Contract Farming and Agricultural Productivity in Western Kenya
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Chapter in forthcoming NBER book African Successes: Sustainable Growth, Volume 4, Sebastian Edwards, Simon Johnson, and David N. Weil, editors
We use new data from the administrative records of a large Kenyan sugarcane contract farming scheme to study participation and productivity among outgrowers. First, we relate the origins and the impact of the scheme targeted by our study to the existing literature on contract farming. Second, after providing some institutional background and introducing the data, we look at farmers' participation, focusing on entry, exit, and plot sizes within the scheme. Third, we focus on yields and farmers' net revenues per hectare. After documenting the trends in these variables, we find that producer unobserved heterogeneity and plot size explain a large share of the variance in yields. We conclude by arguing that, in the presence of labor market imperfections that would make plantations inefficient, contract farming can enable producers to take advantage of relevant economies of scale, while preserving the existing allocation of land property rights.
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