Role and impact of contract farming under various pricing standards: A case of Guyana's rice sector

Raulston Derrick Gillette; Norio Sakai; Godfrid Erasme Ibikoule; Raulston Derrick Gillette; Norio Sakai; Godfrid Erasme Ibikoule

doi:10.3934/agrfood.2024020

AIMS Agriculture and Food

2024, Volume 9, Issue 1: 336-355. doi: 10.3934/agrfood.2024020

Previous Article Next Article

Research article

Role and impact of contract farming under various pricing standards: A case of Guyana's rice sector

1.
The United Graduate School of Agricultural Sciences, Kagoshima University, Kagoshima City, Kagoshima Prefecture, Japan
2.
Laboratory of Agricultural Economics, Faculty of Agriculture, Kagoshima University, Kagoshima City, Kagoshima Prefecture, Japan
3.
Laboratory of Farm Business Management, Faculty of Agriculture, Kagoshima University, Kagoshima City, Kagoshima Prefecture, Japan

Received: 24 November 2023 Revised: 13 January 2024 Accepted: 01 February 2024 Published: 29 February 2024

Rice cultivation has played a pivotal role in Guyana's agricultural history, contributing significantly to both sustenance and economic prosperity for over two centuries. Accounting for 3.3% of the country's gross domestic product (GDP) and a substantial 20.5% of the agricultural GDP, the rice industry has faced challenges influenced by various global and domestic factors, impacting the productivity and profitability of rice farmers. One key influencing factor is contract farming, involving agreements between farmers and firms that outline production and marketing conditions for agricultural products. In Guyana's rice industry, contract farming is prevalent, but challenges such as unequal bargaining power and discrepancies in weights and prices persist. Notably, using two pricing standards, high-price and low-price, further complicates the understanding of contract farming's impact on rice cultivation. We delved into the role and impact of contract farming on rice cultivation in Guyana, with a specific focus on the Mahaica-Berbice and Essequibo Islands-West Demerara regions. In this study, conducted with 121 farmers using systematic sampling, we used profitability assessment, frequency distribution, and binary logistic regression analyses. The findings revealed that high-price contracts contributed to greater farmer profitability compared to low-price contracts. Despite this, low-price contracts persisted due to factors such as risk-sharing, access to credit, and fertilizers. Moreover, pricing standards influenced farmer behavior, with low-price contracts prompting crop diversification to supplement income. These insights underscored the significance of pricing standards in determining the effectiveness of contract farming and its impact on farmers' livelihoods. Policymakers and stakeholders can leverage these findings to design more effective contract farming models, enhancing farmers' profitability and contributing to sustainable agricultural development. Furthermore, future research may explore the impact of farmers' organization membership on contract farming productivity, providing additional depth to our understanding of this crucial agricultural practice.
- contract farming,
- pricing standard,
- profitability,
- Guyana,
- rice farming
Citation: Raulston Derrick Gillette, Norio Sakai, Godfrid Erasme Ibikoule. Role and impact of contract farming under various pricing standards: A case of Guyana's rice sector[J]. AIMS Agriculture and Food, 2024, 9(1): 336-355. doi: 10.3934/agrfood.2024020

Related Papers:

Abstract

Rice cultivation has played a pivotal role in Guyana's agricultural history, contributing significantly to both sustenance and economic prosperity for over two centuries. Accounting for 3.3% of the country's gross domestic product (GDP) and a substantial 20.5% of the agricultural GDP, the rice industry has faced challenges influenced by various global and domestic factors, impacting the productivity and profitability of rice farmers. One key influencing factor is contract farming, involving agreements between farmers and firms that outline production and marketing conditions for agricultural products. In Guyana's rice industry, contract farming is prevalent, but challenges such as unequal bargaining power and discrepancies in weights and prices persist. Notably, using two pricing standards, high-price and low-price, further complicates the understanding of contract farming's impact on rice cultivation. We delved into the role and impact of contract farming on rice cultivation in Guyana, with a specific focus on the Mahaica-Berbice and Essequibo Islands-West Demerara regions. In this study, conducted with 121 farmers using systematic sampling, we used profitability assessment, frequency distribution, and binary logistic regression analyses. The findings revealed that high-price contracts contributed to greater farmer profitability compared to low-price contracts. Despite this, low-price contracts persisted due to factors such as risk-sharing, access to credit, and fertilizers. Moreover, pricing standards influenced farmer behavior, with low-price contracts prompting crop diversification to supplement income. These insights underscored the significance of pricing standards in determining the effectiveness of contract farming and its impact on farmers' livelihoods. Policymakers and stakeholders can leverage these findings to design more effective contract farming models, enhancing farmers' profitability and contributing to sustainable agricultural development. Furthermore, future research may explore the impact of farmers' organization membership on contract farming productivity, providing additional depth to our understanding of this crucial agricultural practice.

