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Generally, there is weak enforceability when the contract is breached. Likewise, since the prices offered and the quantities purchased by the contractor depended on the market forces, participation in the contract did not appear to confer any advantages to the farmers in terms of risk sharing. In general, the sample households have diversified income sources to cushion them against production risks and consumption shocks. While participants in CF report higher incomes, the differences in the incomes of the two treatment groups are not significant, suggesting that the variation in the incomes cannot be attributed to the intervention. The rest of the paper is structured as follows. Over reliance on cash crops can make households more vulnerable to price fluctuations. Informal arrangements vary between casual oral agreements and regularly repeated marketing transactions but are characterized by the absence of written contracts. The study was funded by the FORD Foundation. Instead, the variation in household income is explained by idiosyncratic factors such as land size and number of income sources.
The main contract enforcement mechanism used by the group members is group policing and byelaws, which attempt to prevent contract violation by excommunicating or fining the members who are found to default on the contract. While men ranked avocado as the most important enterprise, women ranked it second after maize and beans, implying that women managers are more likely to allocate more resources to maize and beans if they were confronted with a budget constraint. Table I provides summary statistics of the sampled households by participation in CF. Ideally, the type of CF investigated in this study appears to have failed to serve the intended objective of contracting, because the producers were the sole bearers of the production and marketing risks. To the extent that crop production is the main economic activity in the study area, land size determines the number of crop enterprises that a farm household can engage in, which in turn has an influence on the size of income. It also performs roles such as liaising with the contractor and is actively involved in receiving and making payments to the farmer groups through their bank accounts. CF and enabling environment such as the condition of infrastructure and access to extension services. In total, 65 respondents were selected randomly from the seven groups proportionate to the size of the group to form the treatment group. CF in the area was tied to group membership.
This finding is corroborated by the results on the determinants of farm income, in which land size is the only significant determinant. The contents of the paper are the responsibility of the authors and do not represent the views of the donor or collaborating institutions. Olomola, 2010; Bellemare, 2012; Wainaina et al. To market avocado through AGAK, a farmer must be a member of a farmer group that is registered with the association. First, contracts that have interlinked services such as training, credit and technical advice including market information aim at alleviating constraints on smallholder productivity, thereby increasing marketed surplus. This therefore exposes farmers to price and production risks and is likely to have adverse effects on their income. Because there was no binding contract between the producer and the contractor, the loophole could have been not difficult exploited by the farmers, especially where expected gains from the contract were deemed to be low.
This type is particularly helpful when establishing a new venture. The main feature of the intermediary model found in Kandara is the formal subcontracting by the lead firm to intermediaries. Total household income, therefore, depends on the number of activities the household is able to engage in, which in turn is determined by availability of labour. Although participation in CF was based on being a member of a group that was registered with AGAK, individual farmers within the groups could choose to sell to the contractor or not. The situation is exacerbated by the lack of proper enforcement mechanisms such as written contracts between the contractor and the producers. Oseni and Winters, 2009; Maertens, 2009; Barrett et al. Besides crop production, households with diversified income portfolios are able to spread risks among the enterprises, thereby accumulating more capital for reinvestment. The intermediary model of contracting appeared to work against the producers, because terms of the contract were not known to the farmers. However, the contract between the farmers and the lead firms collapsed in 2008, partly because of insufficient quantities of fruits and failure by the firms to recover the cost of services provided to the farmers. Limited was sourced for the farmers in 2009 and the terms of the contract negotiated by the AGAK in collaboration with the officials of the farmer groups.
For instance, issues regarding grading and pricing as well as mechanisms governing the terms of the contract need to be clearly defined and understood by the buyer and the seller. The mode of interaction between farmers, buyers and other stakeholders involved in the contractual arrangement determines the efficacy of a contract scheme. Hence, participation in CF may subsequently lower household incomes. Further, the results show that holding other factors constant, avocado income is significantly higher in households closer to the markets, managed by men, and having more productive trees of Fuerte and Hass. Intermediaries handle several thousands of outgrowers. However, the contractual arrangement failed to recognize that production and marketing decisions were made individually by the farmers rather than collectively in the group. The lack of effective enforcement mechanisms appeared to exacerbate the situation, because the group officials relied on the members to report on their colleagues who attempted to default on the contract.
