Beyond the bean: unlocking livelihood potential through soybean contract farming in Northwestern Ethiopia

Contract farming (CF) is increasingly encouraged for agricultural commercialization and to improve smallholder farmers' welfare in Ethiopia. However, a critical empirical gap exists concerning its causal effect on the smallholders’ livelihood dimensions, including health food security in northwestern Ethiopia. This research investigates the impact of soybean contract farming participation (SCFP) in selected districts: Metema, West Armachio, and Quara. A cross-sectional data is used for the analysis. We employed a multi-stage sampling procedure to select 369 smallholder farmer households (170 participants and 199 non-participants). Data were collected on various issues including farmers’ demographic and socioeconomic characteristics, livelihood capital assets, food security, and well-being to create a composite livelihood index. An Endogenous Switching Regression Model (ESRM) was used to address self-selection bias. The ESRM findings show that extension services (0.201) and market distance (0.036) promote contract farming participation, while labour (− 0.030), household size (− 0.150), and cooperative membership (− 0.469) significantly discourage it. Moreover, the variables influencing both livelihood and participation are household size and cooperative membership. While household size tends to reduce both participation and farmers’ livelihood, cooperative membership reduces participation but significantly increases livelihood. The Average Treatment Effect on the Treated (ATT) shows that participation in soybean CF significantly improves their total livelihood score (ATT = 0.028, p < 0.05) and enhances food security. The transitional heterogeneity value (ATT − ATU = 0.017) indicates that those smallholder farmers who participated were the most likely to expereince positive impacts. This study concludes that CF is an effective system for livelihood enhancement. To fully realize this potential, policymakers must invest heavily in localizing and scaling up agricultural extension services to counteract the cooperative penalty. Furthermore, to address the negative effect of labour role and household size, CF models must be revised to provide group-based, flexible contract terms or promote mechanization.