Contract farming desirable step towards commercial agric

desperately need to pull their families out of poverty.
So the announcement this week that the smaller milling companies, grouped under the Grain Millers Association, will enter contracts with farmers this coming season to grow at least 600 000 tonnes of maize is a needed boost to Zimbabwe’s agriculture.
The largest milling companies, cotton companies, several horticulture wholesalers, and the major brewery are already heavily involved in contract farming, so this is simply an extension of what is already happening.
Under these contracts the farmers are advanced inputs, given advice, and guaranteed a final price for their harvest plus a guaranteed market.
At best the system provides stability and provides the capital and expertise many farmers lack; at worst it can be little more than sharecropping with the odd twist that the sharecropper is the landholder.
The inherent danger is that the contractor, the big company putting up the cash, can call most of the shots, the farmers having the options of entering the offered arrangement or probably not being able to produce at all.
This is why it is so crucial that farmers organisations are involved in the negotiations; one farmer cannot negotiate with any equality at all with a huge company or an association of companies.
A farmers’ organisation representing tens of thousands can obviously do a lot better.
The GMA is not only negotiating through the farmers’ unions but is actually insisting that those farmers who enter contracts are full members of a union.
This seems to be the best way forward since, at least, then the deals struck can be enforced.
In one sense, contract farming provides a stripped down futures market.
In those countries, such as the US, with well-developed financial systems farmers can sell part or all of their crop before they even plough the land.
Obviously most buyers of futures contracts are putting in a discount from what they expect the price of the particular crop will fetch at harvest, but this discount is usually fairly small and many farmers reckon the discount is less than the interest a bank will charge.
There are other costs. The seller of a contract, in the first instance, the farmer, has to deliver.
If his crop is wiped out he has to buy someone else’s free harvest so he can meet his end of the contract.
This is another reason why a well-developed financial system has to be in place since most farmers will need to insure against failure.
In contract farming, the buyer assumes the risk, or most of the risk, which is why the buyer usually wants a great deal of control over the farmer and can give orders over what is planted, of what variety, at what times and can even manage the labour force if necessary.
This can eat into potential profits, but for maximum profits to be realised a farmer needs to have quite a bit of his own capital, usually enough for at least the planting stages, plus access to cheap loans for the harvesting stages.
It is a lot easier to get cheap loans to bring in a crop that is already in a field than it is to plant one in the first place, where the risk of default is obviously several times higher.
So the skilled farmer with some money of his own is almost certainly better off going it alone, rather than accept a pre-planting contract, since that course will give the highest prices at the lowest cost.
Contract farming, with reasonable union-approved contracts, can, however, be a Godsend for the newer farmer, or the farmer with minimal capital.
It can give him the start he so desperately needs to move up the ladder of commercial agriculture and allows him to accumulate the skills, with careful saving, allows him to build his own capital until he reaches the level where he can risk farming on his own.
Some may never reach that level; others may prefer the higher security contract farming offers.
But while contract farming must be encouraged, and greater competition among the contractors will help ensure farmers get a decent deal, it must be seen as something useful, not an end in itself. Most farmers in Zimbabwe in 2011 will almost certainly benefit from contract farming.
But the hope must be that more and more will be able to reach the top levels of commercial agriculture, and that more and more sophisticated financial packages will be created to support them. In other words contract farming is desirable, but it is a stage not the end of the journey.