Ripe for Contracts: Avocado Contract Farming in Kenya

layout: true

---
name: cover
class: left, middle
background-image: url("data:image/png;base64,#../source-material/img/avocado.png")
background-size: cover

.pull-left[
## .white[Ripe for contracts? Avocado contract farming in Kenya]
### .white[Philipp Kollenda]
#### .white[May 19, 2022 (last updated: May 18 2022)]

.white[Spring Meeting of Young Economist 2022]
]

.right[
<img src="data:image/png;base64,#../source-material/img/authors/daniella.jpeg" width="82x"/>

<img src="data:image/png;base64,#../source-material/img/authors/fedes.jpeg" width="82x"/>
]

---
name:fact_poverty
class: middle

.pull-left[
<img class="box" src="data:image/png;base64,#../source-material/img/factoids/Slide4.jpeg" width="1000px"/>
]
.pull-right[
## .white[Fill text]
## .yellow[Two third] .black[of the world population live on] .yellow[less than $10 a day.]
## .red[780 million people] .black[live in extreme poverty on] .red[less than $1.90 a day.]
]

---
name:fact_food-security
class: middle

.pull-left[
<img class="box" src="data:image/png;base64,#../source-material/img/factoids/Slide5.jpeg" width="1000px"/>
]
.left.pull-right[
## .white[Fill text]
## .white[Fill text]
## .brown[26 percent] .black[of the world population was affected by] .brown[moderate or severe food insecurity] .black[in 2019.]
]

---
name:fact_smallholder
class: middle

.pull-left[
<img class="box" src="data:image/png;base64,#../source-material/img/factoids/Slide3.jpeg" width="1000px"/>
]

.left.pull-right[
## .white[Fill text]
## .white[Fill text]
## .darkgreen[86 percent] .black[of agricultural producers are] .darkgreen[smallholder farmers.]
]

---
name: motivation_contract
class: center, middle, inverse

# Can smallholder farmers access global agricultural value chains through contract farming?  
# Do they receive higher prices, earn more income and improve food security?

---
name: preview

### Can smallholder farmers access global agricultural value chains through contract farming?

**Research design / Intervention:**  
Study the adoption of contract farming induced by an external (non-random) intervention that established farmer organisations and matched them with avocado-exporters.  
Our identifying variation is that some farmers now live closer to a farmer organization - more likely to adopt.

**Data:**  
Panel data (2015, 2017) from 702 Kenian households that own avocado trees and sell to brokers or exporters.  
Transaction-level data (for avocados) and information on household demographics, consumption, agricultural and non-agricultural assets, production and income.  
Four categories of outcomes: farmer's behavior (*output*) and production, marketing and welfare (*impact*)

**Methodology:**  
(Non-randomized) Treatment is adoption of contract farming at endline versus no participation.   
Address selection into treatment with *doubly-robust difference-in-differences* and match based on (quasi-random) change in distance to nearest farmer organization.

**Results:**  
Contract farming increases likelihood that farmers sell to exporters, are trained and certified.  
Significant and meaningful increase in prices and knowledge, evidence for higher income and *lower* food security.

---
name: model

### Contract farming has many benefits over spot market transactions.

.pull-left[
.large[Spot market, the status quo]
<img src="data:image/png;base64,#../source-material/img/contract-farming-model/Slide6.jpeg" style="width: 400px"/>

👎 No coordination among farmers or with downstream value chain actors.  
👎 Take-it or leave-it offers. No traceability, little attention to harvest timing or crop quality.  
👎 Need stable relations for certification, training,  input provision, no access to credit.  
👍 Immediate payment, greater flexibility, lower transport cost, no membership fees.  
]

.pull-right[
.large[Group-based contract farming]
<img src="data:image/png;base64,#../source-material/img/contract-farming-model/Slide7.jpeg" style="width: 400px"/>

👍 Contract farming affects welfare through prices, quantities and (opportunity) costs.
`$u_i = f(y_i^{avo}, y_i^{-avo}) \quad y_i = p * q_i - c_i$`
]

---
name: model_evidence

## Empirical studies positive about contract farming
- 92% of studies estimate a positive effect on productivity, and
- 75% estimate a positive effect on income (Wang, Wang, Delgado 2014; Bellemare, Bloom 2018).
- Previous studies also find positive effects on food security, subjective well-being, household assets.

