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Obert Chifamba Agri-Insight

SIMPLY put, contract farming is an agreement between farmers and processing and/or marketing firms for the production and supply of products under forward agreements, frequently at predetermined prices.

In principle, the system commits a grower to produce a certain commodity at a certain time for an agreed price and, in return, the firm or undertakes to market the commodity, and may provide extension services and other facilities to producers to satisfy its production requirements in terms of quality and quantity. 

The nature of the contractual arrangements between companies and farmers is enormously diverse and thus defies generalisation.

 Firm-farmer contractual agreements include verbal or “gentleman’s agreements”, “soft contracts” or Memoranda of Agreement, registration type contracts and written contracts with varying degrees of detail. 

Generally, contract arrangements for smallholder farmers can be concluded with either the individual farmer or a group of farmers, including cooperatives with the simplest contract involving a verbal agreement between the producer and the buyer on the amount and quality of commodity to be delivered at a given fixed price.

In contemporary times, the producer is required to sign a kind of registration agreement confirming that he or she understands the company’s requirements. 

It is the duty of both the sponsor and the contracted to make sure the terms stipulated in the agreement are adhered to and where they are violated, there have been disputes that have at times spilled into courts.

 Farmers in most cases are left licking bruised egos after contractors drag them to court for breaching terms, with some cases going to the extent of seeing the contracted farmer’s property being attached or proceeds generated from the sale of other crops being used to settle the debts.

In essence, contract arrangements are meant to allow the farmer to make investments from the profits realised after the sale of a contracted product and not worry about saving for the next cropping season’s inputs or other key requirements. 

The contractor is expected to take care of that.

Where there is compliance to agreed terms by both parties, contracts may run for very long times and are expected to create a breed of well-to-do farmers that take farming as a business whose success relies on them producing quality and standard products while repaying what they owe every season. Honest farmers always benefit from contractual agreements while those that default repayments will also bear the brunt of the law. 

It is the responsibility of the farmer to repay what would have been advanced to her to enable the contractor’s revolving fund to remain functional.

The contractor should also be ethical and desist from short-changing clients through late disbursement of inputs, finances or even failure to extend agronomic support but still expect the farmers to effectively produce and settle their debts at the end of the growing season. 

In most cases farmers have opted out of the arrangements, leaving them unable to produce crops competitively while sometimes becoming food insecure.

Contractors need to honour their part of the deal and provide the agreed services at the specified times.

 In recent years there has been an influx of unscrupulous contractors who have been accused of giving farmers a raw deal, with some providing key inputs towards the end of the season when they should have been used at the start of the season but still expecting farmers to repay them fully. 

Tobacco and cotton farmers have been on the receiving end of such contractors, with the Government ending up intervening to save the two industries from total collapse.

This sad development has left farmers even poorer, with the Agricultural Marketing Authority (AMA) recently stepping in to enforce the registration of contractors and bring sanity to the sector.

 Only those contractors registered with AMA in compliance with Statutory Instrument 140 of 2013 may be able to enter into the production contract for grains or oilseeds. The registration of the contractors is currently in progress. 

Statutory Instrument 140 of 2013 also states that no individual or group may purchase, import, export grain or oilseeds as well as enter into a production contract for grain or oilseeds unless registered with AMA. 

The potency of the statutory instrument has also been further consolidated by Statutory Instrument 274 of 2021 to ensure full compliance in the grains and oilseeds sub-sector.

According to the 2021 amendment, contractors are now legally obliged to deliver inputs to farmers they have contracted in time and ensure that the contract includes the minimum of each input as set by AMA. 

The amendment also seeks to criminalise acts that breach the contract agreements. 

Before signing up for contract farming, growers must also appreciate that there are also disadvantages that come with the arrangement.

 For instance, there are times when contractors introduce new crops to be grown under rigorous conditions they control, which can cause disruptions to the existing farming system. 

For example, harvesting of the contracted crop may fall at the same time as the harvesting of food crops, thus causing competition for scarce labour resources and eventually resulted in the cancellation of their contracts.

In some cases, contract arrangements introduce innovations or adaptations — sophisticated machines for transplanting, weeding and even harvesting, which may result in the loss of local employment and over capitalisation of the contracted farmer.

 Furthermore, in field activities such as transplanting and weed control, mechanical methods often produce less effective results than do traditional cultivation methods.

Sponsors may have unrealistic expectations of the market for their product or the market may collapse unexpectedly owing to various factors at play in the economy or even the arrival of a competitor. 

Such occurrences can lead contractors to reduce farmers’ quotas yet very few contracts specify penalties in such circumstances.

 At times contractors may be tempted to manipulate quality standards to reduce purchases while appearing to honour the contract. 

This naturally causes sponsor-farmer confrontation, especially if farmers have no method to dispute grading irregularities. 

All contract farming ventures should have forums where farmers can raise concerns and grievances relating to such issues.

One of the undisputed facts about contract farming is that the revenue generated in the process benefits both the farmer and the contractor.

 Of course the rural smallholder farmer has in most cases been guaranteed food security and an income from contract farming where it has been done properly. 

In some cases, the same farmer has also been his own worst enemy when she decides to go for a quick sale and sell produce to someone who would not have funded its production. 

It is encouraging to note that AMA has since declared such actions criminal in a development that protects the contractor.

Very often farmers fail to repay loans due to circumstances beyond their control. 

Seasons may turn out to be very bad or prices on the market may be highly unfavourable leaving farmers unable to generate enough revenue to meet both their domestic obligations and service debts. 

Under such circumstances the parties involved in the contract arrangement may need to find common ground that leaves either parties happy.