References

[1]	Ministry of Agriculture Cooperative Republic of Guyana, Rice yield sees significant growth in Guyana–Min. Holder (2019) Available from: https://agriculture.gov.gy/2019/10/11/rice-yield-sees-significant-growth-in-guyana-min-holder.
[2]	Wenner MD, Rogers R, Clarke D (2016) Guyana's PetroCaribe Rice Compensation Scheme Has Ended: Assessment and Policy Implications. Inter-American Development Bank.
[3]	Roy E (1963) Contract Farming, Denville Illinois, U.S.A. The Interstate Printers and Publishers Inc.
[4]	Gillette R, Sakai N (2021) The profitability of rice contract farming in Guyana. A case study of Mahaica Berbice. Jpn J Farm Manag 59: 145–150. https://doi.org/10.11300/fmsj.59.2_145 doi: 10.11300/fmsj.59.2_145
[5]	Minot N, Sawyer B (2016) Chapter 4—Contract farming in developing countries: Theory, practice, and policy implications. In: Devaux A, Torero M, Donovan J, et al. (Eds.), Innovation for inclusive value-chain development: Successes and challenges, International Food Policy Research Institute (IFPRI), 127–158.
[6]	Soullier G, Moustier P (2018) Impacts of contract farming in domestic grain chains on farmer income and food insecurity. Contrasted evidence from Senegal. Food Policy 79: 179–198. https://doi.org/10.1016/j.foodpol.2018.07.004 doi: 10.1016/j.foodpol.2018.07.004
[7]	Swinnen J, Vandeplas A, Maertens M (2010) Chapter 4—Governance and surplus distribution in commodity value chains in Africa. In: Food security in Africa: Market and trade policy for staple foods in Eastern and Southern Africa, Edward Elgar Publishing, 77–98. https://doi.org/10.4337/9781849806367.00009
[8]	Barrett CB, Bachke ME, Bellemare MF, et al. (2012) Smallholder participation in contract farming: Comparative evidence from five countries. World Dev 40: 715–730. https://doi.org/10.1016/j.worlddev.2011.09.006 doi: 10.1016/j.worlddev.2011.09.006
[9]	Bellemare MF (2012) As you sow, so shall you reap: The welfare impacts of contract farming. World Dev 40: 1418–1434. https://doi.org/10.1016/j.worlddev.2011.12.008 doi: 10.1016/j.worlddev.2011.12.008
[10]	Warning M, Key N (2002) The social performance and distributional consequences of contract farming: An equilibrium analysis of the Arachide de Bouche Program in Senegal. World Dev 30: 255–263. https://doi.org/10.1016/S0305-750X(01)00104-8 doi: 10.1016/S0305-750X(01)00104-8
[11]	Singh S (2002) Contracting out solutions: Political economy of contract farming in the Indian Punjab. World Dev 30: 1621–1638. https://doi.org/10.1016/S0305-750X(02)00059-1 doi: 10.1016/S0305-750X(02)00059-1
[12]	Masakure O, Henson S (2005) Why do small-scale producers choose to produce under contract? Lessons from nontraditional vegetable exports from Zimbabwe. World Dev 33: 1721–1733. https://doi.org/10.1016/j.worlddev.2005.04.016 doi: 10.1016/j.worlddev.2005.04.016
[13]	Prowse M (2012) Contract farming in developing countries—A review. Paris: Agence Française de Développement a Savoir, 1–30.
[14]	Winters P, Simmons P, Patrick I (2005) Evaluation of a hybrid seed contract between smallholders and a multinational company in East Java, Indonesia. J Dev Stud 41: 62–89. https://doi.org/10.1080/0022038042000276572 doi: 10.1080/0022038042000276572
[15]	Otsuka K, Nakano Y, Kazushi T (2016) Contract farming in developed and developing countries. Annu Rev Resour Econ 8: 353–376. https://doi.org/10.1146/annurev-resource-100815-095459 doi: 10.1146/annurev-resource-100815-095459
[16]	Asokan SR, Singh G (2003) Role and constraints of contract farming in agro-processing industry. Indian J Agric Econ 58: 566–576.
[17]	Allen DW, Lueck D (1995) Risk preferences and the economics of contracts. Am Econ Rev 58: 447–451.
[18]	Kohls RL, Uhl JN (1980) Marketing of agricultural products. 5 ed., McMillian Publishing Company.
[19]	Cai L, Cai J, Ung L, et al. (2008) Rice contract farming in Cambodia: Empowering farmers to move beyond the contract toward independence. ADBI discussion paper, No. 109.
[20]	David, J GLOVER (1984) Contract farming and smallholder outgrower schemes in less-developed countries. World Dev 12: 1143–1157. https://doi.org/10.1016/0305-750X(84)90008-1 doi: 10.1016/0305-750X(84)90008-1