## but usually based on cross-sectional data and challenging identification.
- Notable exception: Arouna, Michler, Lokossou (2021) find positive effects on welfare and productivity for rice production in Benin. 💪

???
Aminou Arouna, Jeffrey Michler and Jourdain Lokossou

---
name: overview_intervention
class: left, middle, inverse

# Outline
.large[
1. Motivation and big picture
2. Our model of contract farming
3. **.red[Intervention and data]**
4. Methodology
5. Results
]

---
name: model_whathappened

## A program to strengthen exports from Kenya to EU
.pull-left[
1. .primary[Mid 2015:] Agricultural officers select ~~10~~ 4 villages and establish farmer groups.

2. .primary[End 2015:] Each group matches with one avocado exporter and 113 farmers who join groups included in our sample.

3. .primary[End 2015:] We sample [two comparison groups](#farmer_map): 244 farmers with existing contracts and 345 farmers in comparable (non-targeted) villages.

4. .primary[2015 - 2017:] Farmers [do what they do](#compliance). Groups (may) receive training and certification.

5. .primary[Mid 2017:] Endline data, including avocado transactions from 3 harvest seasons.
]

.pull-right[
<img src="data:image/png;base64,#../source-material/img/contract-farming-model/Slide8.jpeg" style="width: 400px"/>
]

---
name: data
class: middle, center

# Lots of data!

Household head answered modules on:
Household composition | Productive and non-productive assets | Agricultural production and marketing

And specifically on:
**Avocado transactions** | Farmer organization (membership and quality) | Training and certification

.footnote.left[[List of control variables.](#selection)]

---
name: overview_methodology
class: left, middle, inverse

# Outline
.large[
1. Motivation and big picture
2. Our model of contract farming
3. Intervention and data
4. **.red[Methodology]**
5. Results
]

---
name: methodology

## Estimating average treatment effects on the treated via doubly-robust difference-in-differences
We compare 124 farmers who adopt contract farming between the baseline and the endline with 292 farmers that sell avocado, but never under contract.
- We thus exclude farmers that have a contract at baseline (*always-treated and disadopters*).
- How does adoption and never-treated relate to the initial classifications? [Take a look!](#compliance)

####Farmers select into contract farming, but the intervention [makes it more likely for some farmers to join](#distance).

Zhao, Sant'Anna 2020 propose an identification framework that combines [.blue[difference-in-differences]](#did) with [.red[inverse probability weighting]](#matching) to get doubly-robust<sup>1</sup> estimates.

.center[
`$\begin{equation}\widehat{ATT} = \mathbb{E}_n \big[\color{red}{(\hat{w}_1(D) - \hat{w}_0(D, X; \hat{\gamma}^{ipt}))}\color{blue}{\big(\Delta Y - X' \hat{\beta}^{wls}_{0,\Delta} \big)}\big]\end{equation}$`
]

.footnote[
  1: doubly-robust = consistent if one of the two models is correctly specified.
]

---
name: tree_trends
### Parallel trends? 
#### No significant difference in the number of planted trees in the years before the treatment.

.center[<img src="data:image/png;base64,#../../../Output/Figures/treatment_event_plot_contractonly.png" style="width: 50%" />]

---
name: balance
### Balance on observables? 
#### Re-weighted sample is significantly more balanced.
.center[
  <img src="data:image/png;base64,#../../../Output/Figures/descriptivetable2_contract.png" style="width: 45%" />
]

---
name: overview_results
class: left, middle, inverse

# Outline
.large[
1. Motivation and big picture
2. Our model of contract farming
3. Intervention and data
4. Methodology
5. **.red[Results]**
]

---
name: recall_model_intervention
class: left

## Recall our main questions

.pull-left[
<img src="data:image/png;base64,#../source-material/img/contract-farming-model/Slide8.jpeg"/>
]

.pull-right[
### Part 1:
#### Does the .primary[adoption of] contract farming lead to selling to exporters, training and certification?
### Part 2:
####How does the adoption of contract farming change farmers' .primary[production, marketing and welfare outcomes]?
]

---
name: results1
class: inverse

### Part 1: YES! [(Table)](#results1_table)
### Contract farming significantly increases the likelihood that farmers sell to exporters, are recently trained and certified.
<img src="data:image/png;base64,#index_files/figure-html/results_intervention-1.svg" width="100%" />

???
The intervention works, in the sense that it **delivers the three immediate changes** to farmer behaviour and outcomes: selling to exporters, training and certfification.
- Adopters are **50 percentage points** more likely to sell any hass avocado to a company. We excluded farmers with contracts at baseline, so at baseline almost no-one in this sample sells avocados to a company (2.5 percent).
    - Farmers don't sell everything to the company, but go from basically 0 to selling more or less half of their avocado to the exporters.
    - The effect is largest for Hass avocado, which is the variety that exporters mostly demand.
- They receive the GAP certification and training, although if we take this as *compliance*, the fact that 50 percent of the farmers are trained between baseline and endline is not incredibly high.
    - At baseline, training rate is 18.6 percent in treatment group, so it almost triples.
- No significant shift in the type of avocado they sell. But we would not expect that (yet).

