Participation in contract farming and farm performance: Insights from cashew farmers in Ghana

Abstract

The global demand for cashew nuts continues to increase steadily. However, many African countries face difficulties in marketing and adding value to the product. Using recent survey data of 391 cashew farmers in Ghana, this paper contributes to the grow- ing evidence on the significance of contract farming (CF) in improving the welfare of rural households in developing countries. Specifically, the paper analyzes the fac- tors that influence cashew farmers’ decisions to participate in CF, and the impact of participation on farmers’ performance. We employ a recently developed switch- ing regression model with endogenous explanatory variables and endogenous switch- ing to control for selection bias caused by observable and unobservable factors. The empirical results show that participation in CF significantly increases labor produc- tivity and price margins, as well as cashew yields, and net revenues. A disaggregated analysis of the sample into farm size categories reveals that small-sized cashew farms tend to benefit more through CF, compared to medium- and large-sized farms