Contract farming and vegetable value chain efficiency: A study from Quang Nam Province, Vietnam

Contract farming can create new market opportunities and enhance income for smallholder farmers. This study identifies opportunity for contract farming for vegetable growers in relation to cucumber production in Quang Nam province, Vietnam. The study uses data collected from secondary sources and a survey conducted among selected contract and non-contract farmers in Binh Trieu commune in Thang Binh district, Quang Nam province, Vietnam. Benefit-cost analysis was employed to measure the profitability of cucumber production under contract and non-contract farming at farm level. Socioeconomic characters of the contract- and non-contracts farmers were then compared for their economic performance and to identify the constraints surrounding the promotion of contract farming. The results show that there are several benefits in contract farming. In terms of socio-economic characteristics, there are no differences between the contract and the non-contract farmers except their participation in farmers’ organizations.
Large holding farmers and grower-based cooperatives are much more likely to be selected for contractual arrangement than other farmers. This implies that entrepreneurs tend to be interested in contracts with groups of farmers rather than with individual farmers. Acting collectively is likely to increase bargaining power of the contract farmers and reduce transaction costs. Vegetables can be purchased with higher prices which provides higher net return and profit cost ratio for the contract farmers than those of non-contract growers. Although there is a range of benefits in contract farming, an increase in input prices is one of the obstacles of contract farming and not all farmers can fulfil the requirements for production processes and output quality standards. Delays in payment and limited access to market information are also likely to reduce the participation in contractual agreements. It is recommended that farmers’ organizations should be formed to enable a group of farmers to enter the value chain and deal effectively with contract farming situations. Market information should be delivered to farmers through local media and the contracts should be made in the form that farmers can easily understand and comply with them. This study also considers a dual supply chain structure in which farmers either operate independently or in partnership with others. Other actors in the value chain, such as middlemen, entrepreneurs as well as end consumers also have important roles to play.