---
name: results2
class: inverse

### Part 2: yes
### Contract farming improves prices and knowledge on agricultural practices. Some evidence for more trees, shift to hired labor, higher income(s) and increased food insecurity.
<div id="htmlwidget-232f6698b5100c91455f" class="reactable html-widget" style="width:auto;height:auto;"></div>
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???
Next, we look at the actual production, marketing and welfare outcomes.
- For **production choices** we find that contract farmers
    - grow more hass trees (up 214%),
    - shift to hired labor and
    - know more about good agricultural practices (up 13%).

- For **marketing outcomes** we find that contract farmers
    - receive 1.18 KSh higher prices (up 37%). Recall that they do not sell all avocados to the companies. The results fits our qualitative knowledge that prices by companies are about 3 KSh higher.
    - higher income, no change in quality or quantity.

- For **welfare outcomes** we find
    - no significant effects, but higher income overall (69%!) and increased food insecurity are notable (and in the case of food insecurity worrying).

---
name: conclusion
## In conclusion:
#### Our results mainly confirm earlier empirical results on benefits of contract farming, but, arguably, with better identification through panel data.

- The intervention delivered on the three main outputs: selling to exporters, training and certification.

- Contract farmers get better prices, know more about good agricultural practices and plant more hass avocado trees.

- [Sales of the local variety decrease](#results_byavo) with no increase in sales of hass variety (yet): important to support farmers through the transition to higher yielding varieties.

- Using panel data matters.

- Today: contract farming. But, [which part of contract farming matters?](#results_activities)

---
name: end
class: inverse, middle, center

# Thank you very much!
![Avo](data:image/png;base64,#https://media.giphy.com/media/Efm0VUV1Llm07BmltF/source.gif)
### Happy to receive your comments at p.kollenda@vu.nl

---
name: end2
class: inverse, middle, center

# Thank you very much!
<img src="data:image/png;base64,#../source-material/img/avocado-gif.png"/>
### Happy to receive your comments at p.kollenda@vu.nl

---
name: farmer_map
class: inverse

#The intervention (2015 - 2017)
<img src="data:image/png;base64,#index_files/figure-html/farmermap-1.svg" width="100%" />
.footnote[
  [Back to main text](#model_whathappened)
]

---
name: compliance

### Some targeted farmers do not adopt contract farming while some untargeted farmers do.
.center[
<img src="data:image/png;base64,#../../../Output/Figures/contract_farming_arms.png" style="width: 40%" />
]

.footnote[
  [Back to study design](#model_whathappened) or [back to methodology](#methodology)
]

---
name: selection

### Farmers who adopted contracts own more trees, are older, more educated and have higher income at baseline.
.pull-left[
  #### The outcome and selection model control for the baseline values of:
  - Household composition
  - Assets and Land Ownership
  - Agricultural Production
  - Access to Banking and Finance
]

.pull-right[
  <img src="data:image/png;base64,#../../../Output/Figures/descriptivetable2_contract.png" style="width: 90%" />
]

.footnote[
  [Back to main text](#data)
]

