MODERN agricultural supply chains aligned with farming practices and the market are required for the provision of food staples to the rapidly rising urban population.
This benefits big farmers with higher physical and financial resources to meet the requirements of multinationals. However, the small scale farmers are unable to develop links with the agro-based supply chains due to their weak resources.
Contract farming fills this gap by offering financial resources and technical guidance to small scale farmers to grow agricultural products for the investors.
The contract farming is an emerging technique that establishes the conditions for quantity, quality and production pricing of production between the farmer and contractor.
Even large multinational firms enter into contract farming. These include the tomato production of Hindustan Unilever in India, sugarcane production in Thailand, fruit production in Colombia and coca production in African countries etc.
Developing countries as a whole are witnessing an increased use of contract farming to enhance the income and skills of small scale farmers.
Global best practices available on contract farming can be studied to apply the most suitable model in Pakistan. A brief snapshot of the models of contract farming employed around the world is presented in the table.
The small landholdings, rising urban population and growth of food processing firms are three decisive factors that may drive Pakistan towards the adoption of contract farming.
The average size of agricultural land is 6.4 acres and small scale farms constitute 64pc of the total agricultural farms.
Similarly, the growing urban residents — constituting more than 40pc of the population — in urban centres who require continued supplies of vegetables, fruits, wheat, rice etc.
To cater to the food-related needs of this growing segment of urban population, food processing firms, supermarkets and department stores are coming up in cities and towns for supplying fresh and packed food items to consumers.
This opens up avenues for entrepreneurs, investors and food related firms to explore the various options for entering contract farming.
Contract farming benefits small farmers in acquiring agricultural input and technical guidance to cultivate a particular crop. There is a pre-agreed price for the purchase of a commodity.
The investors/contracts define the quality standard of the crop and the sale of the farmer is assured. Likewise, contractors also offer an opportunity to small farmers to cultivate new varieties of agricultural commodity and learn the use of new agricultural methods.
Contract farming also brings much-needed credit for small scale farmers to ensure the efficient production of the agricultural produce.
However, there are certain points of caution that need to be observed in overseeing contract farming development such as the design of legal clauses in the contract that should not impose too much financial obligations and conditions on small farmers should be clear and transparent.
The government should develop partnership models with food processing firms, supermarkets and multinational food firms to protect weaker stakeholders.
Published in Dawn, The Business and Finance Weekly, May 15th, 2017