Institutional And Economic Analysis Of Small Farmers’ Contract Farming: A Case Study Of Manyara Region Tanzania

ABSTRACT

The rise of contract farming and vertically integrated firms of production and marketing is undoubtly one of the most important changes in Tanzania economy. The study examined new role of contract farming (CF) in Tanzania towards designing partnership model in the light of transformation and industrialization of agriculture. The specific objectives were (i) To describe contractual arrangement found in the study area (ii) To examine the role of contractual arrangement in reducing transaction cost (iii) To analyse the effect of contract farming in increasing production to farmers and (iv) To assess the impact of contract farming in industrialization of agriculture by comparing contract and non contract farmers. Purposive and simple random techniques were employed in selecting a representative sample of contract and non contract farmers where 105 contract farmers and 122 non contract farmers were interviewed. The contractual arrangement found in study area was mainly multipartite contract farming model. The study reveals that contract farming reduces transaction cost to farmers, by having low number of frequency of selling and high asset specificity (P< 0.01) among contract farmers as compared to non contract farmers. Moreover results show that contract farming had significant positive influence in increasing farm productivity (P< 0.05). In assessing the impact of contract farming in industrialization of agriculture, results show that there is significant difference in farm input use, farm output and farm income between contract and non contract farmers (P< 0.01). Based on the findings, the study puts forward six major recommendations (i) establishing contract enforcement (ii) establishing quality control and monitoring system that will guarantee product standard (iii) establishing production quota to farmers (iv) monitoring human resource used in contract farming ensuring all terms of contract are observed (v) establishing insurance arrangement to act upon production and marketing risk and (vi) making investment in various services to facilitate production easily.