Contract Farming and Technical Efficiency: A Case of Export-Oriented Organic Rice Farmers in Pakistan

Abstract

Although organic rice is a niche market in Pakistan, it has exhibited enormous potential for growth in export-oriented production. Since contract farming is the leading promoter of export-oriented organic rice production in Punjab, Pakistan, improving the technical efficiency of smallholder rice farmers through contract farming holds sufficient potential. This work examines the influence of contract farming participation on smallholder rice farmers’ technical efficiency using a cross-sectional data set of 650 respondents. We applied a stochastic frontier analysis (SFA) to examine the production frontier and inefficiency estimates. Further, propensity score matching (PSM) was used to control endogeneity and self-selection bias in technical efficiency estimates. The results reveal that the technical efficiency score of organic rice farmers in Punjab, Pakistan, is 89.7%, which can still be improved by 10.3% at the current sociodemographic characters and input levels. Likewise, land size, seed, and machine expenditures are the key inputs of the production frontier. Results show a positive and significant connection between contract farming participation and technical efficiency. The study extends the literature on technical efficiency, export-oriented production, contract farming, and the well-being of smallholder farmers. Moreover, the study’s findings provide cues for policies and practices.