Extension services from agribusiness firms are offered to small-scale farmers when they participate in contract farming. In developing countries, the term technology is usually in the form of technical standards on crop production such as seeds, pesticides and fertilizer (Wang et al., 2014). The agribusiness firms visit the small-scale farmers’ field and oversees its production on crop harvesting by giving advices on how to apply pesticides, seedlings and fertilizers in appropriate way (Swain, 2016) and by providing the actual seeds, pesticides and fertilizers that the small-scale farmers use. Given the extension services for growing a specific contracted crop may lead to a spill-over effect in which the technical advice provided by the firm in growing a specific contract crop could possibly be used in growing crops that are not under contract (Swain, 2016). Furthermore, technological innovation can stimulate small-scale farmers to adapt new methods that would yield higher production of contract crops (Zeweld et al.
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, 2017). According to Bowe and Horst (2015), farm extension services can help to produce significant environmental gains and raise the income of farmers. As mentioned by Swain (2007), private sector plays a major role in enhancing crop productivity and output growth in the agriculture sector through efficient extension services support (Little, 1994; Key & Rusten, 1999; Bauman, 2000; Eaton & Shepred, 2001; Narayanan & Gulati, 2002; Singh, 2002; Key and MacBride, 2003; Simmons et al., 2005) which leads to higher efficiency among small-scale farmers (Dev & Rao, 2005; Ramswami et al., 2005). Participation in contract farming assists small-scale farmers in overcoming constraints such as access to input, information, services or technology resources (Freguin-Gresh, d’Haese, and Anseeuw, 2012). Agribusiness firms have direct interest in improving the quality of an agricultural commodity and they usually offer better and more effective technical assistance than the government’s offer.
Better technology and management practice in contract farming brought by the agribusiness firms increases the overall farm productivity and the willingness of the small-scale farmers to participate in contract farming (Swain, 2016) and further increases the opportunity to produce high quality goods which may be sold at a higher value thus yielding a greater amount of income for contract farmers. Warning and Key (2002) indicated that the spill-over effects in contract farming have led to an increase in the productivity of non-contracted crops which serves as the one of the probable reasons why small-scale farmers are likely join contract farming. Small-scale farmers who do not have access to electricity are more likely to join contract farming because of economic opportunities (Gatto et. al., 2017).
According to Rao et. al., (2014), improved technology, cropping patterns and efficient allocation of resources lead to an increase in returns of contract farmers. With that, contract farmers are willing to participate in contract farming because of the services it provides during production process which incurs lower cost hence, yield higher income return in the production process and improve farmers’ standard of living (Nierras, 2016).
Results indicated that the probability of participating in contract farming of small-scale farmers who have access to extension services is lower by 0. 20 percent compared to those who have no access to these services (Wainana, Okello, Nzuma, 2014). Simply stated, farmers who are provided with extension services are likely to not participate in contract farming because the income is not appealing to take. Moreover, in the study of Baloch and Thapa (2017) several articles stated that small-scale farmers are the most impeded and vulnerable in developing countries, as they have a tendency to be poor, unskilled, ailing in essential farm inputs, and vigorously reliant on obtained extension services and information sources. Extension services will be measured by the amount of the total value of seedlings, fertilizers and pesticides provided to the small-scale farmers. Thus, based on the literature reviews, a hypothesis was suggested: