Contract Farming and Profitability: Evidence from Rice Crop in the Central Mekong Delta, Vietnam

Abstract

This study aims at investigating profitability of rice contract farming in Vietnam's Mekong delta. We used data from a farm-household survey comprising of 70 contract and 96 noncontract respondents, and apply the Student's t-test and ordinary least square regression model for data analysis. We found that farmers with larger rice plantations are unlikely to engage in contract farming, and that market outlets and output price for contract growers tend to be ensured compared with noncontract ones. The findings reveal that contract farming has a significantly positive impact on rice-farming profitability in terms of average return and average rate of return on variable cost when controlling for observable characteristics of household and farm. The results suggest that contract farming may enable rice farmers to raise their rice income as well as household income. The policy implication may be that contract farming may not be feasible for all rice farmers and rice business firms.