Factors Determining the Smallholder Milk Producers Participation in Contractual Agreements: The Case of North-West Bangladesh

Contract farming plays a significant role by establishing a bridge in order to link the milk farmers to market. The study aimed to state current institutional arrangement of dairy sector in Bangladesh. By using simple random sampling, a total of 90 (45 contract and 45without contract) dairy farmers from Chatmohar Upazila of Pabna District were interviewed. For determining the factor of farmers willingness to participate into contractual system was analyzed by conducting factor analysis. The highest factor loadings for the first dimension were found for the stable milk output price and access to training on dairy farming while timely payment for output has relatively factor loading on second dimension as well as the access to good quality inputs (drugs and feeds) higher in third dimension respectively. The most important reasons for unwillingness to participate in contract farming were under weighing of fat, lower milk price than the market price, distance to the location of milk collection centers, sell at home, rules and regulations of PRAN Dairy Ltd., & availability of dairy farmers etc. The result clearly shows that contract farming has the potential of raising income of the smallholder dairy farmers. It benefited the farmers through reducing different input costs and other relative costs related to dairy farming, which may be more in the informal markets or without contract arrangement. In addition, contract farming contributes for improving the income of dairy farm and reducing production costs by providing different services and technical advice by the contract firms.