Small Farmers in High-Value Chains: Binding or Relaxing Constraints to Inclusive Growth?

Considerable empirical work relates participation in contract farming with farm profitability. However causation is far from settled as few studies control for endogeneity of participation. Moreover the link between contract farming and equity is ambiguous as the association between contract farming and farmer endowments is mixed. This case study of smallholders in the tobacco industry addresses these issues, and seems to be the first such econometric application in the Philippines. Based on a treatment effects regression, contract farming increases profitability, with participation biased toward smaller farm sizes, supporting the positive role of contract farming toward inclusive growth in rural areas.