1. Understanding Contract Farming and Appraisal
Session 16:
Understanding Contract Farming and Appraisal
CAPACITY BUILDING OF SMALL FARMERS IN ENTREPRENEURSHIP DEVELOPMENT AND MARKET ACCESS TCP/PHI/3402

2. What is contract farming?
Contract farming happens when individual or a group of farmers enter into formal agreement (written) informal (verbal) arrangements with buyers for marketing of their products. Contract farming is an agricultural production carried out according to an agreement between a buyer and a farmer, which establishes conditions for the production and marketing of farm products

3. Some successful contract growing in the Philippines
Chicken (broiler) production – with poultry integrators
Chicken egg production – with poultry integrators
Hog production – with feed millers and meat processors
Pineapple production – with big pineapple processors
Banana production – with banana exporters
Cassava production – with ethanol and feed processors

4. Advantages of contract farming
Encourage small-scale producers to diversify into new enterprises
Can lead to improved supply of production inputs provided by the contractors
May help farmers to get credit
Potential buyers can provide extension
Offers opportunities to reach new markets (even export market)
Can help farmers learn new production methods and technical skills, improving productivity and profitability

5. Challenges of contract farming
Changes in weather, pest and diseases might make it difficult to supply the amount and quality of output agreed in the contract
If contract requires more-capital-intensive production, the famers may be required to barrow money
An individual farmer may find it difficult to supply the quantity required by the buyers on his own, and other farmers may not want to join
The farmer is not free to run his farm as he wants. He must farm according to the terms of the contract.
The farmers might not able to sell all their produce if it does not meet the quality standards set in the contract

6. Tips to overcome the challenges of contact growing
Small scale farmers can work/group together in order to increase their power to negotiate the terms and conditions
Farmers can work/group together to supply larger quantities of produce (compact farming)
Groups are likely to find it easier to share the machinery for production, hence reducing the need to borrow
Farmer groups can get grants and loans than individual farmers
Farmer group can help farmers in the group if they are struggling to keep up with the terms of contact

7. Contract details: Components Description 1. Contract duration
2. Quality standards
3. Production limits
4. Cultivation practices
5. Product delivery arrangements
6. Pricing arrangement
7. Payment procedures
8. Arbitration terms
9. Insurance arrangements

8. Contract Appraisal
evaluation, reviewed or assessment of the contract to determine the its strengths and weaknesses.

9. Negotiating Contracts
Negotiation is a process whereby two parties discuss the issue an arrive at an agreement.
Negotiation usually requires both parties to compromise, where each will give up something and hold on to something in order to come to an agreement

10. Tips for successful negotiation
1. Things you need to know
Range of buyers available
Demand and supply of crops
Market prices and conditions
Break-even and cost of production
Marketing costs
Lowest price for products

11. Tips for successful negotiation
2. Skills and abilities you need to have
Ability to say “No”
Listening skills
Focus on the end goal
Self control

12. Thank you and God bless you more.