NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Contract Farming and Agricultural Productivity in Western Kenya

Lorenzo Casaburi, Michael Kremer, Sendhil Mullainathan

Chapter in NBER book African Successes, Volume IV: Sustainable Growth (2016), Sebastian Edwards, Simon Johnson, and David N. Weil, editors (p. 137 - 160)
Published in September 2016 by University of Chicago Press
© 2016 by the National Bureau of Economic Research
in African Successes Project

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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