Contract Farming in Sub
Saharan Africa
Session 10
Objective of Project
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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
CIMMYT
MR
International Maize and Wheat Improvement Center
Definition of Contract Farming
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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
CIMMYT
MR
International Maize and Wheat Improvement Center
Background/overview of CF in
RSA, Malawi and Zambia
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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,
CIMMYT
cotton, coffee, tea
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MR
International Maize and Wheat Improvement Center
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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
CIMMYT
MR
International Maize and Wheat Improvement Center
Potential Role of Agribusiness
to promote CF
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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
CIMMYT
MR
International Maize and Wheat Improvement Center
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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
CIMMYT
MR
International Maize and Wheat Improvement Center
The Issues and Constraints
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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
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Regulatory issues include
No specific policy on CF
 Land tenure/property rights constraints
 Lack of contract enforcement-legal environment
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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
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CIMMYT
MR
International Maize and Wheat Improvement Center
The Way Forward
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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
CIMMYT
MR
International Maize and Wheat Improvement Center
Additional points from discussions
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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
CIMMYT
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
CIMMYT
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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
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CIMMYT
MR
International Maize and Wheat Improvement Center
CIMMYT
MR
International Maize and Wheat Improvement Center