Houeshold Characteristics

The survey was conducted in 2005 in 615 households, consisting of 178 contract farmers, 220 former-contract farmers, and 217 never-contract farmers. Table 1 [ PDF 15.4KB | 1 page ] presents the sample farmers' basic characteristics.

A. Family Size and Farm Size

On average, contract farmers have larger families and more land (Table 1). The average family size for contract farmers is 6.19 persons (4.21 adults) per household, greater than former-contract farmers' 5.56 persons (3.93 adults) and never-contract farmers' 5.41 persons (3.56 adults). On average, a contract farming household controls 1.71 hectares of land (1.68 hectares of own land), greater than former-contract farmers' 1.30 hectares (1.27 hectares of own land) and never-contract farmers' 1.03 hectares (1.00 hectare of own land).

The relatively large family and land size may reflect the scale requirements for contract farming. As farmers usually need to split their land for commercial and self-consumption operations due to ‘taste' preferences in the traditional rice varieties, farmers with small areas of land tend to have insufficient land for planting AKR varieties. According to many pilot experiments conducted by AKR, farmers should own at least one hectare of land so as to be efficient under the contract. Thus, the company stipulated that farmers should own at least one hectare of land to be eligible to join the contract. However, AKR also allows farmers with good reputations but with small areas of land to join their land together to meet the minimum requirement of one hectare per single contract. The requirement on minimal land size also came from the experience that small farmers are more likely to break the contract as the costs of breaching it tend to be relatively low for them. Dealing with farmers with larger areas of land can help AKR reduce transaction costs. Because larger areas of land require more labor, a larger family size tends to be an advantage for contract farming.

B. Household Head Characteristics

On average, contract and former-contract farmers' household heads are older, more educated, and less likely to be female (Table 1). Farmers who are older, more educated and male tend to have large areas of land. Moreover, they usually have better access to firsthand information and hence are in a better position to make decisions. Farmers in other groups usually follow the decisions of farmers in successful groups. Social connections and interactions are key factors affecting farmers' contract choices.

C. Household Economic Conditions

On average, never-contract farmers exist in relatively poor economic conditions. They own less land, and fewer TVs, plows, pumps, bikes, motorbikes, and livestock than contract or former-contract farmers. They also have lower monthly expenditure per household adult member (Table 1).

Poor economic conditions may be a factor hindering farmers from joining the contract because they tend to produce rice for subsistence. In addition, poor economic conditions usually coincide with smaller land areas. Also, poor people are less reliable when it comes to honoring the contract because the costs of breaching the contract are relatively low for them.

D. Credit

Although the three types of farmer do not differ significantly in their total credits, the sources of their credits are quite different (Table 1).

As farmers under the contract are required to plant seeds provided by AKR, the average ratio of seed credit to their total credit (44%) is much higher than in former or never-contract farmers (Table 1). According to the farmers being surveyed, the availability of seed credits under the contract is one of the major factors affecting farmers' decisions to join the contract, especially as the interest rates on seed credit are relatively much higher.

While former-contract farmers are still able to receive 11 percent of their total credits from seed credits, a very small percentage (1.4%) of never-contract farmers' total credits come from seed credits (Table 1). As AKR is not a seed company, it only makes the seed available for farmers under the contract. Former-contract farmers usually keep seeds for their own use. When they face a seed shortage, they may either borrow seeds from each other or from farmers under the contract.

Both former-contract farmers and never-contract farmers obtained their credits mainly through micro-finance institutions (MFI) (44% and 37% respectively). Never-contract farmers obtained a higher percentage of their credits from moneylenders and family members or relatives (Table 1).

Since AKR discourages farmers from using chemical fertilizers and pesticides, contract farmers appear to receive less credit (in percentage terms) on fertilizers than former- and never-contract farmers (Table 1).

E. Incomes

On average, contract farmers have less income from non-rice sources (333,000 riel) than former-contract farmers (566,000 riel) and never-contract farmers (553,000 riel). This mainly reflects contract farmers' relatively lower off-farm incomes compared with the other two types of farmers (Table 1). Contract farmers on average have more income from other crops than never-contract farmers because AKR provides extension services on the integrated farming system and encourages farmers to grow other crops after the harvesting season. These income patterns indicate that contract farmers are more rice- (or agriculture-) oriented than former-contract and never-contract farmers.

The three types of farmers have similar compositions of off-farm incomes, except that former-contract farmers have a relatively small percentage of off-farm incomes from wages, but more from other activities. Most of the former-contract farmers live close to the market and they tend to engage in trading activities rather than wage employment. It is common for them to be merchants, traders, micro-businesses, micro rice millers, government officials, etc.

F. Geographical Position

On average, former-contract farmers are closer to the market than contract farmers. This may be a factor affecting their decisions not to continue staying in the contract. After a few years of AKR's operation, Neang Mali seeds became available in the local market in the four provinces where AKR is operating. Moreover, a market for Neang Mali rice also emerged as local traders purchased it to sell in Vietnam. Since farmers have the option of using their own seeds or purchasing Neang Mali seeds to produce AKR varieties to sell to traders instead of joining the contract, farmers weigh the costs and benefits based on their circumstances. Therefore, farmers closer to the market may be able to obtain more information and hence their decisions tend to be different. In the case here, a possibility is that former contract farmers may realize that they would be able to do better by themselves and hence choose not to join the contract.

During the survey year, the demand for rice was very strong as the neighboring Vietnamese trader came to purchase rice in Cambodia making the rice price in the open market very competitive. Thus, the minimum price offered by AKR was not very attractive; and farmers expected to earn more profits from operating with their own seeds and using more fertilizer to increase the yield to sell in the open market. In addition, farmers near the market may find it easier to take advantage of the price fluctuations in the market. Market information and trend are crucial for farmers to help them decide on strategies to sell their output. As the supply after harvesting is fixed, rice prices depend on demand and storage capacities and facilities and hence tend to be highly fluctuated after the harvest season. Therefore, people close to the market have better access to market information and hence are able to sell their outputs at better times.

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Comment(s)

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1. Anthony M. Zola
   (posted 02 July 2008 / 12:54:22 AM)
   
   This is an excellent contribution to the current debate about contract farming in mainland Southeast Asia.
   
   I have conducted research for the ADB, much less sophisticated than this study, and had similar results. Smallholder farmers were better off if they were engaged in contract farming than when they sold daily labor to local concessions / nucleus estates.
   
   My congratulations to the research team. It is not an easy topic on which to conduct research.
   
   Anthony Zola
   Bangkok, Thailand
   & Vientiane, Lao PDR