Do contract farming arrangements in staple chains improve farmers’ welfare?: New insights from Senegal

Abstract Background Contract farming (CF) has garnered a lot of attention owing to its structural transformation potentials. Yet, most studies on CF have focused on specialty/industrial crops. Staple crops have received little attention, and their welfare impacts are unclear despite their potentials to make CF arrangements more inclusive. In this study, we evaluate the welfare impacts of CF in rice, an important staple crop in Senegal. Methods Using a cross-sectional dataset from rice-producing households, we employ instrumental variable regressions to address endogeneity concerns. We also employ quantile regression models to assess the heterogeneous benefits of CF. Results Our results show that CF in rice is positively associated with assets per capita but not associated with expenditure per capita. Looking at the different expenditure categories, we also find that CF is positively associated with food expenditure but not associated with non-food expenditure of households. These findings suggest that CF in staple crops improves farmers’ welfare. Our heterogeneity analysis shows that CF arrangements benefit mostly poor farmers in terms of assets. However, we find no particular quantile effects for total expenditure. For food expenditure, we find positive associations with the lowest quantiles, while we find negative associations for the lowest quantiles interms of non-food expenditure. These suggest that the benefits of CF are heterogeneous. Conclusion and policy implications Our findings imply that CF arrangements in staples can improve farmers’ welfare and can serve as an important entry point for policy initiatives that aim at reducing poverty and rural inequality among smallholder farmers in developing countries. However, the findings are heterogeneous and may call for specific initiatives that target different farmers. JEL classification Q13, Q18