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Abstract
This paper is an empirical analysis of the gains from contract farming in the case
of poultry production in the state of Andhra Pradesh in India. The paper finds that
contract production is more efficient than noncontract production. The efficiency surplus
is largely appropriated by the processor. Despite this, contract growers still gain
appreciably from contracting in terms of lower risk and higher expected returns.
Improved technology and production practices as well as the way in which the processor
selects growers are what make these outcomes possible. In terms of observed and
unobserved characteristics, contract growers have relatively poor prospects as
independent growers. With contract production, these growers achieve incomes
comparable to that of independent growers.