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Does Contract Farming Enhance Farmer Welfare? Evidence from Smallholder Red Chili Farmers

DOI
https://doi.org/10.3280/ecag2026oa20274
Submitted
maggio 27, 2025
Published
2026-10-01

Abstract

Red chilli (Capsicum annuum L.) plays a vital role in cuisine and rural livelihoods, yet its cultivation remains vulnerable to fluctuating prices, climate risks, and limited market access.
Contract farming (CF) has emerged as a potential mechanism to connect smallholder farmers with formal value chains while reducing production and marketing uncertainties. This study investigates the impact of CF on farmer welfare and the factors influencing participation among smallholder red chilli producers in East Java. Primary data from 108 farmers were analyzed using logistic regression to identify determinants of CF participation and propensity score matching (PSM) to assess income effects. The results show that participation in CF arrangements is associated with higher annual income among sampled farmers, primarily through better access to inputs, stable prices, and technical assistance. Younger farmers and those with plots located near their homes are more likely to participate, whereas those with full land ownership tend to avoid contracts to maintain autonomy.
The findings suggest that CF may help mitigate market risks and improve livelihoods under comparable production settings in high-value horticulture. However, inclusive program design is essential, particularly to address regional disparities, generational gaps, and land tenure issues. Policy recommendations emphasize standardized contracts, logistical support for remote areas, and targeted outreach to marginalized farmer groups.

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