Enhancing agricultural intensification through contract farming: evidence from rice production in Senegal

Agricultural intensification is important in increasing agricultural production and productivity. Especially in developing countries faced with a rapidly growing population and a concomitant low agricultural productivity and food insecurity, intensification is considered very important to boost productivity and feed an ever-growing population. However, intensification remains low in developing countries owing to constraints such as inexistent or imperfect input and output markets, and weak public institutions. The institution of contract farming (CF) can address these constraints and may thus contribute to agricultural intensification. However, how CF contributes to agricultural intensification has not been well explored. In this study, we explore the role of CF towards agricultural intensification in rice production in Senegal.

To estimate the effects of CF on agricultural intensification proxied by fertilizer use, expenditure on fertilizer, improved rice varieties, and tractor use, we employ a high-frequency unbalanced panel data. We estimate a correlated random effects model to address time-invariant unobserved heterogeneity related to participation in contract farming.

Our results show that CF is positively correlated with fertilizer use, fertilizer expenditure, tractor use, suggesting that CF contributes towards agricultural intensification.

The institution of CF can play an important role in spurring agricultural intensification in developing countries. Policy makers, especially in developing countries can harness the potentials of CF to increase agricultural intensification and transform the agricultural sector. However, the negative environmental effects of such intensification should be considered and contracts should be better designed to rather promote sustainable intensification.