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One of the debates in the literature of contract farming concerns contracting firms’ preferences over large growers and if contract farming is inclusive of smallholders. The empirical evidence was mixed, which may be due to ignoring the stylized fact that modern food supply chain is characterized by large organized retailers who often contract with farmers. The present study aims at addressing this issue by incorporating sales to supermarket and hypermarket chains as one of the determinants of contract farming participation. Based on a nationally-representative farm household data set in Taiwan, this study presents empirical evidence to support the positive effects of selling farm produce to supermarkets and/or hypermarkets on the probability of contract farming participation. However, the increase in the share of chain stores, convenience stores, as well as local grocers was found to lower the probability of contract farming participation. The results suggest the effect of organized retailing on the participation of contract farming varies with different food retailers in the modern supply chain. Moreover, based on the predicted probability from the participation-determining model, contracting firms in Taiwan are found to exhibit preferences towards large-scale growers. A further analysis of the interaction between grower’s scale and membership of farmer organizations indicates participation in the farmer organizations can effectively mitigate contracting firms’ scale bias. The significance of the moderating effect of farmer organizations suggests their important role in the inclusion of smallholders into modern food supply chain.

Inclusiveness of Contract Farming along the Modern Food Supply Chain: Empirical Evidence from Taiwan