1. Contract Farming in Sub Saharan Africa Session 10

2. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center 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. C I M M Y T MR International Maize and Wheat Improvement Center