The impact of contract farming on household income and poverty alleviation: Insights from smallholder poultry farmers in arid and semi-arid regions of Kenya

Abstract

This study explores the impact of contract farming on household income and rural poverty alleviation using measures outlined by World Bank among 410 smallholder Kenyan poultry farmers. Using endogenous switching regression and propensity score matching models, we found that contract farming significantly boosts household income, with participants experiencing a 74% increase. If non-participants had engaged in contract farming, their income could have risen by 45.59%. The average treatment effect on the treated was USD 0.21 per capita per day, corresponding to a 9.83% reduction in extreme poverty and a 16.90% reduction in poverty severity. Written contracts proved the most effective in poverty alleviation, contributing to reduction of 12.17% and 20.93% in extreme poverty and poverty severity respectively. Spot transactions resulted in a 10.35% reduction in extreme poverty and a 17.80% reduction in poverty severity, while unwritten contracts had the least impact, with reductions of 7.92% and 13.62%, respectively. These findings demonstrate the substantial benefits of contract farming in improving household income and alleviating rural poverty. They highlight the importance of implementing and supporting written contracts to maximise poverty reduction. Targeted policy interventions and support for contract farming could further enhance its effectiveness and.