Contracts can be a great way for farmers to access a wide range of management, technical and extension services that would otherwise be out of reach. By using the contractual agreement as collateral, farmers can secure a loan from a commercial bank to finance inputs. Contract farming also provides small farmers with an opportunity to enter the market and link an isolated rural economy with potential buyers. Contract farming is an agreement between the purchaser and the agricultural producers. It typically involves the purchaser specifying the required quality and price, and the farmer agreeing to deliver at a future date.
The contract also outlines the conditions for the production of agricultural products and their delivery to the buyer's facilities. In exchange, the purchaser agrees to buy the product at a pre-determined price. Contract farming is used for many agricultural products, although it is less common for staple crops such as rice and corn. Once farmers have made an investment in contract production, it is difficult for them to abandon it. This is especially true in the poultry sector, where chicken coops are often built with loans and contracts are the only way to produce and market enough chicken to pay off debts.
Marketing contracts
are more common for crops, while poultry and livestock are more commonly produced through production contracts.Numerous studies have been conducted on contract agricultural enterprises and many are listed in the Resource Centre on Contract Agriculture of the United Nations Food and Agriculture Organization (FAO). The publishers identify a gradual convergence in the clauses and conditions used in contracts and point out that two of the most common contractual provisions - those involving technical assistance and pre-financing of inputs - may be essential for small farmers. In theory, contracts can benefit both parties, but in some cases, agribusiness can use them to take advantage of federal subsidies and farmers while outsourcing costs and risk. Contract work is usually done by women, but contracts are invariably in the name of men who get paid. This leaves farmers vulnerable to termination of contracts, changes in contractual conditions, and demands from integrators. Contract farming offers numerous advantages for farmers.
It provides access to capital that would otherwise be unavailable, as well as access to technical assistance that can help improve yields. It also allows farmers to enter markets that would otherwise be inaccessible. Furthermore, it provides a degree of security by guaranteeing a minimum price for their produce. Finally, it helps reduce risk by providing a stable income stream. However, there are some drawbacks associated with contract farming.
Farmers may be subject to unfair terms or exploitative practices by agribusinesses. They may also be exposed to increased risk if they are unable to meet production targets or if prices fall below expectations. Additionally, contract farming can lead to environmental degradation if agribusinesses do not adhere to sustainable practices. Overall, contract farming can be beneficial for farmers if they understand their rights and obligations under the contract. It can provide access to capital, technical assistance, markets, and a degree of security.
However, it is important for farmers to be aware of potential risks associated with contract farming before entering into an agreement.
