Does Contract Farming Improve Income of Smallholder Avocado Farmers? Evidence from Sidama Region of Ethiopia

Contract farming is considered the most effective income-generating strategy for smallholder farmers and a significant source of foreign currency in Ethiopia. Avocado farmers in the study area made a contract agreement with the Savando avocado oil processing company, which is part of the Yirgalem agro-processing industry. The main aim of this research was to look at the factors influencing avocado producers’ decision to participate in contract farming and how it would affect their income, using data collected from 413 avocado producers in Dale district, Sidama region, Ethiopia. The cross-sectional research design and multi-stage sampling procedure were used to choose the study’s representative sample. The data were analyzed using descriptive statistics, inferential statistics, and propensity score matching model. The findings of this study indicated that the age of the household head, sex of the household head, education level of the household head, family size, and proportion of the farmland allocated for avocado production influenced the avocado producers’ participation in contract farming under the agro-processing industry. Average treatment effect on treated (ATT) estimation showed that participation in contract framing had a substantial impact on avocado producer households’ income. The study suggests that local government should offer adult education to improve smallholders’ knowledge and attitudes towards the benefits of participation in contract farming schemes in the study area. Moreover, the district office of agriculture needs to work with farmers to allocate more land for avocado production.