SAVI NEWSLETTER
Vol. 01 Issue 08
"Leading the sub-sector by sub-sector transformation of Ethiopian agriculture."
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Contract Farming - The Way of the Future?
A farmer under a formal contract to produce is not a very common sight in Ethiopia. Most Ethiopian small holders farmers produce as a means of survival dependent on weather patterns with limited use of agricultural inputs such as fertilizer, pesticides, and mechanization similar to most smallholders farmers in Sub-Saharan Africa who collectively produce about 80% of the food consumed in the region. In recent years, food systems in this region witnessed major changes and rapid structural transformation. The increase in urbanization, rising incomes, industrialization, a burgeoning middle class, and globalization have led to the emergence of modern supply chains, including modern food retail. Contract farming has been presented as a possible solution to raising productivity and linking smallholders in the emerging modern chains by international bodies. Although there have been successful implementations of contract farming arrangements, there have also been failures that have trapped farmers in to being poor. Is contract farming the future for Ethiopian Agriculture? What can be done to promote ensure mutual benefits for buyers and farmers in such agreements?
Why Contract Farming?
Contract farming involves agricultural production being carried out on the basis of an agreement between the buyer and farmers who produce. Most times, this involves the buyer specifying the quality required and the price, with the farmer agreeing to deliver at a future date often at predetermined price. The contract farming arrangement is forward thinking and has the potential to benefit both the buyer and farmers. In such arrangements farmers can take advantage of:
- Production support from contracting party (buyer) in terms of agricultural inputs such as fertilizer, improved seed, and modern farming practices
- Increased market access through the buying party that provides guaranteed demand for the farmer's produce through the agreement
- Protection from surging prices following harvest season where produce is high in abundance in the market
While on the other hand contracting parties (buyers) can take advantage of contract farming to:
- Reduce investments and time taken for land acquisition for estate farming
- Ensure reliable input compared to purchasing from traders which can be erratic
- Exercise more standard quality control measures on the products which is difficult to do in open markets in developing countries
- Reduce seasonal price fluctuations and save costs by offering a fixed rate prices for farmers
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FAO–China South-South Cooperation Programme support to FAO’s Global Action on the Control of the Desert Locust
Objective - To curb the spread of the desert locust by sharing and applying, through South-South Triangular Cooperation, new, effective and low-cost technologies, techniques and proved solutions.
Key partners:
- Ethiopia: Ministry of Agriculture.
- Islamic Republic of Iran: Plant Protection Organization of the Ministry of Agriculture Jahad.
- Kenya: Ministry of Agriculture, Livestock, Fisheries and Cooperatives.
- Pakistan: Department of Plant Protection, Ministry of Food Security and Research.
- Uganda: Ministry of Agriculture, Animal Industry and Fisheries.
Beneficiaries - Desert locust-affected farmers, Agro pastoralists and pastoralists and national authorities responsible for desert locust surveillance and control.
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Contract Farming … cont'd
Malt Barley - A Wide Contract Farming Scheme
Ethiopia is the largest producer and consumer of barley in the African continent. Barley is a smallholder crop with millions of smallholders deriving their livelihood from the barley value chain. Nationally, two types of barley are grown: food barley for home consumption and malt barley for brewing. The appearance of international brewers in the malt barley value chain has increased the annual demand for malt barley, on average at a rate of 20%. This has affected the malt barley sector by generating new market opportunities for smallholders, reducing price volatility, ensuring reliable supply chains, and cutting the import bill, thus saving foreign currency for the government. The modern chain, however, is driven by breweries and characterized by vertical coordination. In this chain, a strict requirement for quality and quantity is arranged together with price premiums. Written contracts are used to safeguard these agreements. The modern chain is characterized by few intermediaries, supply chain management (control of quality and quantity), and technology transfer. To integrate smallholders in the modern chain, companies introduced on-farm training in good agricultural practices and quality upgrading. Companies hired and employed field experts (agronomists) and business advisors to coach and train farmers. Field experts follow up and supervise contracted farmers and their plots for proper application of the service package.
During most of these contract schemes, farmers participating in contract farming obtain on average 42% and 41% higher malt barley gross income and net incomes per ha, respectively, than those who do not participate due to higher yields and greater prices that their industrial grade malt will fetch. In terms of the breweries, these contract farming arrangements are usually made in partnerships with aid agencies and development partners. Hence assessing the full financial viability of such programs from the point of view short term profits of the breweries would be misguided as the long-term forex and resource savings that could be achieved by investing in contract farming can outweigh costs. These programs also served as one of the largest pilots in to assessing the impact of such schemes, proving that contract farming can increase income and productivity for smallholders in Ethiopia.
