A series of articles on the role of contract culture in promoting inclusive market access, published by FAO in 2013[16], address contractual arrangements in Argentina, Bangladesh, Brazil, China, Honduras, South Africa, Tanzania and Thailand. The drafters conclude that, despite a preference for sourcing large farmers, factors other than farm size contribute to a company`s decision and that contract farming will therefore not necessarily result in the exclusion of smallholder farmers from supply chains. Geographical factors are important, both in terms of impact on production and in terms of factors such as land rights, gender and ethnic relations. The drafters note a gradual convergence of the terms and conditions used in contracts and note that the two most common contractual provisions, which include technical assistance and pre-financing of inputs, can be essential for the participation of smallholder farmers. The publication deals with the role of third parties, such as . B NGOs, in the coordination of farmers. Publishers also identify potential roles for third parties in providing independent quality certifications and certifying contractors to reduce risks for farmers. Prowse (2012) provides an accessible and comprehensive overview of current contract farming issues in developing countries. [17] Several studies convey a positive message about the inclusion of smallholder farmers and the benefits they derive from their participation. In a study published in 2014, for example, Wang, Wang and Delgado review a large number of empirical studies on contract farming. They conclude that contract farming has had a significant impact on improving farm efficiency and productivity and farmers` incomes. [18] In a synthetic review of econometric studies, Minot and Ronchi (2015) suggest that participants` incomes increase by 25-75%.
[19] A more moderate approach is taken in the systematic review of contract farming by Ton et al. (2017). Although their study notes that contract farming can significantly increase farmers` incomes, Ton et al. argue that such figures must take into account the publication and bias of survivors. In other words, these estimates need to be revised downwards to accept that studies that show negative or no “impact” are less likely to be published and that calculating the impact of contract farming may overlook systems that do not improve and reduce the incomes of smallholder farmers and are therefore not available for evaluation. [20] As with any contract, there are a number of risks associated with contract farming. The most common problems include farmers selling to a buyer other than the one with whom they have contracted (known as parallel selling, non-contractual marketing or “pole vaulting” in the Philippines) or the use of inputs provided by the company for purposes other than those intended. On the other hand, it happens that a company does not buy products at the agreed prices or in the agreed quantities or arbitrarily reduces the quality of production. In contract farming, agricultural production is carried out on the basis of an agreement between the buyer and the agricultural producers. Sometimes it is for the buyer to indicate the quality and price required, with the farmer agreeing to deliver at a later date.
Most often, however, contracts set the conditions for the production of agricultural products and their delivery to the buyer`s premises. [1] The farmer undertakes to supply the agreed quantities of a plant or animal product on the basis of the buyer`s quality standards and delivery requirements. In return, the buyer, usually a company, agrees to purchase the product, often at a pre-determined price. The company also often agrees to support the farmer, for example. B by providing inputs, assisting in land preparation, advising production and transporting products to its premises. The term “emigration regime” is sometimes used as a synonym for contract farming, most often in eastern and southern Africa. Contract cultivation can be used for many agricultural products, although it is less common in developing countries for staple foods such as rice and maize. Contract cultivation must be economically viable. To maximize profitability, companies need to select the best farmers available. Once the appropriate farmers have been identified, it is necessary to build trust, as contracts only work if both parties feel they would be better off engaging with them.
To achieve this, one must be willing to cooperate and exchange information. Differences of opinion on product classification can be avoided, for example, by establishing clear and simple specifications in a contract and ensuring that farmers or their representatives are present when sorting the product. Late payment can immediately lead to a breach of trust and should be avoided. Contracts should be flexible to take into account the possibility of extreme events such as high open market prices or bad weather. Finally, as hard as the parties try, disagreements are inevitable. Ideally, contracts should provide for arbitration by a person acceptable to both the company and the farmers. FAO`s Guideline for Responsible Contract Farming [12] provides concise guidance on how to maximize the chances of success for businesses and farmers. The role of producer organisations in negotiations on the interests of small farmers is of particular importance. [13] The existence of an adequate legal framework is therefore crucial for the successful implementation and long-term sustainability of contractual agricultural activities. A legal system is essential to help farmers and their buyers negotiate and draft contracts. It is also important to protect them from risks that may arise during the performance of the contract, such as.B. Abuse of power by the strongest negotiating party or breach of contract.
Strengthening farmers` organisations to improve their negotiating skills can dispel the risk of further misunderstandings. [7] Various countries have adopted policies and laws to ensure fair contracting practices and provide remedies for dispute resolution. [8] A “Legal Guide on Contract Farming” was developed in 2013-2015 by the International Institute for the Unification of Private Law (UNIDROIT) in collaboration with the faO. [9] [10] Contract keeping has been used for agricultural production for decades, but its popularity seems to have increased in recent years. The use of contracts has become attractive to many farmers, as the agreement can provide both a secure market and access to production support. Contract farming is also interesting for buyers who are looking for products to sell along the entire value chain or to process. Processors are the main customers of the contracts, as the guaranteed supply allows them to maximize the utilization of their processing capacity. [2] Contracts with farmers can also reduce the risk of disease or weather conditions and facilitate certification, which is increasingly required by advanced markets. There are also potential benefits for economies, as contract farming leads to economies of scale that, as Collier and Dercon argue, “will inevitably make the agricultural sector more dynamic. [3] Even contracts that appear to be legally successful may face other difficulties.
For example, family relationships may be threatened. Work for contracts is often done by women, but contracts are invariably in the name of the man who also receives payment. Men attend meetings and trainings, but women often do not receive education. Land used by women for food crops or commercial production can be taken back for contract production. [6] This can have an impact not only on food production, but also on the status of women. Contracts can collapse due to mismanagement on the part of the company or unrealistic expectations about farmers` capacity or achievable yields. This was a particular problem in attempts to promote contract cultivation for biofuel crops. [11] Numerous studies have been conducted on contracted agricultural enterprises, many of which are listed in the Contract Agricultural Resource Centre of the Food and Agriculture Organization of the United Nations (FAO). [1] The Asian Development Bank Institute (ADBI) in Tokyo conducted a series of case studies in selected Asian countries to assess the conditions of the benefits of marginal rice farmers. In the Lao People`s Democratic Republic, research has suggested that contract farmers make significantly higher profits than contract farmers. This has facilitated the transition of subsistence farmers to commercial agriculture and has offered the opportunity to reduce rural poverty. [14] A study in Cambodia on organic rice for export assessed the impact of contract farming on farmers` performance.
This suggested that younger, better-educated farmers with larger, less wealthy families were more likely to join the contract. However, farmers with access to good road communication have often left the contract, suggesting that contract farming has helped them become independent farmers. [15] While contract farming should be seen primarily as a commercial enterprise, it is also seen as an effective approach to addressing many of the market access and wholesale problems faced by smallholder farmers. [4] A guide published by GIZ in 2013 aims to provide information on how contract farming can be developed to maximise this benefit for smallholder farmers in developing countries. [5] Effective links between businesses and thousands of farmers often require the participation of formal farmers` associations or cooperatives, or at least informal farmers` groups. .