Zimbabwe contract farming at a crossroads

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CONTRACT farming has often been touted as a viable funding and marketing solution for farmers who are unable to secure bank financing and enter the marketplace on their own.

By Omen Muza

Apart from complementing government and banking sector financing initiatives, contract farming also enables contractors to influence the production process by, for instance, providing yield-boosting inputs. However, for crops such as wheat, soya beans and seed maize, it appears that the contract farming model still has a long way to go before it can reach the lofty production and marketing heights scaled by the tobacco industry, if recent developments in those sub-sectors are anything to go by.

Wheat

In March 2013, stakeholders in the agricultural sector agreed that as the ultimate off-takers, millers should fund production of the wheat crop, subject to government crafting an appropriate legal instrument to hedge contractors against side-marketing as is the case with other contracted crops such as tobacco and cotton.
At the time, the Grain Millers’ Association of Zimbabwe indicated that it had secured foreign funding to the tune of $29 million for inputs covering 15 000 hectares, given the liquidity challenges bedevilling domestic financial markets.

However, barely a month later, the millers made a spectacular somersault and withdrew their offer to fund winter wheat production in the 2013 season, citing Government’s failure to gazette a Statutory Instrument to protect them from side-marketing.

Soya Beans

In early September 2013, Zimbabwe Stock Exchange-listed agricultural concern AICO Africa Limited announced that it had suspended contracting farmers to grow soya beans after it lost more than $1 million through side-marketing. Chief executive officer Patrick Devenish said the company was now buying soya beans directly from traders, a less risky proposition compared to contract farming.

“We have not contracted any soya bean farmers this year. Two years ago, we did a big contract production scheme and lost a large amount of money because people took our inputs and didn’t deliver the soya beans. We have this terrible thing called side-marketing and side-marketing is a cancer because what it does is it discourages people to contract farm.

I think we need to strengthen our legislation to ensure that every one who participates in the industry, be it cotton, maize or tobacco, is contributing to that industry in terms of providing inputs for farmers and giving a fair reward to farmers,” Devenish said.

Maize Seed

Also in September, seed manufacturing company DuPont Pioneer Zimbabwe (Pvt) Ltd announced that it had suspended its long-running contract farming scheme, after farmers failed to repay loans. The seed producer said it intended to first recover unspecified outstanding amounts, pursuant to which it would consider whether to resume the scheme or not.

Though aware that it would lose some of its key customers, with its back to the wall, the company had no choice but to pull the plug on an otherwise popular initiative. Farmers, however, said that although they had somewhat benefited from the scheme, it was not commercially viable because the company often delayed input distribution, thereby greatly affecting yields.

Legal framework

Against this depressing backdrop, the recent announcement by Government that it is working on a legal framework for contract farming’s peculiar legal needs is therefore most welcome, if not entirely overdue.

According to Minister of Agriculture, Mechanisation and Irrigation Development Dr Joseph Made, government is working on a legal instrument that guides parties to contract farming as part of measures to deal with inherent disputes that have been associated with the arrangement.

Spanners in the works: Why contract farming isn’t a silver bullet

Evidently, the contract farming model is still confronted by many challenges, the biggest of which are probably lack of an all-encompassing legal framework and side-marketing. Given their lack of bargaining power and limited access to legal services, farmers are known to sign lop-sided contracts without a proper understanding of the risks and benefits of contract farming.

Typically, farmers also complain about the prices offered by contractors, which they argue are too low to enable them to outgrow contract farming and become self-sustainable. Farmers are also up in arms with contractors who insist on buying their entire crop despite having funded only part of it. Delays in disbursement of inputs affect yields, they also argue.

It would appear that the key to unraveling the contract farming tangle is to institute a legal framework that clearly articulates the needs of both farmers and contractors. Strengthening of the legal departments of farmers’ unions and enhancing members’ access to education and legal services can create institutional frameworks that allow both the farmer and the contracting corporation to have the same understanding of the contract. Experts also argue that the power dynamics in contract farming agreements must be evened out and information asymmetry eliminated in order to do away with agreements that are inherently risky for farmers.

Yet others argue that in order for contract farming initiatives to truly succeed, Government must first take responsibility for changing the delinquent culture created by its free input handout schemes which have negatively impacted on the willingness of farmers to repay commercial debts even when the ability to do so is not in question.

Feedback: omen.muza@gmail.com. Omen N Muza writes in his personal capacity. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8

4 COMMENTS

  1. brilliant article Omen, the dynamics of this model are multifaceted, contractors and farmers are both exposed, but the ones taking bigger risks are contractors, because when gvt comes in to protect farmers it leaves the companies exposed, now farmers have a culture of running to the gvt when things are amiss and the gvt comes out guns blazing blaming the pvt sector contractor, there is a need for gvt to show commitment to protecting pvt sector contractors, I was involved in a some what successful contract farming model, but the biggest challenge always came when it was time to pay back, because the farmers side market your product what they then sell to the company will no longer give enough returns to payback the input loans, farmers either start complaining about a bad season and when you insist on repayment the run to politicians, i remember at one field day a politician actually telling farmers that no one will be forced to pay back loans this was in the presence of the company and the farmers to a loud applause, to be honest that left the company in a dilemma. for a contracting company it needs more of the produce than the money if it is given back, projections are made based on what you have on the ground and what you anticipate at harvest, bad or good season there is always an expectation. But when gvt comes to the resuce its never been for the contractors it has always been about protecting farmers. In one of the years a cotton company invested so much in their crop then international prices fell as cotton is determine by an international market, then the company had to negotiate with farmers but the gvt intervened and allowed a chinese company to by the cotton, because they had not invested a cent they could offer a better price and this literally destroyed the company. So as long as the company does not have some sort of protective net from the state, farmers will always manipulate the system based on the precedence set by the gvt input schemes that did not demand any repayment but constantly gave into the farmers pleas.

    At some point farmers ought to feel pain the of their defaulting behaving, and maybe they will realise what the other end of the coin, and then these same companies are expected to support the land reform in its totality when they are not cushioned against errant farmers. it really a sad case poor or no enabling policies at all.

  2. The contractors should choose the farmers professionally. What I see is a tendency to kumba zvose. What Pioneer should do for example in to identify those farmers who were professional and continue with them. Others will join and improve on the way. In five to ten years, I am sure they will harvest more than they are dreaming of now. The problem with the contractors is short term ism. They expect to make millions the first year, whilst they are still on the learning curve. Pioneer lost just one million dollars, and all of the learning achieved by that loss is gone down the drain because they have discontinued the operation. A more innovative and obviously more informed approach is better than quitting.

  3. Contract farming is a very risky business to both the farmer & the contractor, but moreso to the farmer. Enough has been said by the writer & the comments. Funding for all agricultural activities should follow the formula 85% from bank or trade finance, 10% from contractors & 5% from the farmers themselves. This way, you kill side-marketing at a stroke. You also eliminate the problems of price asymmetry together with the imbalance of negotiating power between the poor farmers & the insensitive & bullying multinational corporations.

    If you want to completely destroy Zimbabwean agriculture, the easiest way is to keep insisting on funding it through contract farming. The contractors always unwittingly promote side-marketing by the farmers in the misguided attempts to get rich overnight.

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