Rejection of Purchase: An Empirical Study on Contract Farming in the Pineapple Industry in Ghana Aya Suzuki ab*† Lovell S. Jarvis ac Richard J. Sexton ac a Department of Agricultural and Resource Economics University of California, Davis, USA b Foundation for Advanced Studies on International Development, Japan c Giannini Foundatation of Agricultural Economics, California, USA March 2008 Abstract One common way of integrating smallholders in the global supply chain is contract farming. Despite its increasing importance, defaults by producers and buyers in these contracts are often reported but have not been empirically examined using microeconomic data. We take a case of pineapple industry in Ghana and examine the motivations of exporters to engage in both their own production and outside purchase from smallholders, in relation to Carlton’s theory of partially vertically integrated firms. Posing a hypothesis that the partially vertically integrated exporters use outside purchase to dampen the risks from demand fluctuation, we tested whether the rejection of purchase by exporters can be explained by the unexpected fluctuation of EU demand. We obtain the result that exporters indeed vary rejection of purchase according to the unexpected demand fluctuation. We then discuss why exporters shift risks to smallholders, which seems to contradict the basic concept of contract theory, taking into account each actor’s working environment. * Corresponding author. Department of Agricultural and Resource Economics, University of California, Davis, USA. Email address: suzuki@primal.ucdavis.edu. † Authors wish to thank Yujiro Hayami, Keijiro Otsuka, and Scott Rozelle for valuable comments. Fieldwork was hosted by the Institute of Statistical, Social, and Economic Research, University of Ghana. Authors also thank Ernest Aryeetey, John Anarfi, Mauli Agboka, Stephen Mintah, Jean-Michel Voisard, and all the exporters and farmers involved in the survey. Financial supports from the Giannini Foundation of Agricultural Economics, the Matsushita International Foundation, and Jastro-Shields Graduate Research Scholarship Award are acknowledged. All remaining errors are ours.