On small farms and the design of contracts in agricultural markets : experimental evidence from Vietnam

Over the past two decades the agrifood industry in developing countries has undergone rapid modernization. Economic growth, rising incomes, urbanization and the spread of western lifestyles have led to changes in consumption patterns in Asia and parts of Africa. As a result, the domestic demand for high-value agricultural products like fruit, vegetables, milk and meat has increased. Meeting consumers’ high expectations regarding product quality attributes presents an immense challenge to processors, wholesalers and retailers. As year-round supply of consistently high-quality produce is becoming crucial, the degree of control required in the procurement process is increasing and traditional supply chains based on anonymous spot-market transactions are reaching their limits. Hence, vertical integration is encouraged, often through contract farming arrangements between buying firms and selling farmers encompassing a broad array of oral or written agreements that utilize various incentive instruments to ensure a stead