Instead, the intermediary seemed to negotiate for the terms without involving the key stakeholders, except through their officials. Consequently, the necessary conditions that influence participation in CF such as knowledge, which is gained through education, access to credit and certainty about the terms of the contract need to be considered to make CF attractive and beneficial to the buyer and the producers. East Africa Growers and Kenya Horticultural Exporters were some of the lead firms that were linked with farmer groups through a contract. Table III shows summarized results of the ATEs estimated for the impact of CF on household, farm and avocado income. We estimate three outcome equations using household, avocado and farm incomes as the dependent variables. Turning to the determinants of income, the results suggest that participation in CF is not a significant determinant of any of the three types of incomes. In the case of avocado, men were found to control the sale of avocado of premium quality that fetches higher prices, which could explain the variation in avocado income by gender. The categorical variable D takes the values 1 and 0, respectively when the treatment is or is not received. The results indicate that there is no significant difference in the average household income, farm income and the number of income sources between the two groups.
Maize production for subsistence and horticulture, particularly small scale fruit production for cash predominate the farming system in the study area. Nevertheless, significant differences are observed in the avocado income, which can be attributed to the differences in prices received by the two groups among other factors. ATE, can be estimated, depending on the policy question to be addressed. CF is principal for policy makers seeking to promote rural economic growth and development. The intermediary model has intermediaries who organize everything on behalf of the final buyer starting with input supply, extension service, payment of the farmers and transportation of the final product. CF can be a means to develop markets and bring about the transfer of technical skills in a way that is profitable for both the contractor and the farmer. KES1 per avocado, yet they offer alternative markets to producers who are not able to meet the requirements set by the contractor.
Although empirical evidence is necessary to corroborate this proposition, anecdotal evidence from the case studies and key informant interviews suggest that contractual arrangements are likely to help structure markets and provide producers with market options that offer better prices, but the arrangements need to be accompanied by clear terms and conditions. Concerning farm characteristics, avocado production is generally undertaken on a small scale owing to the small land size of about two acres, with farmers producing two main exotic varieties, namely, Fuerte and Hass, which are predominantly for export. In Section 3, we present the analytical framework adopted in the study and describe the source and type of data used. Suppose that we are interested in the effect of some treatment, in our case, participation in CF, which is represented by the binary variable D, on some outcome of interest Y, such as income. The authors therefore acknowledge financial support and comments from our collaborators, internal and anonymous reviewers. Participation of smallholders in CF, which in turn impacts their welfare in various ways, is influenced by socioeconomic and institutional factors. Proximity to AGAK is used as an instrument since farmers who are close to these leaders have a high likelihood of complying, because they get reliable information on CF. Ivtreatreg routine is designed for estimating binary treatment models with heterogeneous treatment responses to treatment under observable and unobservable selection.
France being the largest buyer. Key informant interviews with the contracting firm as well as some AGAK officials provided useful insights into the nature of the contract and the governance structure of the avocado supply chain in the country. Multistage stratified random sampling was used to select the respondents for the household surveys. Once the cooperation between the firm and the farmers is working well, the link between the parties can be circumvented and so the multipartite slowly develops into a centralized model. However, the byelaws are difficult to enforce because the contracting firm does not provide any inputs to the producers or make the terms of the contract clearly known to the producers. Saharan Africa in general, and in Kenya in particular. Being in close proximity to the market confers an advantage to the households because they are likely to have many alternative market channels, and hence a stronger bargaining power and more profitable prices than households located in the periphery. Where assignment to and receipt of the treatment is randomised, the estimation of the ATE parameters involves obtaining simple mean differences between the treated and the untreated. In the majority of the cases, the producers seem not to be fully aware of the terms of the contract or the pricing and grading mechanism employed by the contractor.
