The objective of this report is to demonstrate how the South African agribusiness sector can contribute to the transformation of the commercial farm sector by expanding the volume of procured from black farmers through various forms of contracting. The report illustrates a potential ‘win-win’ situation for government, agribusiness, and the agricultural input manufacturers. It also shows how limited government resources can be optimally leveraged by putting the onus on individual agribusiness companies to invest in, and procure from, black farmers and thereby suggesting appropriate government policy and programmes to make this happen.
The potential of contracting and contract farming in developing market linkages for emerging black farmers is explored here in light of the importance of creating market access for black farmers in the context of black economic empowerment in South African agriculture. Contracting and contract farming is increasingly being used by agribusiness firms and retailers in South Africa to secure supply of agricultural commodities from farmers illustrating that South African firms are following similar trends occurring in the US and Europe due to the industrialization and globalization of agriculture, which resulted in the tighter alignment of supply chains and promoted the emergence of fewer larger farms. 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 contract farming has now been recognized as a policy and planning priority, hence the need to provide guidance to the key economic players in agriculture to exploit the potential of this institution.
As more and more agribusiness firms and retailers contract directly with large farmers there still seems to be considerable reluctance amongst them to engage smaller farmers in similar contractual arrangements despite commitments to develop such mechanisms. 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 question is therefore to determine whether there is a role for government through appropriate policy interventions in the context of contracting and contract farming to improve the commercial future of black farmers and land reform beneficiaries.
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