Does contract farming arrangement improve smallholder tobacco productivity? Evidence from Zimbabwe

Abstract

Contract Farming Arrangements (CFA) can be viewed as a pro-active response to lack of reliable markets and steeply rising input prices. CFA proponents argue that CFA can enhance technical efficiency of tobacco farming and productivity. Thus, in this study, the paper interrogates the effect of CFA on tobacco productivity in southern Africa: Hurungwe district of Zimbabwe. The study controls for both observable and unobservable factors, like age, education, and ability to use information-unknown to the researchers, explaining farmers decision to participate in CFA. The study uses the Endogenous Switching Regression (ESR) model, which also acts as a robust check for the Propensity Score Matching techniques as it studies both observable and unobservable factors influencing CFA participation. Based on the ESR model, this study finds that CFA improves tobacco productivity by 39%. Nonetheless, CFA is labour-intensive. Hence, women and the elderly are less likely to participate in CFA, suggesting the need to develop gender-sensitive labour-saving technologies. Even though tobacco products kill their users, we would like to explore whether CFA can make farming more productive or not. We hypothesize that if tobacco farming would be more productive, then perhaps farmers will have enough money to buy food so they can be healthier even if the tobacco leaves, they grow can kill people elsewhere. Thus, these results inform CFA-related policies that improve smallholder tobacco productivity in Southern Africa. With existing tobacco controls, these results are equally valid to other cash crops where most developing economies anticipate the majority resource-constrained smallholder farmers to shift their production systems entirely away from tobacco in the immediate future.