Contract Farming as Part of a Multi-Instrument Inclusive Business Structure: A Theoretical Analysis
Contract farming (CF) agreements are presently being restructured to form part of more complex Inclusive Business (IB) set-ups. Additional instruments, alongside CF, are implemented to overcome the challenges of CF and to adapt to the policy environment in which the different stakeholders operate. This paper develops a theoretical framework that gives insight into how these complex entities are structured and operate in a developing country context. It finds that a high dependence by the offtaker in the first case study stimulates a higher level of commitment and investment by this stakeholder in the contract arrangement. In turn, this increases the asset specificity aspect, which then requires safeguards to ensure the smallholders adhere to the contractual agreement. A higher dependency in this particular study also resulted in a higher number of smallholders being engaged in the contract, requiring mechanisms to efficiently monitor and coordinate them.