Contract farming – an agreement between a farmer and a buyer – offers many benefits to small farmers if they have access to education and legal services.
Will contract farming, done right, serve as the missing link between small farmers and markets?
Contract farming, an agreement between a farmer and a buyer, can offer many benefits to smallholder farmers. They guarantee a buyer and often provide extra perks like better access to yield-boosting inputs.
Anti-poverty organizations, as well as large grocery-store chains, are looking to contracts as a “win-win” solution that fights poverty while guaranteeing a reliable, year-round flow of organic and niche produce to national and international markets.
Here's the potential problem: Contract farming, in itself, doesn’t directly reach or benefit the farmers who need help most.
Corporations view farmers at the bottom of the income bracket as liabilities — likely to fail in meeting obligations. According to a study last year by AgWater Solutions (pdf), contract farming “is unlikely to reach the poorest farmers … Schemes tend to select better-off farmers who can bear risks or pay an initial commitment fee."
Additionally, poor farmers are smallholder farmers. Corporations are less likely to enter a contract with farmers who own small tracts of land and who are scattered and isolated geographically — the transportation costs are too high and the communication too unpredictable and difficult.
Then there’s the issue of power inequality and “information asymmetry.” Small farmers who aren’t members of a cooperative or farmer’s association lack the bargaining power, lawyers, and sophisticated technology of big buyers.