Welfare Impact of Wheat Farmers Participation in the Value Chain in Tanzania

Abstract

The paper examines the link between value chain participation and welfare changes for wheat farmers in Tanzania. Specifically, the paper analyzes the wheat value chain from production to consumption, explores participation in the value chain, and examines the net effect of farmers’ participation in the value chain. A logistic model is used to explore the factors influencing farmers’ participation in the value chain and to estimate propensity scores to match the covariates for participants and nonparticipants. Applying the nearest neighbor and caliper radius matching algorithms found that only a few farmers are vertically (~17%) and horizontally (~39%) coordinated based on participation in contracts and associations, respectively. At the vertical coordination level, characteristics are significantly different for farmers with and without contracts in terms of land size, technical efficiency, allocative efficiency, output per acre, frequency of extension visits, frequency of village meetings attendance, and off-farm income. At the horizontal coordination level, farmers who join associations differ significantly from nonmembers in terms of level of education, frequency of village meetings attendance, output per acre, technical efficiency, and allocative efficiency. Vertical coordination participants receive a profit of 126 TSh/kg more for wheat than nonparticipants, with the difference significant at the 1% level. Horizontal coordination participants receive a profit of 46 TSh/kg more for wheat than nonparticipants, with the difference significant at the 5% level. The sensitivity analysis reveals that farmers’ participation in the value chain is generally insensitive to unobserved covariates. The findings suggest that establishing more contracts and stronger associations that specifically deal with wheat production has a positive impact on farmers’ welfare.