The Impact of Contract Farming on Efficiency Among Soybean Producers in Northern Ghana: Evidence from an Endogenous Treatment Effect Model

This study investigates the association of contract farming (CF) with technical, allocative, and economic efficiencies among soybean farmers in Northern Ghana. The study employed multistage sampling techniques to collect data from 374 soybean farmers (200 contract farmers and 174 non-contract farmers) across three districts in the study area. The endogenous treatment effect regression model was used for the estimation to address potential self-selection bias in contract participation, using the maximum likelihood estimation method. A stochastic frontier analysis was first used to estimate efficiency scores, which were then used as dependent variables in the endogenous treatment effect model. Results demonstrate that contract farming has significant positive effects on all efficiency measures. Specifically, CF soybean farmers technical efficiency increases by 37%, allocative efficiency increases by 35%, and economic efficiency increases by 6%. The estimated correlation between treatment assignment errors and outcome errors are statistically significant, suggesting that farmers with above-average efficiency metrics are more likely to participate in CF arrangements. We conclude that CF is a pathway to enhance soybean productivity and efficiency. These findings provide valuable insights for policymakers and agricultural development practitioners seeking to improve efficiency in soybean production through institutional arrangements like CF, while accounting for the farmers’ inner ability and behavioral factors in CF decision-making.