Contract farming is a pervasive institutional arrangement in cash cropping economies in Mozambique. Empirical evidence on its nature and, especially, the extent to which policies can generate broad based income growth and poverty reduction is lacking. This study investigates the rationale for persistence, the determinants of farmer participation and performance in cotton and tobacco schemes (Essay One), and the economy-wide effects of expansion and shocks in cotton and tobacco sectors on poverty reduction in concession areas of the Zambezi valley of Mozambique (Essay Two). In the first essay, we find that in both sectors contract farming is an institutional response to widespread failure in input, credit and output markets and the absence of a functional public and market based service provision network. Two stage econometric procedures (testing for the existence of threshold effects in land holdings and educational attainment) indicate that in both areas participation in the schemes is driven by factor endowments, asset ownership and alternative income opportunities, and very little by demographic factors. Also, there are no returns to education in either sector; this result is consistent with previous research in Mozambique but surprising in an agronomically

maintains two publication series for research on food security issues. Publications under the Flash series are short (3-4 pages), carefully focused reports designated to provide timely research results on issues of great interest. Publications under the Research Paper series are designed to provide longer, more in-depth treatment of food security issues. The preparation of Flash reports and Research Reports, and their discussion with those who design and influence programs and policies in Mozambique, is an important step in the Directorate’s overall analyses and planning mission. Comments and suggestion from interested users on reports under each of these series help identify additional questions for consideration in later data analyses and report writing, and in the design of further research activities. Users of these reports are encouraged to submit comments and inform us of ongoing information and analysis needs.