Abstract:
Contract farming has been taken as a possible solution to increasing productivity, incomes and also link smallholders in modern chains. Thus, this study aims to analyze the impact of contract farming on smallholder malt barley farmers’ income, and identity factor influencing farmers choice of contract enforcement mechanisms in Lemu Bilbilo District Arsi Zone of Oromia region, Ethiopia. Data were collected from 342 (120 contract and 222 non-contract) of randomly selected farm households. Both descriptive statistics and econometric models were used for data analysis. The descriptive results show that the main reason for household joining in contract farming were; it provides them with farm inputs, reduce production and marketing risk while lack of transparency, contract breach and enough land limit to joining. The Logit model results showed that formal year of schooling, land holding size, livestock holding size excluding oxen, member to cooperatives and access to credit were positive and significant effect on the decision to participate in contract farming. The Propensity score matching was used to analyze the impact of participation in contract farming on farm household income. Its results revealed that participation in contract farming has a positive and significant on farmers income which increase income participant 15% higher than income of non-participant households. The Trivariate probit used to examine factors affecting farmer choice of contract enforcement mechanisms. Its results show that age, market information, marital status, terms of payment, frequency of transaction, member to cooperatives and informal institution, length and volume of transaction had significant effect on choices of contract enforcements mechanisms. Given the favorable condition for malt barley production and high demand in study area, there is a need to address the factors affecting contract farming participation and enforcement choice. This study also shows that contract farming has a potential to increase household income, which policy makers of and other concerned bodies may take as an alternative strategy to expand domestic production malt barley and cut the import bill paid for it thereby increase smallholder incomes
