Contract farming, farmers’ income and adoption of food safety practices: Evidence from remote areas of Nepal

Abstract

In this paper we study the case of contract farming for exports with farmers in remote hilly areas of Nepal. The prospect for contract farming in such areas with accessibility issues owing to underdeveloped markets and lack of amenities is ambiguous. On the one hand, contractors find it difficult to build links in these cases particularly when final consumers have quality and safety requirements. On the other hand however, remoteness makes the contracts more sustainable. The latter happens if there are product specific quality advantages because of agro-ecology and more importantly due to lack of side selling opportunities. At the same time concerns remain about monopsonistic powers of the buyers when remotely located small farmers do not have outside options. This study hence quantifies the benefits of contract farming on remotely located farmers’ income and compliance with food safety measures. Results show that contract farming is significantly more profitable (58% greater net income) than independent production, the main pathway being higher price realization along with training on practices and provision of quality seeds.