Productivity, Market Access and Incomes for Small farming businesses through Contracts

Project summary

One of the recent innovations and new approaches for addressing the problem of market access and inadequate farm income amongst smallholder commercial farmers in developing economies is the development of integrated systems of agricultural production, extension and marketing to enable smallholder farmers access international product market. Many studies see the promotion of smallholder out-growers through contract farming as a promising strategy for countries like Tanzania aimed at improving product quality in the value chain, improve technical efficiency in production and providing assured market for smallholders (Eaton and Shepherd, 2001, Birthal et al (2008). This approach has the potential of not only enabling the smallholder agricultural producers to respond to global market conditions, but nationally this is also seen as a strategy for improving the livelihoods of smallholder farming businesses in the agricultural sector and hence reduce poverty through agriculture industrial linkage. While contract farming is taken as one of the strategies for enhancing production efficiency and enhancing marketing access for small farming business, not many studies has been undertaken in Tanzania to assess the effect of the existing limited deployment of this approach. Little rigorous work has been undertaken to quantitatively study and assess the efficiency levels of existing crop technologies with a purpose of identifying whether or not maximum productivity. It is important to describe and analyze the contract arrangements in order to suggest possible improvements of the contracts.

Outputs

Project Completion report:
Resuts for Objectives 1 and Output 2:

Sources of technical efficiency included proper usage of improved seed varieties; timely undertaking of farm activities (land preparation, planting, weeding, fertilizer application);

Results for Objectives 3 and 4 with Output 3:

There is a notable variation in credit access amongst crops and between areas. Overall access to credit is seen to have a significant effect in smallholder contract participation.

Results for Objective 5, with Output 4:

Qualitative data analyses were undertaken in order to understand the governance issues of each value chain. Governance structures varied considerably in the four value chains depending on the oligopolistic nature and crop characteristics, e.g. the need for immediate processing after harvest. Governance is tight in tobacco with two main endbuyers/ processors and sugar (all four outgrower schemes linked to a processing company) while much more loose in the competitive chains for cotton and sunflower where many traders and SME processors are active. Contracts tend to be more strict in value chains with limited competition due to few end-buyers. However, compliance problems related to contracts are present in all value chains.

Results for Objective 6 with output 5:

. Overall, the potential gains of contract farming for commercialization of agriculture, production, efficiency and access to formal credit are substantial but yet not realized. There is a number of explanations for this and policies need to address among other things:

- the biased access to credit which depends on individual resources, crop characteristics and geographical location

- the wide variation in value chain dynamics that necessitates a specific content of contracts according to the nature of the crop and the socio-economic context in which contract farming is implemented

- the asymmetrical level of information and knowledge between the farmers and the contractor that affect the necessary alignment of understanding and accepting the contract conditions between the partners

- the lack of effective retaliatory mechanism and institutions in case of non-compliance of contracts (and that this is valid for both farmers and contractors)

- the spin-off effects and externalities – both positive and negative – of contract farming schemes that may affect broader regional development trajectories, such as small town development, economic diversification, private accumulation, social differentiation, etc.

Output 6. Four (4) theses have been produced and passed.

Output 7. Capacity to do major development research deploying qualitative and quantitative methodologies has been created amongst the 4 PhD graduates.

Output 8. Journal publications, policy briefs and an edited volume.

Details of these are found in Appendix 3c