Reports
Discussion Papers
No.1003 Neighborhood Effects on Side-Selling in Contract Farming: A Spatial Econometric Approach
by Takeshi AIDA, Daichi SHIMAMOTO, Kiyoyasu TANAKA
March 2026
ABSTRACT
Contract farming—agreements between farmers and buyers on agricultural production—often faces the challenge of contractual default because neighboring farmers may share information on more attractive price offers from non-contract buyers and coordinate actions to side-sell contract crops. This paper examines neighborhood effects on contractual enforcement in contract farming of organic Kampot pepper, a high-value crop in Cambodia. Using a spatial econometric framework, we demonstrate that side-selling by neighboring farmers significantly increases the probability of individual farmers engaging in side-selling, reflecting positive neighborhood effects. To clarify the underlying mechanisms, we develop a simple theoretical model of neighborhood effects. Our findings underscore the need for policy interventions aimed at curbing the diffusion of side-selling and strengthening the institutional sustainability of contract farming arrangements.
Keywords: Contract farming, Side-selling, Contractual default, Peer effects, Spatial econometrics
JEL classification: Q12, Q13, L14, C21
PDF available at https://hdl.handle.net/2344/0002001782
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