Contract Farming and Smallholder Profits in Bangladesh: Evidence From Mango, Tomato, and Potato

ABSTRACT

This study examines whether contract farming increases smallholder profitability in perishable horticulture. Using primary survey data from 1186 mango, tomato, and potato producers across eight districts of Bangladesh, it combines two‐stage least squares (2SLS) with propensity score matching (PSM) to estimate the effects of participation. The preferred 2SLS estimate indicates that contract farming raises unit profit by 0.28 log points (approximately 32%), while PSM estimates range from 0.26 to 0.29 log points. These consistent estimates support the robustness of the findings under different assumptions. Higher output prices and lower measured production and marketing costs underpin the profit gains although lower expenditures do not necessarily indicate greater efficiency because buyers may provide inputs. Contract farmers also exhibit less variable profits across all three crops, suggesting a potential risk‐stabilising role. Although estimated returns are highest among farmers with the smallest landholdings, these farmers are least likely to participate. Participation is associated with landholding, irrigation, transport ownership, market proximity, and institutional credit access. The findings suggest that policies promoting inclusive contract farming should address asset and infrastructure constraints that limit smallholders' participation, contributing to progress towards Sustainable Development Goals 1 (No Poverty), 2 (Zero Hunger), and 8 (Decent Work and Economic Growth).