Linking agribusiness and small-scale farmers in developing countries: Is there a new role for contract farming?

This article examines a new role for contract farming in developing countries in the light of the industrialisation of agriculture and the globalisation of world markets. A theoretical rationale for contracting in developing countries is developed on the basis of adopting new institutional economic theory for the purpose of matching governance forms to market failure problems and transaction characteristics. The history of contract farming is reviewed, together with the advantages and disadvantages to the various players, for the purpose of developing a list of key success factors, problems and some possible solutions. 1. INTRODUCTION Efforts to develop the agricultural sector in developing countries are now taking place against the background of major structural change in the world agricultural industry. In many developed countries, agricultural production is changing from an industry dominated by family-based, small-scale farms or firms to one of larger firms that are more tightly aligned across the pr oduction and distribution value chain (Boehlje, 2000). In addition, the trend of market-oriented reforms, following multilateral trade liberalisation and especially structural adjustment programmes in developing countries, has led to the increased integration of world markets (Reardon & Barrett, 2000). This has meant that farmers in the developing world are now, more than ever, linked to consumers and corporations of the rich nations. Although most of the changes in agricultural and food markets are taking place in developed countries, they have far-reaching implications for agricultural development efforts in developing countries.