[21]	Setboonsarng S (2008) Global partnership in poverty reduction: Contract farming and regional cooperation. Discussion Paper No. 89, ADB Institute, Tokyo.
[22]	Mishra AK, Kumar A, Joshi PK, et al. (2016) Impact of contracts in high yielding varieties seed production on profits and yield: The case of Nepal. Food Policy 62: 110–121. https://doi.org/10.1016/j.foodpol.2016.05.005 doi: 10.1016/j.foodpol.2016.05.005
[23]	Kumar S, Chand P, Singh H (2010) Characteristics and determinants of contract design of wheat seed farming in India: A basis of decision making. Indian J Agric Econ 65: 621–637.
[24]	Birthal PS, Jha AK, Tiongco MM, et al. (2008) Improving farm to market linkages through contract farming: A case study of smallholder dairying in India. International Food Policy Research Institute (IFPRI), Washington DC, IFPRI Discussion Paper 814.
[25]	Glover D, Kusterer K (1990) Small Farmers, Big Business—Contract Farming and Rural Development. London, Palgrave Macmillan UK. https://doi.org/10.1007/978-1-349-11533-4
[26]	Miyata S, Minot N, Hu D (2009) Impact of contract farming on income: Linking small farmers, packers, and supermarkets in China. World Dev 37: 1781–1790. https://doi.org/10.1016/j.worlddev.2008.08.025 doi: 10.1016/j.worlddev.2008.08.025
[27]	Little P, Watts M (1994) Living under contract: Contract farming and agrarian transformation in Sub-Saharan Africa. Madison, University of Wisconsin Press.
[28]	Abebe GK, Bijman J, Kemp R, et al. (2013) Contract farming configuration: Smallholders' preferences for contract design attributes. Food Policy 40: 14–24. https://doi.org/10.1016/j.foodpol.2013.01.002 doi: 10.1016/j.foodpol.2013.01.002
[29]	Hueth BE, Ligon E (1999) Producer price risk and quality measurement. Am J Agric Econ 81: 512–524. https://doi.org/10.2307/1244011 doi: 10.2307/1244011
[30]	Minten B, Randrianarison L, Swinnen JFM (2009) Global retail chains and poor farmers: Evidence from Madagascar. World Dev 37: 1728–1741. https://doi.org/10.1016/j.worlddev.2008.08.024 doi: 10.1016/j.worlddev.2008.08.024
[31]	Gillette R, Sakai N (2023) The role and impact of rice contract farming in Guyana: A case study of Essequibo Islands-West Demerara. Food, Agriculture, and Resource Economics Collection/Edited by the Food, Agriculture, and Resource Economics Editorial Committee 74: 79–89.
[32]	UNICEF (2017) Child-friendly regional profile Region Five (5), Mahaica-Berbice.
[33]	Kalra A (2016) The odds ratio: Principles and applications. J Pract Cardiovasc Sci 2: 49–51. https://doi.org/10.4103/2395-5414.182992 doi: 10.4103/2395-5414.182992
[34]	Culas RJ, Mahendrarajah M (2005) Causes of diversification in agriculture over time: Evidence from Norwegian farming sector. No: 724-2016-49296.
[35]	Rehima M, Belay K, Dawit A, et al. (2013) Factors affecting farmers' crops diversification: Evidence from SNNPR, Ethiopia. Int J Agric Sci 3: 558–565.
[36]	Bartolini F, Andreoli M, Brunori G (2014) Explaining determinants of the on-farm diversification: Empirical evidence from Tuscany region. Bio-Based Appl Econ 3: 137–157.
[37]	Ashfaq M, Hassan S, Naseer MZ, et al. (2008) Factors affecting farm diversification in rice-wheat. Pak J Agri Sci 45: 91–94.
[38]	Bellemare MF (2018) Contract farming: Opportunity cost and trade-offs. Agric Econ 49: 279–288. https://doi.org/10.1111/agec.12415 doi: 10.1111/agec.12415
[39]	Ruml A, Qaim M (2021) New evidence regarding the effects of contract farming on agricultural labor use. Agric Econ 52: 51–66. https://doi.org/10.1111/agec.12606 doi: 10.1111/agec.12606
[40]	Takeshima H, Hatzenbuehler PL, Edeh HO (2020) Effects of agricultural mechanization on economies of scope in crop production in Nigeria. Agric Syst 177: 102691. https://doi.org/10.1016/j.agsy.2019.102691 doi: 10.1016/j.agsy.2019.102691
[41]	Ruml A, Qaim M (2020) Effects of marketing contracts and resource-providing contracts in the African small farm sector: Insights from oil palm production in Ghana. World Dev 136: 105110. https://doi.org/10.1016/j.worlddev.2020.105110 doi: 10.1016/j.worlddev.2020.105110

Reader Comments

Your name:*

Email:*
© 2024 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)