Contract farming and smallholder outgrower schemes in less-developed countries

The boundaries of the firm: why do sugar producers outsource sugarcane production?

“…Quite clearly the spot market would be unable to coordinate and synchronise the real time supply of 1.27 million and 3.6 million tons, respectively, of a highly perishable product like sugarcane. The study, therefore, agrees with a large body of literature that has concluded that the spot market cannot be synchronised with respect to ensuring the continuous supply of a uniform quality raw commodity (Glover, 1984(Glover, , 1994Kilmer, 1986;Mahoney, 1992;Hennessy, 1996;Azzam, 1996). The use of specification contracting, in the absence of interlocking factors, is also not recommended as a way to co-ordinate the transaction characteristics of the sugar supply operations.…”

Demythifying contract farming: Evidence from rural South Africa

“…Contract farming can be defined as an agreement between a farmer and a buyer, ranging from simple oral arrangements to formal written documents, in which parties respectively commit to sell and buy specific volumes or acreages under pre-established conditions (Glover, 1984;Minot, 1986). The buyer can be a local or a transnational agribusiness (processor, exporter, retail outlet or shipper), a private plantation, a parastatal with its own production, or local merchants (greengrocers, wholesalers, hawkers, brokers etc.…”

“…Most of them lack access to resources (land, water, infrastructure, credit facilities). Consequently, contract farming could facilitate their access to information, technical assistance, credit and inputs, reduce the uncertainty around marketing their products, improve their integration into modern value-chains and consequently, increase their farm incomes (Glover, 1984;Key and Runsten, 1999;Minot, 1986;World Bank, 2007), and provide institutional mechanisms to address the difficulties they face. However, contract farming could potentially also lead to increasing market segmentation and exclusion (Little and Watts, 1994;Phillips-Howard, 1997a, 1997b;Poulton et al, 2010;Vorley et al, 2007) or remain limited in terms of the number of farmers involved, limiting the overall impact (Losch et al, 2010).…”

“…Indeed, the contractual arrangements accompanying these evolutions represent a possibility for small-scale farmers' integration into modern value chains. Contract farming is generally considered as an attractive mechanism for integrating poorer farmers into the open-market economy (Glover, 1984;Key and Runsten, 1999;Poulton et al, 2010) and, subsequently, for increasing production and farm income. But, as mentioned by Poulton et al (2010), it may be selective, excluding the poor and subjecting them to high risks and agribusiness normalization, while failing to increase incomes due to unequal bargaining power with the farmers losing out.…”

Contractual Relationships Between Small-Holder Sugarcane Growers and Millers in the Sugar Industry Supply Chain in Swaziland

“…Levin (1988) suggested that most development planners argue that outgrower schemes and contract farming arrangements involving smallholder producers can provide alternatives for rural development or, rather, modernization. Glover (1984) and Goldsmith (1985) attempted to demonstrate the technical efficiency of out-grower schemes and the positive role that they can play in overall agricultural development. However, they did not analyse the relationship between small commodity producers and the multinational companies that engage in contracts with them.…”