Potato Producers in Peru 2005
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    The paper analyses the impacts of transaction costs on the degree of household market integration using survey data collected from smallholder potato farmers located in the Peruvian Andes. The analysis focuses on the impacts of transaction costs differentiated as information, negotiation and monitoring costs. Two proxies are used to measure the degree of market integration of households, namely quantity sold in the market and sales in large markets. The results show that, in addition to transpor t costs and market prices, information, negotiation and monitoring costs affect market integration. The study reinforces previous results and sheds light on possible policy options to support smallholders in improving their access to national and global markets.
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    Policy brief
    Innovative contract farming arrangements in Asia and the Pacific 2022
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    Although informal transactions are still the norm in Asia and the Pacific, contractual agreements are on the rise, especially for high-value agricultural commodities. As contract farming arrangements grow in number and become more sophisticated, a series of innovations are emerging to enhance their inclusion and efficiency. The nature of these innovations can range widely – from the adoption of digital technologies, to new governance mechanisms and novel regulations. Governments in the region face the challenge to further mainstream contract farming while ensuring inclusiveness and fairness. Recent government interventions are targeting areas such as introducing gender sensitive regulations leading to the increased participation of women in economic transactions, facilitating insurance to reduce contract farming risks related to weather-based agriculture or natural disasters, utilizing third-party verification systems to combat power abuse, and promoting sustainable public-private partnerships that enhance inclusion and equity. The discussed policy measures can contribute to facilitating the shift towards more structured market channels that provide farmers the opportunity to integrate into modern and more complex agrifood value chains that serve remunerative markets. Nonetheless, governments should ensure that those interventions are able to create a suitable enabling environment to potentially lead to contractual arrangements that are fair to all value chain actors, including smallholder farmers.

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