Risk Aversion, Risk Preference and Farmers’ Decision to Participate in Broiler Contract Farming: A Case Study in Jember, Indonesia

Mohammad Rondhi, Joni Murti Mulyo Aji, Ahmad Fatikhul Khasan, Adinda Tissa Rachmasari Putri, Rizky Yanuarti


The demand for broiler is rising rapidly due to its capability as the main animal protein source. In contrast, the production of broiler meat is unstable due to the possibility of farm risk. Contract Farming (CF) is one of the risk management tools for farmers but has not been used effectively. The purpose of this study was to analyze the factors that influence farmers’ decision to participate in CF. The analysis used six independent variables, namely farmer’s age, farm size, household size, education, farmer’s risk preference and risk aversion level. This study used primary data from 70 broiler farmers in Jember, which were divided into two groups, contract farmer and independent farmer. Each group had the same number of respondents. The results show that five among six independent variables significantly affected farmers’ decision to take part in CF. Farmer’s age decreased farmer’s probability to participate in CF, while education, farm size, household size and risk preference had positive effects. Farmer’s risk aversion level did not have any significant effect. The results suggest that the effort to expand CF participation should focus on young and educated farmers with large farm size.


broiler; contract farming; risk aversion; risk preference

Full Text:



Akinola, B. D. (2014). Risk Preferences and Coping Strategies among Poultry Farmers in Abeokuta Metropolis, Nigeria. Global Journal of Science Frontier Research: D Agriculture and Veterinary, 14(5). Retrieved from Link

Arumugam, N., Arshad, F. M., & Mohamed, Z. (2011). Determinants of Fresh Fruits and Vegetables (FFV) Farmers’ Participation in Contract Farming in Peninsular Malaysia. International Journal of Agricultural Management and Development (IJAMAD), 1(2), 65-71. Retrieved from Link

Ba, H. A., de Mey, Y., Thoron, S., & Demont, M. (2019). Inclusiveness of contract farming along the vertical coordination continuum: Evidence from the Vietnamese rice sector. Land Use Policy, 87(May 2018), 104050. Crossref

Belissa, T. K., Lensink, R., & van Asseldonk, M. (2019). Risk and ambiguity aversion behavior in index-based insurance uptake decisions: Experimental evidence from Ethiopia. Journal of Economic Behavior & Organization, (Article In Press). Crossref

Bellemare, M. F., & Bloem, J. R. (2018). Does contract farming improve welfare? A review. Word Development, 112, 259–271. Crossref

Boadu, F. O. (2016). Chapter 4 - Agricultural Production and Share Contracts. Agricultural Law and Economics in Sub-Saharan Africa, 115–140. Crossref

Badan Pusat Statistik, [BPS]. (2014). Analisis Rumah Tangga Usaha Peternakan di Indonesia (H. Marhaeni, ed.). Jakarta: Badan Pusat Statistik. Retrieved from Link

Fischer, S., & Wollni, M. (2018). The role of farmers’ trust, risk and time preferences for contract choices: Experimental evidence from the Ghanaian pineapple sector. Food Policy, 81(October), 67–81. Crossref

Franken, J. R. V., Pennings, J. M. E., & Garcia, P. (2012). Measuring Risk Attitude and Relation to Marketing Behavior. AAEA Annual Meeting. Seattle, Washington. Retrieved from Link

Freguin-Gresh, S., D’Haese, M., & Anseeuw, W. (2012). Demythifying contract farming: Evidence from rural South Africa. Agrekon, 51(3), 24–51. Crossref

Guo, H., & Jolly, R. W. (2008). Contractual arrangements and enforcement in transition agriculture: Theory and evidence from China. Food Policy, 33(6), 570–575. Crossref

Guo, H., Jolly, R. W., & Zhu, J. (2005). Contract Farming in China: Supply Chain or Ball and Chain? Minnesota International Economic Development Conference, 51. Retrieved from Link

Holly Wang, H., Zhang, Y., & Wu, L. (2011). Is contract farming a risk management instrument for Chinese farmers?: Evidence from a survey of vegetable farmers in Shandong. China Agricultural Economic Review, 3(4), 489–504. Crossref

Hu, W.-Y. (2012). Effect of Contract Farming on the Farmers ’ Average Return - The Case of the Grain Industry in the USA. Selected Paper Prepared for Presentation at the Agricultural and Applied Economics Associations (AAEA) 2012 Annual Meeting, Seattle, Washington. Retrieved from Link

