The global demand for cashew nuts continues to increase steadily. However, many African countries face difficulties in marketing and adding value to the product. Using recent survey data of 391 cashew farmers in Ghana, this paper contributes to the growing evidence on the significance of contract farming (CF) in improving the welfare of rural households in developing countries. Specifically, the paper analyzes the factors that influence cashew farmers' decisions to participate in CF, and the impact of participation on farmers' performance. We employ a recently developed switching regression model with endogenous explanatory variables and endogenous switching to control for selection bias caused by observable and unobservable factors. The empirical results show that participation in CF significantly increases labor productivity and price margins, as well as cashew yields, and net revenues. A disaggregated analysis of the sample into farm size categories reveals that small-sized cashew farms tend to benefit more through CF, compared to medium-and large-sized farms.

Contract farming has been shown to increase agricultural productivity and thus welfare of farmers in developing countries. However, studies that look at the potential environmental effects of contract farming remain quite scanty. This is however crucial, since contract farming may contribute to intensification in cultivation of the contracted crops, in terms of area and the intensity of inputs used. This study investigates the impact of participation in contract farming on sustainable farm practices, using a marginal treatment effects (MTEs) approach to account for potential selection bias and heterogeneity across households. The empirical results show significant heterogeneity in the effects of contract farming on the intensity of sustainable farm practice use. In particular, farmers with high propensity to participate in contract farming tend to have low probabilities of using sustainable farm practices. The findings of this study not only provide new insights into the heterogeneous effects of contract farming, but also entry points for further research to address the dual challenge of agriculture to produce sufficient food, while reducing the adverse impact on the environment.

Many studies show that participation in contract farming has positive impacts on farm productivity and incomes. Most of the literature, however, does not take into account that contracts vary in their specifications, making empirical evidence scarce on the diverse impacts of different types of contracts. In this study, we investigate the driving forces of participation in marketing and production contracts, relative to spot markets. We also study the extent to which different contract types add additional benefits to smallholder farmers, using recent survey data of 389 cashew farmers in Ghana. To account for selection bias arising from observed and unobserved factors, we apply a multinomial endogenous switching regression method and implement a counterfactual analysis. The empirical results demonstrate that farmers who participate in production contracts obtain significantly higher cashew yields, cashew net revenues, and are more food secure compared to spot market farmers. We also find substantial heterogeneity in the impact of marketing and production contracts across scale of operation. Small sized farms that participate in production contracts tend to benefit the most. Marketing contracts, however, do not appear to benefit cashew farmers.