Contract farming at Padideh Gheya Company

In the era of market liberalization, globalization, and the expansion of agribusiness, there is a risk that small-scale farmers will find it difficult to participate fully in the market economy. In many countries, such farmers could be marginalized as larger farms become increasingly necessary for profitable operations. The consequence of this will be the continued population drift to urban areas that we are witnessing almost everywhere.

Efforts by governments and development agencies to prevent this diversion have focused on identifying “income-generating” activities for rural people. Unfortunately, there is relatively little evidence that such efforts have borne fruit. This is largely because the necessary backward and forward market linkages are rarely established, meaning that rural farmers and small-scale entrepreneurs lack reliable and affordable inputs such as extension advice, mechanization services, seeds, fertilizers, and credit, and are guaranteed and profitable. The market for its output, however, provides such linkages and appears to offer an important way in which smaller producers can farm commercially. Similarly, it provides an opportunity for investment to ensure a reliable source of supply in terms of quantity and quality.

Contract farming has existed since ancient times. In ancient Greece, the practice was widespread, with certain percentages of certain crops being used as a means of paying tithes, rents, and debts. During the first century, China also recorded various forms of cultivation. In the late 19th century in the United States, sharecropping contracts allowed between one-third and one-half of the crop to be deducted to pay rent to the landowner. These practices were, of course, a form of serfdom and usually promoted permanent indebtedness among farmers. In the first decades of the 20th century, formal farmer-company contracts were established in colonies controlled by European powers. For example, in Gezira in central Sudan, farmers were contracted to grow cotton as part of a larger land lease. This scheme served as a model from which many smallholder contract farming projects subsequently evolved.

Contract farming can be defined as an agreement between farmers and processing or marketing companies to produce and supply agricultural products under future contracts, often at pre-determined prices. The arrangement also often involves the buyer in providing some degree of support for production through, for example, the provision of inputs and the provision of technical advice. The basis of such arrangements is a commitment by the farmer to supply a specific commodity in quantities and quality standards specified by the buyer and a commitment by the company to support the farmer’s production and purchase of the commodity.

Contract farming is becoming an important aspect of agribusiness, whether the products are purchased by multinational corporations, smaller companies, government agencies, farmer cooperatives or individual entrepreneurs. As mentioned above, this approach seems to have significant potential in countries where small-scale farming is still widespread, since in many cases small-scale farmers can no longer compete without access to the services provided by contract farming companies. However, it must be emphasized that the decision to use contract farming must be a commercial one. It is not a development model to be tried and tested by donors, governments, or NGOs, as other approaches to rural development have failed. Projects that are driven primarily by political and social concerns rather than economic and technical realities will inevitably fail.

From the perspective of farmers, contract arrangements can provide them with access to production services and credit, as well as new technological knowledge. Pricing arrangements can reduce risk and uncertainty. Some contract farming investments give farmers the opportunity to diversify into new crops, which would not be possible without the processing or marketing facilities provided by the company. However, offsetting these benefits are the risks associated with growing a new crop, the fact that the company may not meet its obligations and the risk of default if problems arise. From the perspective of sponsoring companies, contract farming may be more efficient than farm production in many cases and will certainly be more politically acceptable. It can give them access to land that would otherwise be unavailable and the opportunity to organize a reliable supply of products of the desired quality, which they would probably not be able to obtain on the open market. On the other hand, contract farming is not without its problems from the perspective of companies.

In some cases, farmers may sell their products to outsiders, even if they were produced using inputs supplied by the company. Conflicts can also arise because the strict agricultural calendar required under the contract often conflicts with social and cultural obligations. Padideh Gheyyan Company is one of the companies that can work with you in the field of contract farming.