Presentation on theme: "Different types of contract farming"— Presentation transcript:
1 Different types of contract farming Andrew W. ShepherdFAO, Rome
2 Types of Contract Farming linkages large-scale processing soon after harvestother export commodities involving processing (cotton)agro-processing (fruits and vegetables)dairy productssupermarket supplyfresh export
3 1. For immediate processing products requiring large-scale centralised processing (oil palm; sugar; tea; poultry)usually limited alternative marketing opportunities; side-selling not major problemtransport, extension, inputs usually provided by company as monopoly buyerdirect company-farmer relationships; company-formed groups; assocs or coopssome protection for farmers required due to high “asset specificity”possible disputes over quality.
4 Transvaal Sugar Co.Medium-large growers plus 1000 emerging farmers in 32 groupsCane delivery agreementPrice setting by S.A. Sugar AssociationFor smallholders company finances land preparation, training, irrigation and fertilizer.
5 2. Other export commodities involving processing (e.g. cotton) Side-selling can be major problem given ease for alternative buyers to operateInput support required from companies but no guarantee of buying cropReserved zones for individual companies rarely politically acceptableAlternative approaches to resolving problem (e.g. cotton in Zambia)
6 Different approaches with cotton in Zambia DunavantSupplies inputs on credit through independent distributors, who are also responsible for buying the crop and obtaining credit repaymentCargillSupplies inputs on credit through company staff. All farmers have number and production and repayment performance closely monitored through central computerBut neither method works well when there are competing buyers
7 3. Horticultural agro-processing contracts usually necessary for guaranteed supply and required qualitymay require significant “on-the-ground” presence of company staff or agentsbut can have high transaction costs in dealing with individual farmerscan suffer from “side-selling” etc. when products have a local market
8 Reco Industries - Uganda 5000+ farmers supplying F & VWork through local chiefs at sub-county level. Extension workers in every sub-county, each with 4-5 informal groups. Invites farmers to pilot farm.But rapid rotation of farmersWritten contracts witnessed by local officials. No fixed price but agreement to pay 5-15% more than market priceSpecifies varieties for all crops but only supplies tomato seedsPreference to work with assocs/coops but finds this impossible to organise
9 4. The Dairy industry Possibly the sector with least problems Alternative market limited to unprocessed village salesSector where cooperatives tend to work well (e.g. Uganda) but direct company-farmer arrangements also common (e.g. Kenya)Quality control can be problematic
10 Brookside Dairies, Kenya More than 15,000 farmersFormal supply contract with each, indicating daily deliveries – important planning tool for company and guaranteed market for farmersQuality testing at collection centresCompany provides extension, artificial insemination, veterinary drugs and feed on credit—deducted from milk deliveries
11 5. Supermarket supplyOutside South Africa contract linkages fairly unsophisticatedLessons can be learnt from Asia where tending to procure through established wholesalers, dedicated wholesalers and other intermediaries such as coops and leading farmersGrowing quality, safety and other requirements will dictate need for input provision and extension advice
12 Freshmark - UgandaIndividual farmers provide samples and Freshmark visits farms. Works with just one or two “lead” farmersNo contract, just agreement to buy certain quantities, determined weeklyNo input provision, extension support or creditFarmers must have bank a/c and be able to prepare invoices
13 Bimandiri, Indonesia – a specialist wholesaler supplier of vegetables and fruits mainly to Carrefourencourages farmers to cooperate in groups and works with those groups on the basis of agreed quantitiessupplies technical assistance and credit, in order to assure quality standards and consistent volumestransparent negotiated producer prices, shared information.
14 Approach using lead farmers Hortifruti, Honduras the specialized F & V wholesaler for Wal-Martafter failures with coops, now identifies and builds the capacity of farmers who can meet its needslead farmers receive larger orders as they perform and invited to work with other farmers to meet demandlead farmers provide access to technology, technical assistance and market access to their neighboursexpansion of this model depends on the identification of new lead farmers.early results indicate that it is a low-cost, scaleable and sustainable approach
15 6. Fresh horticultural exports smallholder involvement increasingly jeopardised by cost of GLOBALGAP and other standard compliancecertification usually requires farmers to be in groups – donor support for certification is commoninput supply arrangements common, particularly where required inputs (e.g. for organics) not readily available
16 Blue Skies Co. - GhanaFresh-chilled pineapple, mango and other fruit for exportGLOBALGAP certification for all farmers and inputs supplied; costs recouped from farmer deliveriesIndividual relationships with farmers – technical training and extension advicePayment two weeks after deliverySide-selling not major problem as prices higher than market prices