Contract stability and farmer characteristics of contract chilli farming

Contract farming has long been applied in Indonesia but has just revealed its ascending trend in recent times through private sector initiatives. The purchase guarantee and price certainty have induced farmers to join; however, deviation still occurs among them, shadowing the stability in its development process. In this study, an effort has been made to shed some light on the stability of a contract practised by farmers and a private agro-industry in the Jember chilli farming areas. Specifically, this study attempts to find the determinants of farmers’ deviation from the contract on the basis of a survey involving a multiple-price list method to elicit individual characteristics drawn from the perspective of behavioural economics. Using probit regression controlled by demographic characteristics, this study found that present-bias preference and individual discount factor significantly affected the likelihood of deviation. The results also suggest that farmers’ decision was significantly affected by several farming characteristics, including coordinator’s decision, land size, expected price, and chilli farming experience.