Contract Farming

Contract Farming

  • Submitted By: jibijohn31
  • Date Submitted: 08/14/2010 3:41 AM
  • Category: Science
  • Words: 5357
  • Page: 22
  • Views: 468

Chapter 1

Advantages and problems of contract farming

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Advantages and problems of contract farming

Contract farming has significant benefits for both the farmers and sponsors (investors). However, with these advantages also come problems. This chapter considers both advantages and problems from the standpoint of farmer and sponsor.

FARMERS Advantages for farmers
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Inputs and production services are often supplied by the sponsor This is usually done on credit through advances from the sponsor Contract farming often introduces new technology and also enables farmers to learn new skills Farmers’ price risk is often reduced as many contracts specify prices in advance Contract farming can open up new markets which would otherwise be unavailable to small farmers

Problems faced by farmers
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Particularly when growing new crops, farmers face the risks of both market failure and production problems Inefficient management or marketing problems can mean that quotas are manipulated so that not all contracted production is purchased Sponsoring companies may be unreliable or exploit a monopoly position The staff of sponsoring organizations may be corrupt, particularly in the allocation of quotas

Contract farming

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Farmers may become indebted because of production problems and excessive advances

SPONSORS Advantages for sponsors
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Contract farming with small farmers is more politically acceptable than, for example, production on estates Working with small farmers overcomes land constraints Production is more reliable than open-market purchases and the sponsoring company faces less risk by not being responsible for production More consistent quality can be obtained than if purchases were made on the open market

Problems faced by sponsors
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Contracted farmers may face land constraints due to a lack of security of tenure, thus jeopardizing sustainable long-term operations Social and...

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