Rice Contract Farming in Lao PDR: Moving from Subsistence to Commercial Agriculture

Poverty is prevalent among small farms in transition economies such as the Lao PDR, where market failures prevail and subsistence production is the norm. Contract farming is emerging as a promising tool to facilitate market linkages and provide the necessary supports that enable small farms to transition to commercial production. Using data from a household survey of 332 contract farmers and 253 non-contract farmers, this study attempts to empirically assess the potential of contract farming as a development tool to increase small farm incomes and reduce rural poverty.

The findings suggest that contract farming can be an effective private-sector-led mechanism to facilitate the transition to commercial agriculture. In addition to bringing foreign direct investment into the rural sector, contract farming can be an effective tool to improve the profitability and raise the incomes of small farmers, thereby reducing poverty in rural areas with limited market development.

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1. Axelle Boulay
   (posted 22 September 2008 / 01:44:23 PM)
   
   Thank you very much for this publication that analyzes in-depth the impacts of contracts on adopters' livelihoods.
   
   You write: "contract farmers would have lower profits than non-contract farmers if they operated outside of the contract." and you deduce from this finding that "better-off farmers choose to produce independently rather than taking on the burden of fulfilling the requirements of a contract." I think it is important to mention that this deduction is only valid in the context of contract arrangements that include a provision of credit to contract farmers.
   
   In the context of my PhD, I conducted a study of contract farming for eucalyptus in Thailand. Contracting companies, which are using eucalyptus wood for pulp and paper production, do not provide credit to contract tree farmers. Based on an household survey of 450 eucalyptus tree farmers, I found that better-off farmers are more likely to adopt a contract because they have the financial capacity to comply with the terms of the contract (such as a minimum rotation length).
   
   Axelle Boulay, PhD scholar
   Australian National University