IFPRI - Lentil Contract Farming in Nepal Participation and Impact, Anjani Kumar, IFPRI

Lentil Contract Farming in Nepal

Participation and Impact

Anjani Kumar

Devesh Roy

Gaurav Tripathi

P. K. Joshi

Rajendra P. Adhikari

International Food Policy Research Institute

South Asia Office, New Delhi


Contract farming is envisaged as one of the strategies to increase productivity enhance farmers’ incomes, reduce transaction cost, minimize risk improve product quality and safety

At present, contract farming in Nepal is at its infancy and needs to be popularized. enabling polices and appropriate institutional arrangements.

There are good models of contract farming which are being practiced globally and in neighbouring countries of Nepal.

Initial evidence in Nepal is also promising

Background


Concerns/constraints

predominance of smallholders

small-scale enterprise,

low marketable surplus,

scattered production

diseconomies of scale in aggregation of outputs and provision of technology, inputs and services

higher transaction costs (contracting, monitoring, enforcement etc.)

weak technical capacity,

lack of capital,

high vulnerability to risks and

challenges to comply with food safety and quality standards,


Key Questions

What factors motivate farmers’ participation in contract

farming (CF)?

Does CF raise profits, increase yield, and reduce cost of

production?

Does CF enhance food quality and safety through adoption

of good agricultural practices?

These research questions are addressed with one case study-

Lentil


Lentil

Lentil is Nepal’s number one agricultural export

commodity.

In Nepal it is the most significant pulse in terms of both

area and production,

It constitutes more than 60 % of the total pulses produced

in the country.

Lentil has a share of about 13 percent of total agricultural

exports from Nepal.

Globally, the most traded pulse is lentils.


Snapshot of lentil in Nepal

Year

(TE)

Percenta

ge share

in GCA

Percenta

ge share

in

agricultu

ral VOP

Percentage

share in total

agricultural

exports (in

value terms)

1981 3.40 2.38 0.00

1991 2.97 2.25 11.46

2001 3.95 3.07 10.83

2013 4.16 2.94 11.35

Year (TE)

Area

(,000

ha)

Production

(,000 tons)

Yield

(kilogra

ms/ha)

1981 98.0 48.7 497

1991 120.6 74.5 618

2001 178.0 137.6 773

2013 207.2 214.0 1,033

CAGR(

%)

2.5 4.7 2.1


Lentil


Data


Contd.

We surveyed 602 lentil farmers

comprising 300 contract farmers

and 302 noncontract farmers,

Bardiya, Banke, and Chitwan

Chosen randomly from 27 wards

under seven village development

councils

The share of the sample size

allocated to each sample district

was in proportion to the number

of contract farmers.

District Number of sample

households

Contract

farmers

Non-

contract

farmers

1. Banke 112 89

1. Bardia 155 145

1. Chitwan 33 68


Methodology

Descriptive analysis

Socio-economic characteristics

Economics of cultivation

Econometric analysis

Determinants of participation in CF

Logit model

Impact of CF on profit and adoption of FSM

Instrumental variable approach


Methodology

To try to address the issue of the nonrandom nature of participation in

CF, several papers have used a two-step procedure in assessing the

impact of CF on farmers’ returns

(for example, Bellemare 2012; Ito, Bao, and Sun 2012; Katchova and Miranda 2004; Miyata, Minot, and Hu 2009; Simmons, Winters, and Patrick 2005; Wang, Zhang, and Wu 2011; Gupta and Roy 2012).

We also involve a two-step procedure using instrumental variables (IVs)

to address the issue of endogeneity of the contracting variable.

In the first stage, the dependent variable is binary (farmers’

participation in contracts = 1, otherwise = 0), and the independent

variables are a mix of qualitative and quantitative variables

The logistic regression is given by

jjo XppY )]1/(ln[

,


Methodology

,


Socio-economic characteristics

A simple look reveals significant differences in some characteristics and

small differences in others.

Significant difference in terms of

operational holding size,

gross cultivated area,

cropping intensity, and

household size.

Non-significant difference in

terms of age,

education,

occupation,

irrigation,

experience in farming,

incidence of migration, and

monthly remittances.


Contd.

Lentil

CF Non-CF Difference

Yield (Q/ha) 11.4 10.1 1.3***

Price (NPR/Q) 8,886 7,528 1,358***

Value of production (NPR/ha) 102,461 75,714 26,747***

Cost of cultivation (NPR/ha) 54,333 52,231 2,102

Cost of production (NPR/Q) 4,759 5,171 –412*

Profit (NPR/ha) 48,128 23,482 24,646***

Profit (NPR/Q) 4,216 2,325 1,891***


Farm size and CF-Rs/ha

0

10,000

20,000

30,000

40,000

50,000

60,000

Marginal Small Medium Large

CF Non-CF


CF: Participation and Impact

Our results show that farm size and access to mobile phones are

significant determinants of participation in CF.

Family size and caste attributes also are related to participation in CF.

Though an overwhelming majority of farmers in lentil cultivation are

small farmers, there still is stratification, with land size positively

associated; comparatively large farmers have a greater chance of

participating in CF.

Conditional on participation, contract farmers earn significantly higher

profits, realize higher yields, and register lower costs of production.

Profit for lentil farmers increase from NPR 13.27 per kg to NPR 35.73

per kg for different specifications due to contract.


Conclusions and policy implications

One of the strongest criticisms of CF in developing countries stems

from the perception that small farmers will be exploited by the “big”

integrators, especially when they have limited options.

In fact, there has been an intense debate in the formal literature, and

some researchers and policymakers perceive CF as being close to

bonded labor (for instance Sivaramkrishna and Jyotishi 2008; Ghosh

2003; Singh 2002),

While others perceive it as a way of promoting agricultural

commercialization (Warning and Key 2002; Simmons, Winters, and

Patrick 2005; Birthal, Joshi, and Gulati 2005; Pomareda 2006; Miyata,

Minot, and Hu 2007; Bellemare 2008).


Conclusions and policy implications

Further, Nepal has the opportunity to exploit the huge Indian pulse

market, which imports 2 to 3 million metric tons of pulses annually to

meet its domestic demand.

CF through a collective mechanism could be one of the most promising

vehicles to increase lentil production and enhance quality to harness

the potential of the neighboring international market.

The legal system for export licensing is in place, but adequate attention

needs to be given to ensure the quality and safety of the produce.

Policy makers in Nepal should devise appropriate strategies and

mechanisms to promote CF in such commodities, which can contribute

to enhancing farmers’ welfare and mitigating poverty.

GOI should also examine the possibilities of importing from Nepal,

which may require less transportation cost.


Thank you

IFPRI - Lentil Contract Farming in Nepal Participation and Impact, Anjani Kumar, IFPRI

Education

Transcript of IFPRI - Lentil Contract Farming in Nepal Participation and Impact, Anjani Kumar, IFPRI