Does contract farming improve smallholder income? The case of avocado farmers in Kenya

Purpose – Contract farming (CF) is seen as a tool for creating new market opportunities hence increasing incomes for smallholder farmers. Critics, however, argue that CF is likely to pass risks to small scale farmers, thus favouring large scale farmers at the expense of smallholder farmers. The purpose of this paper is to examine the effect of CF on smallholder farmers’ income using a case study of avocado farmers in Kandara district in Kenya. Design/methodology/approach – The study uses data collected from 100 smallholder avocado farmers in Kandara district in Kenya and employs an instrumental variable model (Probit-2SLS) to control for endogeneity in participation in the contract and examine the effect of CF on household, farm and avocado income. Findings – The results indicate that participation in CF is not sufficient to improve household, farm and avocado income. Question remains regarding efficient implementation of CF arrangements to promote spill over effects on other household enterprises. Research limitations/implications – The research was carried out using farmers in Kandara district in Kenya as a case study, findings might therefore not reflect the status of CF in all countries. Originality/value – The paper contributes to the growing debate on the effect of value chain upgrading strategies such as contracting on smallholder farmers’ welfare. The form of contracting studied in this paper differs from the standard contracts in that the key stakeholders (producers) are loosely enjoined in the contract through officials of their groups.