Ito, J., Bao, Z., & Su, Q. (2012). Distributional effects of agricultural cooperatives in China: Exclusion of smallholders and potential gains on participation. Food Policy, 37(6), 700–709. Crossref

Kamble, S. S., Gunasekaran, A., & Gawankar, S. A. (2020). Achieving sustainable performance in a data-driven agriculture supply chain: A review for research and applications. International Journal of Production Economics, 219(March 2019), 179–194. Crossref

Key, N. (2005). How much do farmers value their independence? Agricultural Economics, 33(1), 117–126. Crossref

Lyu, K., & Barré, T. J. (2017). Risk aversion in crop insurance program purchase decisions Evidence from maize production areas in China. China Agricultural Economic Review, 9(1), 62–80. Crossref

MacDonald, J. M., & Korb, P. (2012). Agricultural Contracting Update: Contracts in 2008. USDA-ERS Economic Information Bulletin No. 72. Crossref

Mao, H., Zhou, L., Ifft, J., & Ying, R. Y. (2019). Risk preferences, production contracts and technology adoption by broiler farmers in China. China Economic Review, 54, 147–159. Crossref

Miyata, S., Minot, N., & Hu, D. (2009). Impact of Contract Farming on Income: Linking Small Farmers, Packers, and Supermarkets in China. World Development, 37(11), 1781–1790. Crossref

Otsuka, K., Nakano, Y., & Takahashi, K. (2016). Contract Farming in Developed and Developing Countries. Annual Review of Resources Economics, 8(12), 1–24. Crossref

Pandey, A. P. (2016). Socio Economic Factors of Contract Farming: A Logistic Analysis. IRA-International Journal of Management & Social Sciences, 3(3), 749–762. Crossref

Peng, H., & Pang, T. (2019). Optimal strategies for a three-level contract-farming supply chain with subsidy. International Journal of Production Economics, 216(June), 274–286. Crossref

Pusat Data dan Sistem Informasi Pertanian. (2018). Statistik Konsumsi Pangan Tahun 2018. 1–102. Retrieved from Link

Schipmann, C., & Qaim, M. (2011). Supply chain differentiation, contract agriculture, and farmers’ marketing preferences: The case of sweet pepper in Thailand. Food Policy, 36(5), 667–677. Crossref

Simmons, P., Winters, P., & Patrick, I. (2005). An analysis of contract farming in East Java, Bali, and Lombok, Indonesia. Agricultural Economics, 33(SUPPL. 3), 513–525. Crossref

Sunarno, Rahayu, E. S., & Purnomo, S. H. (2017). Faktor-Faktor Yang Mempengaruhi Produksi Ayam Broiler Di Kabupaten Wonogiri. Prosiding Seminar Nasional & Internasional, 1(1), 455–466. Retrieved from Link

Swain, B. B. (2012). Determinants of Farmers’ Participation in Contract Farming: The Cases of Gherkin and Paddy Seed in Andhra Pradesh, India. Millennial Asia, 3(2), 169–185. Crossref

Ton, G., Vellema, W., Desiere, S., Weituschat, S., & D’Haese, M. (2018). Contract farming for improving smallholder incomes: What can we learn from effectiveness studies? World Development, 104, 46–64. Crossref

Vassalos, M., & Li, Y. (2016). Assessing the impact of fresh vegetable growers’ risk aversion levels and risk preferences on the probability of adopting marketing contracts: A Bayesian approach. International Food and Agribusiness Management Review, 19(1), 25–42. Crossref

Wainaina, P. W., Okello, J. J., & Nzuma, J. M. (2014). Blessing or evil? Contract farming, smallholder poultry production and household welfare in Kenya. Quarterly Journal of International Agriculture, 53(4), 319–340. Crossref

Wang, H. H., Wang, Y., & Delgado, M. S. (2014). The transition to modern agriculture: Contract farming in developing economies. American Journal of Agricultural Economics, 96(5), 1257–1271. Crossref

Widjayanti, F. N., & Rizal, M. (2014). Sistem kemitraan dalam usahatani peternakan ayam broiler di Kabupaten Jember. Implementation Science, 39(1), 1–15. Retrieved from Link

Yanuarti, R., Aji, J. M. M., & Rondhi, M. (2019). Risk aversion level influence on farmer’s decision to participate in crop insurance: A review. Agricultural Economics (Czech Republic), 65(10), 481–489. Crossref


  • There are currently no refbacks.