Sugarcane - Past Shortcomings
Despite success stories such as malt barley, there have also been failures that should be learned from with respect to the implementation of contract farming in Ethiopia. Such was the case in the Wonji Sugarcane Out grower scheme where the sugar Factory was first established in an area where the surrounding agricultural land was already in use by local communities back in 1975. After having faced backlash for trying to replace the communities to plant sugarcanes, the GoE implemented contract schemes that would allow the residents to produce and sell sugarcane to the factory.
However, this process was not voluntary as to make the scheme amenable to mechanization, the factory decided that all households who had land along the Awash River adjacent to the factory’s plantation had to participate or leave their land. The factory and the out growers have a formal contract that is renegotiated every three years. Because the land titles are held by the associations , individual out growers have no power to renew or terminate a contract at the end of the three-year contract duration, which basically means that out growers are in a contract of unlimited duration to grow sugarcane on their land. Predictably, out growers who contributed irrigated land to the sugarcane out grower association would be better off allocating their land to the production of other high value crops. This result is not surprising given the high profitability of vegetable crops compared to sugarcane to which out growers allocate the majority of their land. Out grower scheme arrangements where farmers are forced to participate in agreements where the buyer has depressed the producer price will not capture the most value out of the land and will not improve the lives of small holders.
Ways Forward
Both experiences show that the success and failure of contract farming programs lie in their implementational nd methodology with price setting being the major factor in ensuring the benefits of both the buyer and farmer. Providing the freedom of choice for the farmer to terminate contracts can create a competitive environment where fair prices are set making sure tat farmers don't get exploited. On the other side the freedom offered to both parties should be offset with the enforcement of the contract agreements with particular focus on side selling which can present significant challenges for buyers. Despite these issues, contracting farming presents a real opportunity for all stakeholders involved which was evident in the pilots of Malt barley. Ethiopia should utilize its potential to use contract farming as a valuable tool to commercialize smallholder farming and increase productivity.
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Youth Artisans Fabricating Metal Silos to Reduce Post-harvest Losses
“We are happy that we work in our own community. We invest our time and skills into our business, which we dream of transforming into an industry. Secondly, we learned new skills and are a part of the solution to a local problem" - Ammanuel Abebeaw, Founder of "Ammanuel Abebaw and His Friends Company Limited".
Metal silos are cylinder-shaped containers for storing grain. The upper lid has an opening that serves to put grain inside the silo. The bottom part has an opening with a lid that serves to take the grain out. The technology protects harvested grains from attack not only from the storage insects but also from rodent pests. The traditional forms of storing grain including insecticides, granaries, and traditional bags have proven ineffective in maintaining the quality and quantity of grain.
In efforts to popularize and increase the availability of metal silos in the community, FAO trained the artisans to make the silos. Initially, FAO purchased the silos and distributed them to farmers to support the budding business. However, the artisans are now able to fabricate and sell using their own resources. The community now purchases the silos directly from the artisans. Some orders come from areas not targeted by the project.
Click here to learn more
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About Sustainable Agro-industrial Value-network Innovation (SAVI)
SAVI works to innovate and implement market-led interventions to support the subsector-by-subsector transformation of Ethiopian agriculture. Using our proprietary model, 10 years in the works, we have set out to transform 10 high potential agro-industrial value networks by 2040, to fuel job creation, smallholder income increment, improve nutrition, and empower women.
For its first value-network, SAVI is focusing on poultry, mainly comprising of chicken meat and eggs, one of the most underutilized sectors in Ethiopian agriculture. In consequence grasping the attention of various stakeholders as improving its production creates cheaper and quality products providing high aptitudes for:
- Increasing the incomes of smallholders engaged in poultry production and more than 10 million farmers engaged in maize and soybean farming, used as inputs for poultry feed,
- Creating modern downstream jobs in small-scale poultry production and agro-processing with higher value added;
- Empowering women, particularly in rural areas, as poultry production is one of the few agricultural activities that requires low initial investment and can be easily carried out inside the household; and
- Improving the nutrition of the mass population as eggs and chicken meat are cheaper sources of protein with high turn-over rates in production.
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