Therefore, such an arrangement makes it difficult for farmers who face liquidity constraints to comply. In our study, Y 1 represents the potential income attained by a farm household that participates in CF while Y 0 represents income attained by households who do not participate in CF. To circumvent the aforementioned challenges, instrumental variable approach may provide a solution as long as a valid instrument can be identified. For instance, globalization and the use of internet have created new opportunities for smallholders to improve their position in the international market place. The initial linkage involved the formation or strengthening of existing producer groups, the provision of embedded spraying services by the exporter and negotiated memorandum of understanding between producer groups and the exporter. The farmer groups coordinate smallholder farmers to achieve economies of scale, which benefits both the farmers and the contractor. CF were randomly drawn from the same locality as the treatment group. Although our results appear to suggest that the nature of the contract determines the welfare impacts of participation in the contract, there is a need for further research on the topic using case studies from a wider geographical area as well as different enterprises. Our study attempts to bridge the aforementioned literature gap using a case study of smallholder avocado farmers in Kenya. Nevertheless, matching methods while adept at capturing observable characteristics may have serious methodological draw backs when selection bias is due to unobservables.
Unlike in most contracts, the current contractor does not provide credit and input facilities. The AGAK has its own informal arrangements with the farmers, which include facilitation of trainings and enhancing contract enforcement by building trust among group members. Mwambi, Oduol, Mshenga, Saidi. For example, smallholders are constrained in terms of productive resources like water for irrigation and land, which often limit their production. The findings are fairly consistent across the three outcome variables. In addition, the groups were formed to enable farmers to benefit from economies of scale owing to the small size of their farms and hence the few number of trees owned by the farmers. Officials of the farmer groups represent the views of the farmers in the annual general meetings as well as in the negotiation of prices, while members of the groups are only loosely bound by the contract. In keeping with reallocation of resources among multiple enterprises in smallholder farming systems, CF was deemed to have multiplier or spill over effects beyond avocado and farm income. On average, the sample households own a total of 13 productive trees, and seven and six Hass and Fuerte productive trees, respectively.
Indeed, it was noted that whenever there was a glut in production locally and price fluctuations in the export market, there were high rates of rejection of the fruits by the contractor and only small quantities of the fruits were sold at a premium price, while the remaining fruits fetched inferior prices, thus lowering incomes. Somwaru and Makki, 2001; Saenger et al. The models are significant at 1 per cent level, thus suggesting that the instruments are good predictors of participation. The data used in this study were obtained from a collaborative research project between the World Agroforestry Centre and Tegemeo Institute of Agricultural Policy and Development. Multipartite model involves a company working with other institutions or NGOs. Olomola, 2010; Wainaina et al. Section 2 establishes a link between CF and household income and provides background information on the structure and organization of CF in the study area. The welfare impact of smallholder participation in CF on income has been controversial. Similarly, the association can lose control over prices paid to farmers and fail to ensure compliance with the quality standards imposed by the contractor.
Breach of contract occurs when the buyer refuses to accept produce, delays payments or arbitrarily raises quality requirements. Another key feature of the contract is the lack of prior agreement on the prices and the quantities to be delivered to the contractor, as the quantities purchased and the prices are determined by market forces. Kandara can translate into welfare gains for the participants remains largely unexplored. Kandara district in Kenya. The contractor supports training, provides packaging materials and caters for the cost of transporting the produce from designated collection points. Table II provides regression estimates for the determinants of participation in CF as well as the determinants of household, farm and avocado income.
CF arrangements, namely, nucleus, informal, centralized, multipartite and intermediary model. Consequently, this has resulted in adverse selection, moral hazards and violation of contracts. On the other hand, the effect of CF on avocado income is critical in understanding the pathway through which CF impacts on household income. As is expected, the three income variables are highly skewed, with the majority of the sample households, particularly those relying on farming earning relatively lower incomes per year. The results are presented and discussed in Section 4 while in Section 5, we conclude and provide policy implications deriving from the study. In addition to buying the produce, the lead firms provided interlinked services like training, packaging, grading, transport and spraying. Although avocado production was reported to be less capital intensive, activities such as grading, spraying and picking that could not be handled by women managers required capital for hiring labour. One main disadvantage of this arrangement is the possibility of information asymmetry resulting from the involvement of an intermediary in the negotiation of contract terms. Thus, selection into the programme is assumed to depend on the same factors affecting the outcome plus z that does not directly affect the outcome except via the treatment variable.
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