Importance of Contract Farming In Different Stages of Market Development
Based on stylized facts from developing countries across Asia, the importance of contract
farming as an institution for facilitating market exchange differs at each stage of market
development.
Figure 1. Stages of Market Development and Contract Farming [ PDF 36KB | 1 page ]
If contract farming is to be classified based on its main function, it could be summarized as
follows:
Stage 1. Transformation from subsistence to commercial agriculture: the main function of
contract farming is facilitating transformation from subsistence to commercial farming.
Stage 2. Development of agro-industry and crop diversification: contract farming is essential
in the growth and development of the agro-processing industry.
Stage 3. Mass production and spot market transaction: the market functions well, and the
importance of contract farming is relatively limited.
Stage 4. Product differentiation and globalization: contract farming functions as an institution
to address market failures associated with product attributes in the globalized market.
Download this Discussion Paper [ PDF 148.7KB| 22 pages ].
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The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
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