When Does Contract Farming Improve Farmer Welfare? The Role of Commercialisation in Ghana's Rice Sector

ABSTRACT Contract farming is widely promoted as a means of connecting smallholders to agricultural markets, reducing market uncertainty and improving farm‐household welfare. Although irrigated rice farming may reduce production‐related risks, farmers remain exposed to market uncertainty, underscoring the potential relevance of contract farming arrangements. Yet whether participation is associated with higher income, and whether commercialisation explains this relationship, remain important empirical questions. This study pursued this gap by examining the association between contract farming and per capita rice income using cross‐sectional data from 286 irrigated rice farmers in Ghana's Upper East Region. Instrumental‐variable techniques and double/debiased machine learning are employed to address potential endogeneity and functional‐form concerns. The results consistently show a positive association between contract‐farming participation and per capita rice income across the estimated specifications. Mechanism analysis reveals a nonlinear, threshold‐dependent pathway: commercialisation does not meaningfully transmit per capita income gains at low levels of output marketed but becomes a significant conduit at higher levels. This implies that higher per capita income materialises primarily through deeper market integration. Subgroup estimates also suggest variation in the association, with larger point estimates among smallholders, male farmers, farmers with access to extension services and those positioned at higher levels of the income distribution. The study concludes that promoting contract farming without commercialisation is insufficient for higher per capita income. Therefore, policy efforts should consider improving farmers' market orientation while implementing targeted interventions, especially for female and marginalised farmers without access to extension services, to ensure equitable and sustainable outcomes from contract farming.