---
name: distance
class: top, left

.pull-left[
### Farmers close to the four newly established farmer organizations are significantly more likely to adopt contract farming.
<table class="texreg" style="margin: 10px auto;border-collapse: collapse;border-spacing: 0px;caption-side: bottom;color: #000000;border-top: 2px solid #000000;">
<caption>Statistical models</caption>
<thead>
<tr>
<th style="padding-left: 5px;padding-right: 5px;">&nbsp;</th>
<th style="padding-left: 5px;padding-right: 5px;">Large sample</th>
<th style="padding-left: 5px;padding-right: 5px;">Small sample</th>
</tr>
</thead>
<tbody>
<tr style="border-top: 1px solid #000000;">
<td style="padding-left: 5px;padding-right: 5px;">Intercept</td>
<td style="padding-left: 5px;padding-right: 5px;">-2.31<sup>&#42;</sup></td>
<td style="padding-left: 5px;padding-right: 5px;">-1.72</td>
</tr>
<tr>
<td style="padding-left: 5px;padding-right: 5px;">&nbsp;</td>
<td style="padding-left: 5px;padding-right: 5px;">(0.97)</td>
<td style="padding-left: 5px;padding-right: 5px;">(1.16)</td>
</tr>
<tr>
<td style="padding-left: 5px;padding-right: 5px;">Distance Reduction</td>
<td style="padding-left: 5px;padding-right: 5px;">-0.48<sup>&#42;&#42;</sup></td>
<td style="padding-left: 5px;padding-right: 5px;">-0.38<sup>&#42;</sup></td>
</tr>
<tr>
<td style="padding-left: 5px;padding-right: 5px;">&nbsp;</td>
<td style="padding-left: 5px;padding-right: 5px;">(0.16)</td>
<td style="padding-left: 5px;padding-right: 5px;">(0.18)</td>
</tr>
<tr>
<td style="padding-left: 5px;padding-right: 5px;">Distance Dummy</td>
<td style="padding-left: 5px;padding-right: 5px;">1.52<sup>&#42;&#42;&#42;</sup></td>
<td style="padding-left: 5px;padding-right: 5px;">1.20<sup>&#42;&#42;</sup></td>
</tr>
<tr>
<td style="padding-left: 5px;padding-right: 5px;">&nbsp;</td>
<td style="padding-left: 5px;padding-right: 5px;">(0.31)</td>
<td style="padding-left: 5px;padding-right: 5px;">(0.37)</td>
</tr>
<tr style="border-top: 1px solid #000000;">
<td style="padding-left: 5px;padding-right: 5px;">Covariates</td>
<td style="padding-left: 5px;padding-right: 5px;">Yes</td>
<td style="padding-left: 5px;padding-right: 5px;">Yes</td>
</tr>
<tr style="border-bottom: 2px solid #000000;">
<td style="padding-left: 5px;padding-right: 5px;">Num. obs.</td>
<td style="padding-left: 5px;padding-right: 5px;">416</td>
<td style="padding-left: 5px;padding-right: 5px;">259</td>
</tr>
</tbody>
<tfoot>
<tr>
<td style="font-size: 0.8em;" colspan="3"><sup>&#42;&#42;&#42;</sup>p &lt; 0.001; <sup>&#42;&#42;</sup>p &lt; 0.01; <sup>&#42;</sup>p &lt; 0.05</td>
</tr>
</tfoot>
</table>
]

.pull-right[
### And predicted propensity scores for contract farming adoption have sufficient overlap.
<img src="data:image/png;base64,#index_files/figure-html/distance_plot-1.png" width="100%" />
  .footnote[
  [Back to methodology](#methodology)
  ]
]

---
name: did
class:middle, left

### .center[The trend in the control group is the counterfactual for the treatment group.]
.pull-left[
  <img src="data:image/png;base64,#../source-material/img/identification/did.png" style="width: 100%" />
]

.pull-right[
  .large[Identifying assumptions:  ]
  - Parallel trends
  - Conditional on observables (Heckman, Ichimura, Todd 1997: Outcome regression)

.footnote[
  [Back to methodology](#methodology)
  ]
]

---
name: matching
class:middle, left

### .center[Households in the control group who - based on observables - are as likely to be treated, are the counterfactual for the treatment group.]
.pull-left[
  <img src="data:image/png;base64,#../source-material/img/identification/matching.png" style="width: 100%" />
]

.pull-right[
  .large[Identifying assumptions:  ]
  - Treatment assignment is random conditional on the propensity score.

.footnote[
  [Back to methodology](#methodology)
  ]
]

---
name: results1_table
class: inverse

### Part 1: YES!
### Contract farming significantly increases the likelihood that farmers sell to exporters, are recently trained and certified.
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.footnote[[Back to results](#results1)]

---
name: results_byavo
class: inverse

### Benefits of contract farming are driven by hass variety, farmers shift away from local varieties.
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.footnote[[Back to conclusion](#conclusion)]

---
name: results_activities

### Which part of contract farming matters?

Farmers that adopt selling to exporters:
- get 2.60 KSh more per Hass unit.
- double their income from Hass avocado sales.
- But decrease total income 🤔

Farmers that adopt certification or training:
- plant 2.65 more hass trees (sign. for certification)
- have higher knowledge scores (around 10%-15%)
- and slightly higher prices (0.90-1.17KSh).

.footnote[[Back to conclusion](#conclusion)]