Effects of contract farming on the financial performance of sugarcane farmers in Migori county: a case study of south Nyanza sugar company, Kenya.

Abstract

In the last five years, the performance of the sugar industry has continued to face several challenges some of which include; high cost of production characterized by operational inefficiencies. Previous studies have expressed diverse views on whether there is correlations between contract farming and financial performance, with some researches arguing that contract farming affects financial performance of sugarcane farmers while others researches oppose this argument. The main objective of this study was to examine effects of contract farming on financial performance of sugarcane farmers in Migori County, with the focus on contracted cane farmers of South Nyanza Sugar Company limited, Kenya. The specific objectives of the study was to determine the effects of cane pricing method on sugarcane productivity, examine effect of cost of extension services on financial performance of cane growers, examine effects of delay in payment of cane proceeds on sugarcane profitability, and determine effect of delay in harvesting on profitability of sugarcane in Migori County. A stratified sampling technique was used to divide contract farmers according to the five sectors i.e Sector I, II, III, IV and V. Simple random sampling was used to select farmers from each strata. Slovins’s formula was used to calculate an appropriate sample size from a population (n= n/1+n (e 2 )). Data was collected using a structured questionnaires, consisting mainly with closed ended questions. Quantitative data was analysed through percentages and mean and multiple regression using Statistical Package for the Social Sciences (SPSS) software, and presented in tables and figures. The study was motivated by the conflicting views of the previous researchers on the effect of contract farming on the financial performance, with others researchers citing strong positive relationship between contract farming and the financial performance while others oppose the argument. The study concluded that contract farming is having a negative effect on financial performance of sugarcane farmers in Migori County. The study recommended the need to re-examine cane pricing based on tonnage, a rethink of cost of extension services on offer and an enhancement of supervision of the same, and a need to sensitize farmers to develop earlier maturity cane variety so that the turnaround time is reduced.