Finance Utilization and Chili Contract Fulfillment

This study investigates the relationship between finance utilization from different finance providers and contract fulfillment rates in Indonesian chili farms. The contract fulfillment rate was calculated as the ratio of the quantity of chili delivered to the trader to the quantity of chili defined in the contract. Furthermore, the contract fulfillment rate was regressed on the variables reflecting the availability of finance and socio-economic factors, using a censored regression model. Results from personal interviews with 102 chili farmers who had a written contract with a trader show that the farmers generally had a low contract fulfillment rate, i.e. 57%. The contract fulfillment rate was positively associated with in-kind finance utilization from farmers’ associations, but negatively associated with subsidized credit utilization from banks and flexible payments of inputs to agricultural input kiosks. The findings suggest that policymakers and value chain actors may stimulate in-kind finance programs offered by farmers’ associations to improve contract fulfillment and thereby food supply continuity.