Contract Farming and Multidimensional Poverty in Low-Income Countries: An Analysis of Smallholder Farmers

Poverty is prevalent among rural smallholder farmers in low-income countries. A large body of literature suggests that contract farming can improve smallholder’s welfare through improved market access and promote rural development. Existing studies usually focus on single welfare components and concentrate on a single crop, contract scheme, or geographical area, and 'big picture' analyses remain scarce. We build a new multidimensional poverty index and investigate the relationship between contract farming and poverty for six low-income countries. We find that contract farming is associated with decreasing poverty among smallholders in low-income countries. Yet, major differences appear between countries, corroborating that the contract farming-welfare link is contingent on many national and regional factors. We also find that food crop farming households stand a greater chance to benefit from contract farming than cash crops, which tend to be linked to global value chains by default. Since richer farmers can self-select into contracts and bargain better under market conditions, we argue that policy room exists to promote contract farming for low-resourced farmers in low-income countries.