An analysis of contract farming in East Java, Bali, and Lombok, Indonesia

Abstract

This article examines the emergence and benefits of contract farming in East Java, Bali, and Lombok, Indonesia. After a general review of contract farming in these regions, three contracts, for seed corn in East Java, seed rice in Bali, and broilers in Lombok are described and analyzed using key informant interviews and household survey data. A review of the contracts suggest that there is a wide array of contract types and this is related to the technical requirements of production and the associated costs. Probit analysis is used to identify factors contributing to smallholder participation in farm contracts and a two-stage estimation process used to measure the effects of farm contracts on gross margins and labor use. Results indicate participation in contracts is influenced by farm size and other factors such as smallholder's age, education, and participation in farm groups. Contracts increased returns to capital for the seed corn and broiler contracts but not for the seed rice contract. All three contracts influenced the types of labor used; however, none of them influenced total farm employment. Copyright 2005 International Association of Agricultural Economics.

Competition and Cooperation in Economics and Business

“…Such results were also found in several contract-participation studies, such as Bao et al (2013), Bellemare (2012), Simmons et al (2005), and Wang et al (2011).…”

Development of business capacity and organization of commercial business of farmer based organizations in the northern intervention zone in Ghana: A case study of nine-farmer based organizations

“…Arguably, without a group contract the farmers were at the mercy of market women unable to break the monopoly over produce price of the market women. Accordingly farmers' can break market monopoly only through group contract [15,17,23].…”

“…Similarly, a typical information and signing of contract farming assist in reduction of transactions costs caused by market limitations and creates better environment to integrate primary producers with marketers and agro-industries [13][14][15][16]. Lack of contract denies farmers' assess to appropriate market information, technology, inputs, credit facilities and in some instances legal expertise and insurance [15][16][17][18]. Additionally, Farmer Base Organizations (FBO) presents collective actions appropriate for negotiations and regular supply of produce as food to meet human energy requirement [19,20].…”

The effectiveness of contract farming in improving smallholder income and food security in low- and middle-income countries: a mixed-method systematic review

“…More problematic were studies containing several empirical instances of contract farming, covering distinct crops. There were four such studies: Bellemare (2012), Miyata et al (2009), Narayanan (2014, and Simmons et al (2005). Of these, the first two contained several empirical instances of contract farming but did not distinguish between them in the analysis.…”

“…The effect size of the third instance was calculated based on data taken from another more detailed paper of the same authors on this particular contract farming scheme in which they applied a two-staged regression using the same data as in Simmons et al (2005). The analyses of these three instances relied on independent data and different model specifications and hence were considered to be independent.…”