Guiding principles for responsible contract farming operations
Contract farming can be defined as an agricultural production system carried out according to an agreement between a buyer and farmers, which establishes conditions for the production and marketing of a farm product or products. Typically, the farmer commits to providing agreed quantities of a specific agricultural product. This should meet the quality standards of the buyer and be supplied at the time that the buyer determines. In turn, the buyer agrees to purchase the product at agreed pricing conditions and, in some cases, to support production through, for example, the supply of farm inputs, land preparation and the provision of technical advice.
If the conditions that are stipulated in a contract farming agreement are detrimental to the interests of either partner, be it for reasons of imbalances in market power, opportunistic behaviour or other unfair practices, the relationship between buyer and farmer will most likely deteriorate. Under such a scenario, contract farming operations will not be successful and opportunities for the mutual benefits that can ensue from a well coordinated buyer-seller relationship will be missed.
Contract farming continues to gain importance as a mechanism for governing transactions in agrifood supply chains and as a tool to promote the access of smallholder farmers to markets. It is therefore timely and opportune to consider the various approaches available for minimizing the likelihood of conflict in contractual relationships, with a view to enhancing the potential of benefits for both partners and promoting the social and economic development impacts of contracting in the agrifood sector.
This document presents a set of guiding principles that are conducive to responsible contract farming operations. It is intended to serve as guidance for farmers and buyers engaged in contractual relationships, in order to promote good business practices and maintain an atmosphere of trust and respect that is essential if contract farming is to prove effective.