Does contract farming affect technical efficiency Evidence from soybean farmers in Northern Ghana

Abstract

Understanding how and the extent to which contract farming arrangements impact agricultural productivity is important to ensuring that policies are designed to maximize the likelihood of success. Using cross-sectional data from 516 soybean farmers in Northern Ghana, we provide empirical evidence that contract farming increases soybean productivity and technical efficiency in Northern Ghana. We use propensity score matching to reduce bias from observables, and then estimate a stochastic production frontier model that addresses selection bias arising from unobservable variables. We find that the technical efficiency levels of contract farmers are 77 percent compared with 69 percent for non-contract farmers. We also find that access to credit, extension contact, and farmer group membership are key determinants of participating in contract farming.