The Political Economy of Contract Farming

Abstract

Contract farming is promoted by agribusiness as a more efficient method of crop and livestock production. Evidence suggests, however, that contracts diminish control by farmers over their operation while increasing their exposure to risk. Conventional models accounting for the spread of contracting emphasize technological factors (e.g., economies of scale, crop perishability, technological complementarity between different stages of production are misleading and inadequate). An alternative model emphasizes the utility of the "subcontracting" organization of production for large agribusiness corporations. A close examination of the spread of contracts reveals that most agribusinesses have pulled back from integration in favor of contracting out and that contracting spreads wherever (1) processors are few in relation to producers, (2) producers are specialized, (3) auction and local terminals have declined in number, (4) there is a surplus of farm operations and credit is tight, (5) farmer's are poorly organized and (6) government supports are weak. The trend toward contracting will continue so long as agribusiness concentration continues, government supports deteriorate, and farms become more specialized.

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