IMPACT OF CONTRACT FARMING ON SMALLHOLDER MAIZE FARM PERFORMANCE AND AGRICULTURE COMERCIALISATION IN NORTHERN GHANA

Abstract

To facilitate the shift from subsistence-oriented agriculture to market-oriented agriculture in northern Ghana, it is imperative for smallholder maize farmers to actively engage in the market via innovation and sustainable farming methods such as contract farming (CF). This study (1) examined the design and operationalisation of maize CF schemes in northern Ghana; (2) analysed the factors that influence farmers’ decisions to participate in CF schemes and how participation affect farm performance; (3) examined maize farmers’ participation in markets and the extent to which CF influence the decision and degree of market participation, and (4) examined smallholder farmer linkages to the commercial value chains in northern Ghana and how contract farming influences these linkages.. The study focused was on maize CF. The study uses primary survey data collected from 169 maize CF farmers and 251 maize non-CF farmers across two regions in five districts in northern Ghana. Descriptive statistics and context analyses were used to analyse how CF schemes are design and operationalise in northern Ghana. The results showed that two type of contract designs (verbal and written contracts) exist in the study area and contract duration was usually one year. Contracts were formulated by firms independently of smallholder farmers, and thereafter submitted to the farmers, delineating all the terms and conditions of the contract for their acceptance. The endogenous switching regression model, which eliminates biases due to observed and unobserved heterogeneities in household characteristics, was employed to estimate the impact of CF on maize farmers’ performance (yield and net farm income). The results showed that CF increases maize yield and net farm income per acre of contract farmers. Moreover, the non-CF farmers would have also benefited substantially if they had participated. To evaluate the factors influencing smallholder farmers’ participation in the market, the Cragg’s double hurdle model (applying the control function approach) was adopted. The results indicate that among other factors CF positively influenced the decision to participate in the market. Conversely, on the extent of market participation was explained negatively by CF participation. The study concludes that CF plays a crucial role in transitioning smallholder maize farmers from subsistence to market-oriented agriculture in northern Ghana. For maximum benefits of CF and also to encourage inclusive agricultural commercialisation, policies should focus on enhancing transparency in contract, strengthening farmer bargaining power, and improving rural infrastructure.