We have seen a boom in tobacco output, largely driven by expanding contract farming. Of the 214 million kilogrammes of the golden leaf that were harvested this year, 76 percent was grown and sold under contract while 24 percent was self-financed and marketed through the country’s three auction floors. Last year, contractors accounted for 68 percent of aggregate output, up from 63 percent the previous year.
Clearly, contractors are taking over tobacco growing and marketing. Faced with declining deliveries, auction floors are considering switching from merely providing a voluntary marketplace for the crop, to actually sponsoring farmers and thereafter legally claiming the output.
Zimbabwe has a history of contract farming. The cotton peak of the 1990s, for example, was attributable to contract production, initially conducted by Cottco before the government liberalised marketing of the crop. Soya beans, paprika, wheat, tea, sugarcane and sorghum, have, too, been traditionally grown and sold under contract.
Farmers find this model irresistible since the contractor provides them with credit, inputs, technical support and guarantees them a market. As contractors always want high quality produce, contract farming contributes to production of good quality crops. Another advantage is that contract farmers tend to produce more per unit area than self-sponsored producers, as they have access to more physical inputs and up-to-date technical assistance. In other words their productivity is enhanced if they work under contract.
Proponents of contract farming also assert that skills transfer occurs to the advantage of farmers.
We are grateful that much of the growth in tobacco growing and other critical crops is down to contract farming.
However, as farmers prepare for the 2014/15 summer season, we feel that there are some negative aspects associated with the model that they must be aware of.
Many sign contracts whose details they don’t know much about. In the end, they are prejudiced, yet have nowhere to turn when they lose out as ignorance of the law is no defence.
Zimbabweans are generally literate. They can read and write, but faced with an unscrupulous contractor, who happens to be their benefactor, they can be easily tricked into signing contracts that enslave them.
Power relations in such agreements inherently favour the more resourced contractor, which is another downside. Contract farming, the Food and Agriculture Organisation agrees, can be an effective way to coordinate and promote agricultural production and marketing but “it is essentially an agreement between unequal parties: companies, government bodies or individual entrepreneurs on the one hand and economically weaker farmers on the other.”
Another likely disadvantage that can arise from the rapid growth of contract production is that, in the long term, it can create monopolies or engender monopolistic tendencies in which the contractor, who having funded the farmer and is guaranteed access to the crop, can dictate terms to their advantage, casting the toiling farmer as a peripheral figure.
“There are downsides of ‘living under contract’, as the classic literature shows,” warns Professor Ian Scoones, a respected researcher on Zimbabwe’s agriculture sector. “There may be little competition and it is often a buyers’ market, with produce being sold off at knock-down rates. Inputs supplied may be sub-standard or inappropriate, and becoming reliant on one product and one market may increase risks for producing households.”
We have seen market failure in cotton with farmers in Gokwe losing private property some of which is unrelated to cotton growing and wasn’t acquired through the loans, after they failed to produce enough volumes or after producer prices fell so low that a farmer couldn’t generate enough money to pay off the loans. Price volatility and dodgy rainfall patterns can, thus, work against contract farming.
To protect farmers from committing to corrupt agreements, we implore no one else but the government to improve producers’ contract literacy. Farmers themselves should make an effort to acquire skills for them to be able to comprehend contracts. Basic literacy is inadequate when dealing with contracts.
We highlighted that 24 percent of tobacco output this past season was grown and sold under contract and that auction floors are contemplating migrating to financing production. We regret this as it can give rise to monopolies.
We wonder if there are no strategies that the government can work out to make it possible and still profitable for auctioneers to run side by side with contractors. A dual system maintains the options for farmers and democratises the market. Regarding other farm produce, some of it is grown under contract, while significant portions are produced and sold on the open market, which is a good thing.
So, while we celebrate the positives associated with the contract model with specific reference to successes in tobacco, we should be always mindful of possible challenges that can arise in future or in relation to other crops, cotton for example.