Monday, August 10, 2015

Towards contract farming : when oil reshape agriculture

In my last blog post, i introduced you with the farmer John, who is a very market oriented smallholder. I had mentioned that he mainly produces horticultural products. When he listed the vegetables he produces, beyond cabbage, tomatoes and onions as it would be expected, he also produced broccoli, cauliflower, beet roots and many other vegetables that are mainly consumed by foreigners.

In the discussion we discovered that oil was found in the area and many Chinese and other foreigners are coming into the region asking for these high value vegetables. Through tradelink an NGO the link to the hotels serving these foreigners has been set up, and the hotels set orders to the cooperative of farmers John's belongs too.

I tried to investigate the terms of this contract, hotels suggest what to plant and buy at fair prices, however the risk of production remains fully at the farmer. If there are no foreigners, then hotels who set the order will not buy, and the farmer will remain with unsold without any compensation.

On the other hands, if there is also no penalty if a farmer cannot provide. John however mentioned that it has never happened that the cooperative as such could not provide. Indeed, the different farmers coordinate their planting to make sure that the cooperative as such always cannot provide.

This is one of the first contract i came across linking smallholders to high value markets. Yet the risk remains fully at the farmer and is not yet shared across the value chain. But there is no doubt, this is an example where oil has reshaped agriculture.

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