Smallholders’ Preferences for Different Contract Farming Models: Empirical Evidence from Sustainable Certified Coffee Production in Vietnam

Abstract

Contract farming is considered as institutional arrangements that manage the coordination of production and distribution between smallholder farmers and agro-industrial firms. Under the market reforms and industrialization process, contract farming links smallholder farmers to a better market through effective farming management and high-quality products. Despite the many benefits attributed to participation, the existing literature addresses the main issues that result in the opposing attitudes and motivations toward contract farming. This study therefore aims to analyze factors that influence the choices of smallholder farmers for different contract faming models using multinomial logistic (MNL) regression. Different contract attributes and socio-economic characteristics of farmer households are used as endogenous variables in the MNL model. Based on a research sample of 183 smallholder farmers involved in certified coffee production in Dak Lak province, Vietnam, the study revealed that there are different typologies of production contract including the informal model, intermediary model, and nucleus estate model. Significant factors that affect smallholders’ preferences for different contract farming models are gender, farm size, the provision of inputs, price option, technical assistance, delivery schedule, and monitoring. Main issues that induce failures of contract farming are farmer’s overdependence and the monopolistic power of industrial coffee firms in the nucleus estate model, as well as the information asymmetry in the informal model. In addition, a cost-benefit analysis symbolizes the role of the cooperative in the intermediary model, which is essential for augmenting win-win outcomes for smallholder farmers and industrial coffee firms.