Contract farming arrangements are becoming increasingly popular in developing countries. These arrangements, in which farmers agree to produce a given amount of a product and buyers agree to buy that amount, can help improve smallholders’ access to markets and credit opportunities. However, in reality, contract farming arrangements can be plagued with problems – farmers may renege on the agreement if they believe they can get a higher price from a different buyer or market, and buyers may renege because they distrust the quality of the product or the reliability of the farmer.
A project in Senegal aims to improve both the reliability of contract farming arrangements and the nutritional status of poor, semi-nomadic households. The project, conducted by researchers from IFPRI’s Markets, Trade and Institutions Division and Poverty, Health and Nutrition Division, was recently covered in the January 2016 issue of Field Exchange. The project featured a rather unique partnership involving a private company (la Laiterie du Berger, or LDB), an NGO (GRET, an international NGO that helped implement the design), a government organization (la Cellule contre la Malnutrition, a nutrition unit under the Prime Minister’s office), and a research center (IFPRI), as well as a local university (Université Gaston Berger) for data collection. This partnership ensured that the study’s results will be shared widely in various networks (private, public, NGOs).
The project tested whether providing a nutrition incentive – in this case, micronutrient-fortified yogurt – encouraged dairy producers in northern Senegal to deliver a more regular supply of milk to the dairy processing factory with which they had contracted. The project specifically dealt with the Fulani people, a poor, semi-nomadic population of pastoralists. This group has long depended on livestock, specifically milk and meat production, for their livelihoods; in 2006, pastoralists entered into a contract arrangement with the Laiterie du Berger (LDB) which aimed to increase the population’s milk-related earnings. Under this agreement, LDB collected fresh milk twice a day from households living within 50km of its processing plant.
However, several constraints reduced the regularity with which pastoralist households provided their milk, and drove up the cost of the milk deliveries. These include the seasonality of milk production in this semi-arid region; pastoralists’ credit constraints, which often lead to lower investments in inputs that could spur productivity; and the fact that women pastoralists are often not compensated directly for their labor, which provides a disincentive for many women to abide by the contract.
To address these constraints, the LDB began to offer free micronutrient-fortified yogurt for children if suppliers provided the agreed-upon amount of milk. The yogurt was specially designed to address the population’s high rates of anemia, which were 89 percent for children aged 6-23 months and 79 percent for children aged 24-59 months at the beginning of the project. The yogurt was delivered daily to collection points that were easily accessible to the population, especially women. A behavioral change campaign was conducted at the same time to inform households about the importance of micronutrients and the benefits of fortified foods for infants and children.
The study design featured a cluster randomized control trial to test whether this intervention: i) improved children’s nutrition in the region and ii) increased milk deliveries. A public lottery system was set up across four existing milk delivery routes, and households were placed either in an incentive group (those who received the yogurt) and a control group. Prior to the random selection of households into each group, milk suppliers signed a contract that committed them to deliver 0.5 liters of milk per lactating cow in their herd per day; for the incentive group, fulfilling this contract resulted in daily home delivery of yogurt for each child in the home. Households in the control group received no incentive or punishment for delivery.
The results show that the probability that farmers would deliver milk according to the contract during the dry season increased, as did the frequency of milk deliveries during the dry season. However, the overall amount of milk delivered saw little impact from the incentive. Household surveys found that households seemed to delay when they moved lactating cows in search of food; this meant that there were more lactating cows close to home to be milked. However, households did not seem to put more effort into daily milking practices, nor did they change their at-home milk consumption as a result of the intervention.
The study also found that the incentive contract mostly impacted households where a woman was the signatory. For these households, the nutrition incentive led to a 42 percent increase in milk delivery over the year. This finding is particularly important because it suggests that targeting women for health-related incentives may be more effective, at least for households in which women have decision-making power.
As expected, seasonality played a large role in how well the incentive worked. The average number of days on which milk was delivered declined from six at the start of the project to only two at the height of the dry season.
The project has several important implications for contract farming design. First, health incentives can be an important tool to inspire behavior changes in poor populations. Second, however, household dynamics also need to be taken into account; as mentioned previously, ensuring that women can access these health-related incentives will only really have an impact if the women in question have control and decision-making ability in their households. If men are solely in charge, targeting women will have very little impact. Finally, using existing agricultural value chains, such as LDB’s milk delivery routes, could be an important pathway to improve access to healthcare and nutrition services for poor, remote populations. While the increased milk deliveries that LDB received were not in themselves enough to cover the cost of the micronutrient-fortified yogurt, there is the potential for future partnerships between private sector enterprises and government agencies to make such interventions more cost-effective.
By: Sara Gustafson, IFPRI