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Policy issues for exploiting contract farming as a tool for empowering smallholder farmers in Southern Africa: A case study of South Africa, Zambia and Malawi
Policy Brief Series 04/05
Johann F Kirsten, Kurt Sartorius, Ian Kamwendo, Mathews Madola, Mwikisa L. Likulunga
August 2005
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Research Problem
The main objective of the contract farming study was to exploit the potential of contract farming as an institution that can assist linking small-scale farmers to commercial supply chains. The specific focus was to establish possible channels of exploiting the potential of the private sector – agribusiness - to develop and promote smallholder contract farming. The aim of the study was, not to do just another research study in the field of contract farming but was, specifically, to develop policies and action plans that can be used to expand the use of contract farming in the SADC region, especially in South Africa, Malawi and Zambia.
The need to examine the potential of contract farming (CF) in the region derives from two main scenarios: firstly, the development of market linkages for small-scale farmers is seen as a top priority for agricultural development in the sub-region. Although contract farming should be considered only as one institutional option among others, the potential of contract farming to link smallholders to agribusiness is widely regarded as significant. The industrialization of agriculture in many developed countries has resulted in the tighter alignment of supply chains and promoted the emergence of fewer larger farms. It has been suggested that this trend could exclude small-scale farmers in developing countries from profitable niche markets. In this respect, it is also argued that smaller operations, not linked with agribusiness, will have increasing difficulty in gaining the economies of size and the access to technology that is required in order to be competitive. It is against this background that governments and aid agencies have now recognized contract farming as a policy and planning priority, and hence the need to provide guidance to the key economic players in agriculture to exploit the potential of this institution.
Secondly, despite commitments expressed by the private business sector to develop such mechanisms, in reality they seem to be reluctant to do so, particularly regarding the small-scale farming sector. Given this reluctance – perhaps due to the high transaction costs and limited trust between business and small-scale farmers - there is a strong need to determine ways and means to make it possible for contract farming to be used more to link farmers to markets in a non-exploitative but empowering way. The key question is, therefore, to determine whether there is a role for government through appropriate policy interventions, in the context of contract farming, to improve the commercial future of small-scale farmers.
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