Participation of Smallholder Avocado Farmers in Contract Farming and its Effects on Income in Kandara District, Kenya

Abstract

Contract fanning is seen by its proponents as a tool for creating new market opportunities as well as for providing credit and training, leading to increased smallholder farmers’ incomes. Critics, however, argue that contract farming encourages unequal bargaining relationships with agribusiness firms and is likely to pass risks to famiers, thus favouring large scale farmers at the expense of smallholders. Another school of thought contends that the effect of contract farming on the livelihoods of smallholder famiers is context specific and depends on the enterprise in question. Yet, there is a dearth of empirical evidence from such studies in Sub-Saharan Africa. This study used data collected in 2012 from 100 smallholder avocado farmers in Kandara district in Kenya, obtained using multistage technique, to determine the socioeconomic attributes of contract and non-contract fanners. To control for unobservable characteristics that might affect pariciation, Heckman two stage model was used to assess the factors that influence smallholder avocado famiers' participation and their extent of participation in contract fanning. Further, because of lack of pre-treatment data and the possibility of selection bias due to observable characteristics, propensity score matching technique was used to construct controls for the treatment group. The results indicated that contract and non-contract famiers had significant differences in gender. access to credit and education. Further, smallholder avocado farmers’ membership in agricultural group. access to credit, number of trees, proximity to a leader in Avocado Growers Association of Kenya (AGAK), perception of price of avocado offered under contract and perception of the ability of contracts to offer ready market were significant in influencing households‘ decision to participate in contract farming. Findings also showed that contract fanning does not improve smallholder farmers‘ income. Instead, support services such as interlinked credit and provision of information should also be taken into consideration in contract farming because of their potential benefits for smallholders. vi