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Contract Farming in Sub Saharan Africa

Contract Farming in Sub Saharan Africa. Session 10. Objective of Project. To examine the potential of CF as an institution to promote commercialization of SF in the SADC region To Link SF with the private sector

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Contract Farming in Sub Saharan Africa

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  1. Contract Farming in Sub Saharan Africa Session 10

  2. Objective of Project • To examine the potential of CF as an institution to promote commercialization of SF in the SADC region • To Link SF with the private sector • To exploit potential of agro-processing sector to expand SF supply of raw commodities • To precipitate policy-action and promote long term sustainable supply partnerships

  3. Definition of Contract Farming • Some form of contractual arrangement between a group of SF and AP in the short- /long-term in either the formal or informal sectors, which encompasses a wide range of structures

  4. Background/overview of CF in RSA, Malawi and Zambia • There is a long history of CF with different legacies but with common denominators such: • Lack of policy with respect to CF • Reluctance of AP to do business with SF because of high level of transaction costs, mistrust, and exploitation • Commodities produced under CF include • RSA: sugarcane, timber, tea, cotton • Malawi/Zambia: tobacco, sugarcane, paprika, cotton, coffee, tea

  5. Focus: Who exactly is going to be the prime partner to expand SF CF? • In terms of the role of AP developing SH farmers is important to understand the advantages and disadvantages they have when dealing with SH • In developing countries, this relationship involves political economy issues while in developed countries it is mainly economic • In developing countries the main problem is transaction costs in organizing a large number of producers

  6. Potential Role of Agribusiness to promote CF • 2,228 AP involved in manufacture, retailing of food and beverage products • 240,000 SF (mostly in traditional areas) • Concrete plans/and or projects exist in 24 out of the 31 supply chain sectors (Ref: Table 1, Page 9 of paper circulated) • Small-scale farmers produce less than 10% of raw commodities procured

  7. In fruit and vegetable production SF supply 3.6 % of procurement • If SF supply of fruit and vegetable expands by 10%, an estimated 11 000 new farmers would benefit • SF production of sugarcane, timber, cotton (etc) is significant and strategic plans exist for expansion • Conclusion? AP have incredible potential to take the focus role for expanding CF with SF

  8. The Issues and Constraints • There are general and specific barriers for the different raw commodities production • There are historical legacies like: • Unequal access, • Skewed power relationships • Impact on trust • Regulatory issues include • No specific policy on CF • Land tenure/property rights constraints • Lack of contract enforcement-legal environment • SF have to operate in a wide range of structures • Formal and informal arrangements (handshakes) • Dealing with agents, cooperatives, intermediaries • Heavy reliance on trust, reliability, etc

  9. The Way Forward • There is a need for a common vision for CF • Gov’t to be convinced of win-win opportunity • Identification and coordination of key players • Meetings/workshops necessary to finalize common vision • AP to become first line initiators • Gov’ts to facilitate incremental agribusiness cost as well as provide necessary legislation • Farmers associations, input suppliers, research organizations to promote cost effective linkages

  10. Additional points from discussions • Contractual arrangements are exploitative defeating the mutual understanding that ought to exist between AP and SF • Lack of legal frameworks to promote CF • Unfaithful SF side sell or default compelling APs to penalize loyal farmers • Contracts are sometimes set based on unequal partnership, a recipe for defaults • The role of middlemen in contractual arrangements is sometimes undesirable

  11. Policy Actions • Out-growers should be assisted to match up with promoters • Organizations dealing with SF should be provided with capacity building to efficiently provide their services • SF should be made to understand the risks and benefits of CF • Farmer groups should be strengthened to better bargain for services • Policies should be enacted to support enforcement of contracts

  12. Both spot and futures markets should be used in contractual arrangements • Relevant policies should be instituted before promoting small scale activities • Governments should be encouraged to share contractual risk with AP • SF and AP should be made to understand that contracts can only work if there is TRUST between parties

  13. Thank you !

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