Factors Affecting Participation in Contract Farming of Smallholder Cavendish Banana Farmers in the Philippines

Participation of smallholder Cavendish banana farmers in contract farming in the Philippines started with the implementation of the Comprehensive Agrarian Reform Law. Multinational and large domestic companies which used to manage their corporate farms had to transfer ownership of lands to the farmers who used to work in these corporate farms. Various contractual arrangements had emerged to engage farmers for these companies to continue their foothold in the export markets where Philippines ranks second. However, some of these arrangements were deemed inequitable that resulted to side-selling and the emergence of spot markets. Participating in contracts or selling in the spot market has corresponding implications to profit generation. Therefore, exploring what influences contract participation of farmers and its role in improving their profit became highly relevant. As such, this paper aimed to examine the factors that affect the decision of farmers to contract or sell in spot market and explore which arrangement yields better profit. Data collected from 187 respondents were analyzed using a probit regression model. Results show that education, farming experience, and credit/financial support significantly affect contract farming participation. The results highlighted the importance of technical skills and knowledge, and financial support in making decisions such as contract participation. Results also show that contract farmers earn higher profits than non-contract farmers which may imply contract farming to be better. Due to the controversies surrounding contract farming, effective mechanisms to regulate contracts are among the recommendations to ensure the welfare of the farmers.