EDITORIAL COMMENT : Everyone wins if contracts are fair
THE decision by the private sector, probably the vegetable oil expressers, to contract farmers for just over a half the soya beans that will be grown in the coming season is a welcome sign of far greater integration of industrialists and their suppliers of raw materials.
The latest statistics from the Ministry of Lands, Agriculture, Fisheries, Water and Rural Development show that of the 71 600 hectares where finance for inputs has now been secured, around 36 542ha is coming under the private contract arrangements, amounting to 51 percent of the total.
Two Government-backed finance schemes account for the rest.
This is likely to provide around 60 percent of Zimbabwe’s requirements for soya bean, although the demand might be a little less if the major sunflower thrust under Pfumvudza and the expansion of the cotton crop boost supplies of sunflower seed and cotton seed.
In any case, we now have the Zimbabwean industrialists contracting with Zimbabwean farmers for at least 30 percent of their requirements.
These contract arrangements have seen major expansion since the first oil expresser dipped into the arrangement three or four years ago.
Obviously acceptable contracts to both industrialists and farmers have generated a way of calculating the prices that are affordable to the industrialist and provide a decent profit to the farmer.
Pricing can take into account the fact that locally-grown crops need a far lower transport cost in their pricing, just a truck-ride from a farm rather than shipping half-way across the world and then railing in from a Southern African port.
It makes a great deal of sense if you are in the business of processing soya beans to pay Zimbabwean farmers to grow them for you, rather than rely on the vagaries of the international markets, the global supply chains and the need to put up winning bids in the weekly foreign currency auctions.
Contracts between private sector companies needing a particular product and the farmers who grow it are not that new in Zimbabwe.
The tobacco industry pioneered the concept and now around 95 percent of tobacco, in both the larger commercial sector and the smallholder sector, is delivered under contracts with the five percent sold on auction basically just setting the prices for the rest of the farmers.
Tobacco advanced dramatically, with the new contract systems now seeing larger harvests than ever was seen in the older large estates of before land reform, and part of this rapid advance came from the smart direction of the Tobacco Industry Marketing Board.
This is an independent body appointed by Government but comprising representatives nominated by the many interests in the tobacco business.
It managed to lay down clear requirements for contracts and for minimum funding and pricing calculations, as well as making it clear that side marketing by farmers or buyers was simply not an option.
As almost any system that involves large numbers will produce people at both ends who want to cheat, having a decisive referee overlooking the system has ensured that it is almost entirely honest, with upgrades in the contract conditions put through regularly whenever what could be loophole is discovered.
But being fair to both those contracted and those doing the contracting, the TIMB has created a highly functional system.
So far most of the private sector contracts in other crops have been with the larger commercial farmers, generally speaking what are known as the A2 farmers, who do have to either borrow funds for inputs or arrange contracts.
Contracting with the smallholders, the communal and A1 farmers, is obviously possible, since the tobacco companies do this, but will probably only become significant once many of these farmers can go beyond the five Pfumvudza plots.
Tobacco farmers do this already. The fuller use of small farms will see a lot more production, and that is when small contracts will become viable and required.
The TIMB model could easily be expanded to cope with many other crops where contracts become a significant and then a major source of inputs at one end and the raw materials at the other end.
The basic idea of the industry and the farmers regulating their own industry, with a benign Government looking on, makes a lot of sense in many circumstances.
The regulator can also ensure minimum standards of contracts, important so the better industrialists are not pushed back by the less scrupulous, and ensure that everyone from the smallest farmer to the largest contractor all deliver on what is agreed.
If the regulators are drawn from those doing the business then everyone has their say and their representative and a lot of difficulties can be overcome.
The Government has said that it wants to see as soon as possible at least 40 percent of what Zimbabwean industrialists require in the form of local agricultural raw materials grown under contract, and is more than happy to see that percentage rising and at far higher levels.
There are limits to what the taxpayer can finance or guarantee.
Contract farming is common in many parts of the world, and at its best works exceptionally well for both the farmers and the funders.
In France to take an ultimate example, a lot of the higher end production is done under contract.
Champagne makers have farmers in their region growing the precise types and varieties of grapes under contract, and these are multi-year contracts to make the investments by farmers viable.
We are starting to see some of this multi-year contracting coming into Zimbabwe with citrus and some other fruit crops where a private company needing the trees looked after and the fruit properly picked can hand out saplings to farmers who it trusts and then offer the guaranteed market as the trees mature.
Everyone wins if the contracts are fair.