Profitability of contract barley farming in Kapchorwa District, Uganda

Abstract

This study was conducted in Kapchorwa district in eastern Uganda where farmers through their Kapchorwa Commercial Farmers Association produce barley on contract with Uganda Breweries Limited. Contract farming could be an institutional arrangement that enables farmers to access markets and inputs for commercial production. However, it has been controversial and criticized for being exploitative. In Uganda, there is no empirical evidence to show whether the contract barley farmers do break-even or not. The aim of this study was to determine the profitability of contract barley farming by estimating the gross margins earned from barley and to examine factors that affect its profitability. The study involved both qualitative and quantitative analyses of survey data collected through interviews from a sample of 300 randomly selected farmers. The study revealed that the contract barley farmers do break-even, earning relatively high gross margins of 1.20 and 2.05 million shillings per hectare in 2006A and 2006B, respectively. The farmers also registered high technical efficiency levels with a mean of 79.4 percent in 2006A and 64.2 percent in 2006B. The gross margins were significantly influenced by the total land of the farmer, household size, expenditure on extension visits and compliance with the use of fertilizers and pesticides. These results rationalize how institutional innovations such as farmer groups and contract farming can increase the productivity and efficiency of the resource-poor smallholder farmers. The contract provides assured market for the farmersâ produce at pre-determined prices and thus minimizes price risk. It also minimizes production risks through supply of production inputs. These permit the farmers to make profitability projections in advance and to develop appropriate production plans that enhance their yields and profits. The study recommends that contract farming be embraced by farmers especially women and other large agro-processors.