Farmer’s risk attitude, supply chain and perceived benefits in contract farming: The case of tobacco growers in Pakistan

Abstract

The transformation of agriculture systems into high-value supply chains implies a renewal of grower-processor relations in developing countries. This study investigates the supply chain differentiation that the farmers come across during tobacco cultivation in Pakistan and farmer’s risk attitude which affects their perceived benefits of contract farming and subsequently their participation’s decision by using the survey data collected from Khyber Pakhtunkhwa and Punjab, Pakistan. Results from the probit model show that risk attitude of the farmers along with their household size, land ownership status and total monthly income affect the participation of tobacco growers in contract farming agreement, significantly. Similarly, price protection is the major motivation behind participation in contract farming as far as perceived benefits of contract farming in this study are concerned. Insights obtained from the ordered logit results highlight the criteria that planners should consider in order to better design contractual arrangements so as to satisfy the specific needs of the tobacco growers. The findings of this study will help to improve the understanding of farmers’ behavior and encouragement of risk seeking farmers by anticipating the benefits in term of reduction in production cost, decreasing marketing costs and focusing more on quality improvements for tobacco crop.