Contract Farming in Sub Saharan Africa

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 !