This document presents a study on the impact of contracting on sunflower farmers in Tanzania. The study aims to estimate the effect of contracting on farmer technical efficiency and yields, and identify determinants of participation in contracts. The methodology uses stochastic frontier analysis and propensity score matching to correct for selection bias. The results show contracting has a positive impact on yields but not technical efficiency. Participation is influenced by age, education, household size, and landholding. The conclusions are that contracting can benefit yields but does not inherently make farmers more efficient, and selection effects must be controlled for in the analysis.

1. I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
UNIVERSITY OF COPENHAGEN
Does Contracting Matter?
An Efficiency Analysis of Sunflower Farmers in Tanzania
Anwar Seid Adem
Supervisor: Arne Henningsen
Institute of Food and Resource Economics
October 20, 2014
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2. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Outline
• Background
• Problem Statements
• Theoretical Grounds
• Gaps in the Literature
• Objectives
• Methodology
• Results and Discussion
• Limitations
• Conclusions
• Future Perspectives
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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3. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Background
• Expansion in sunflower production
• Unsatisfied demand for edible Oil
• 60% imported
• High Potential
• Good agro-ecological condition
• Human and natural resource
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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4. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Cont...
Figure: Tanzanian Sunflower Production (FAOSTAT)
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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5. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Cont...
• Expansion of CF
• Change in global agricultural
system
• Decline in farmers’ faith on other
institutions
• Farmers’ organization
• Cooperatives
• Governmental and
nongovernmental organization’s
attention
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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6. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Cont...
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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7. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Problem Statements
• Despite expansion of CF in sunflower production, the
question how it affect participants remain unclear.
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
Slide 7

8. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Theoretical Grounds
Lack of consensus on the impact of CF
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
Slide 8

9. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Gaps in the Literature
• Empirical gap
• Relatively little attention is given to the impact of CF
on farmers’ technical efficiency and yield
• Methodological gap
• Correcting biases from both observed and
unobserved variables mostly overlooked
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
Slide 9

10. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Objectives
• Estimating the impact of CF on:
1 farmers technical efficiency
2 farmers yield
• Identify the determinants of CF participation
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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11. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Methodology
• To measure technical efficiency:
Adopt Stochastic frontier analysis (SFA)
ln(yi) = β0 +
4
∑
k=1
βk ln(xik ) + δdj + vi −ui
• To correct selectivity bias:
Bravo-Ureta, Greene and Sol´ıs (2012)
• Propensity score matching:
• corrects bias from observables
• Greene (2010) framework:
• corrects bias from unobservables
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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12. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Cont...
• Data
• Kongwa district
• 2011/2012 growing season
• sample size: 396 farmers
201 participants
195 nonparticipants
• variables:
• sunflower yield
• inputs:
land, labor, seed, and other
implements expenses
• other farm and household
characteristics
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
Slide 12

13. Results and Discussion
Table: Technical efficiency score of participant and non
participant
Conventional unmatched Selection Matched
Part. Nonpart. Part. Nonpart.
Mean 0.565 0.559 0.516 0.839
SD 0.160 0.158 0.204 0.025
Minimum 0.159 0.167 0.095 0.752
Maximum 0.831 0.845 0.896 0.896
Mean Difference 0.006 -0.323
t-ratio 0.38 -21.66***
Observations 201 195 190 190
∗P < 0.10 ; ∗∗P < 0.05; ∗∗∗P < 0.01

14. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Cont...
Impact of CF participation on yield
Unmatched Sample Matched Sample
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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15. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Cont...
Predicted frontier output from bias corrected model
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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16. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Cont...
Determinants of CF participation
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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17. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Limitations
• Cannot be generalized
• Data problems
• Selection correction method only for error
components frontier model
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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18. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Conclusions
• Presence of selection in CF participation
• CF participants are not technically more efficient
• Participation has a positive impact on yield
• Participation decision affected by:
• age, education, number of people in household and
landholding size
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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19. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Future Perspectives
• Extending selection correction to efficiency effects
frontier (EEF) models
• Formal test of technology homogeneity/heterogeneity
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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20. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Thank you very much!
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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21. U N I V E R S I T Y O F C O P E N H A G E N I N S T I T U T E O F F O O D A N D R E S O U R C E E C O N O M I C S
Questions and Comments
Anwar Seid AdemSupervisor: Arne Henningsen — Does Contracting Matter?
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