Markets and Institutions in sub-Saharan Africa; How Contract Farming Interact with Institutions Regulating Agricultural Markets in Kilombero, Tanzania

Start date: 28 September, 2014 End date: 22 November, 2014 Project type: Master's Thesis (prior to 2018) Project code: A27232 Institutions: University of Copenhagen (UCPH), Denmark Grant recipient: Jacob Worsøe Total grant: 19,000 DKK



Agricultural markets in sub-Saharan Africa are characterised by inefficiency as a result of institutional voids. Contract farming can be seen as a specific institutional arrangement that can alleviate problems of transaction costs and market imperfection. Contract farming has increasingly gained attention, as a way to bring smallholders into commercial agriculture and in Tanzania a strong emphasis on contract farming has been instrumental in recent attempts of modernising the agricultural sector.
This thesis uses a case study of the Kilombero sugarcane contract scheme to explore how contract farming interact with underlying layers of institutions that are governing markets for agricultural products. It shows that while the contract scheme has improved smallholders’ livelihoods and empowered them both personally and socially, it has simultaneously been perceived negatively and is leading to widespread mistrust and scepticism. In comparison to traditional informal institutions governing local markets for agricultural products the highly complex formal contract scheme seems to increase transaction cost problems associated with information asymmetry and opportunism.
The findings suggest that by distancing the farmers from the market the contract scheme brings resemblance to previous attempts on formalising institutions for marketing agricultural products in both colonial and post-colonial times. Old persisting perceptions are forming underlying institutional layers that the contract scheme interacts with in the concepts of trust and confidence. As the challenges in the scheme exacerbates, uncertainty reinforces old patterns and enhance the resemblance to the underlying institutional layers.
The findings challenge ideas about the universal application of contract farming and suggest that individual contract farming arrangements must be designed to adequately interact with local institutional landscapes.

Keywords: institutions, contract farming, smallholders, agricultural markets, sugarcane, Tanzania