1. Small Holders and the Need for Economies of Scale
Contract Farming, Farming Cooperatives, Producing Companies
Daniel Ray Lewis, Economics, Chulalongkorn

2. Farms in Developing countries can play important roles besides producing food Farms are…
The haven of last resort for an aging population
Diminishingly small as families have children and subdivide
A daycare option for working parents
A way to work for women with children
An alternative for less capable members of the family
An opportunity to build a sense of self-respect and pride

3. Grandparents, Small Children & Auntie and her kids
Bi-Polar Communities
A Particular Farm Village
A Particular City Neighborhood
Grandparents, Small Children & Auntie and her kids
Sister Cities
Mother &
Father & Uncle

4. Farms are commercial enterprises and need to be able to compete in terms of price with agri-business
Small Farms Agro-business
Higher cost of inputs
Debt financing
Cannot grade crops
Basic Ag. Technology
Sell to Middleman
No Storage or Transport
Buy Inputs in Bulk
Self financing
Grade and prepare crops
Advanced Ag. Technology
Market own Products
Own Storage and Transport

5. Middle Men Cooperative Contract Farming Final Marketing Small Farms
Input Wholesaler
Banking
Rent Equipment
Crop Aggregator
Storage
Crop
Wholesale
Final Marketing
Small Farms
Wholesale Level
Subsidies??

6. Solution 1 Farming Co-operatives when…
Need Local Economies of Scale, Cooperation and Management
Example of Problems
Free riding on loan repayment or crop quality
Incentive: Access to loans at decreasing interest rates over time in exchange for good behavior (repay loans and always supply right quality of fruit) loan rate: 8.5% first year, 7.5% next two years, 6.5% next two years 5.5% after 5 years
Loan
Inputs
Equipment
Storage
Marketing
Cooperative Provides
Cooperatives are Often Subsidized by Government

7. Solution 2 Contract Farming when…
Need Processing, Technology, Price Stability, Marketing & Branding
Example of Problems
Fairness and trustworthiness of the contracting parties
When incentives match, the system works well – e.g. technology transfer both benefit
Farmers have an incentive to sell outside of contract if price is high – Company has to raise agreed price if prices are high, but cannot lower agreed price if market price is poor.
Complicity: Farmers use illegal land to grow corn while company profits without liability.
Loan
Inputs
Training and Technology
Fixed Price
Processing
Marketing and Branding
Contracting Company Provides
Prices are negotiated before growing season

8. Solution 3 Producing Company when…
Technical Expertise in Production and Marketing (but no Factory)
Example of Problems
Farmers retain ownership but surrender control over their farms in exchange for professional management and technology
Farmers may feel like subcontractors with little power.
Low flexibility for individual needs
But standardized higher quality product
Loan
Inputs
Training and Technology
Management Coordination
Marketing
Producing Company Provides
Professionals Often Provided by the Government