Household Characteristics

Family size and land size

On average, contract farmers have larger families and own more land. The average family size for contract farmers is 5.88 persons (4.52 adults) per household, greater than noncontract farmers' average of 5.61 persons (4.03 adults) per household. On average, a contract farming household owns 2.48 ha, compared with 1.72 ha for non-contract farmers (Table 1 [ PDF 14KB | 1 page ]).

Household economic conditions

On average, contract and non-contract farmers have similar household economic conditions. Although contract farmers own more fixed assets than non-contract farmers, including televisions, tractors, motorbikes, and livestock, contract and non-contract households have similar monthly consumption expenditures (147 thousand kip/person and 144 thousand kip/person, respectively)² and rely on homegrown products to a similar extent (36% and 38%, respectively). The average monthly consumption expenditure for both contract and non-contract households is slightly higher than average for Vientiane Province (NSC, 2004).

Income profile

The incomes of the surveyed households are not limited to agriculture but derived from diverse sources, as shown in Figure 2 [ PDF 15.9KB | 1 page ]. On average, contract and non-contract farmers have similar incomes from non-rice sources (2.4 million and 2.3 million kip/adult, respectively). However, non-contract farmers derive a significantly higher percentage of non-rice income from off-farm activities (77%) than contract households (67%). The composition of off-farm income is similar for both groups, with wage labor comprising nearly half of off-farm income. For wage income, household members typically travel to Vientiane city for employment opportunities.

Contract farmers on average have higher incomes from the sale of crops and livestock, suggesting that they are more oriented toward commercial production than their non-contract counterparts. As they are located slightly, although not significantly, closer to the highway and market than non-contract households, contract farmers may have better access to market information and be able to take advantage of market demand for their produce.

Credit

Overall, 16% of the surveyed households had loans from the APB, including 20% of contract farmers and 10% of non-contract farmers. Since Lao Arrowny operates in areas immediately outside of the capital city, the surveyed households have better access to formal credit than most small farms in the Lao PDR. In 2003, less than 3% of rural households in the Lao PDR borrowed from the formal sector (Coleman and Wynne-Williams, 2006). As the APB generally lends to farmer groups rather than to individual small farms, these results suggest that the contract arrangement can facilitate improved access to credit.

Among farmers borrowing from the APB, there is no significant difference in the amount of credit received. The average loan size from the APB for contract farmers was 2.24 million kip compared with 1.85 million for non-contract farmers. As all loans were financed by the APB, the interest rates and repayment terms were largely the same.

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Comment(s)

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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