In response to the food crisis gripping the world today, the International Food Policy Research Institute has recommended contract farming to help small farmers of the developing world produce and sell more crops.

Contract farming provides a system where multinational food corporations or exporting units purchase harvests of independent farmers in advance, the terms of which are stated in a contract.

Ardent advocates of this setup, such as the Harvard Business School, argue that contract farming is a revolutionary means of integrating small farmers into the international food market because it provides them market access with minimal risk.

Contract farming also facilitates technology transfer, as multinational corporations require farmers to meet international standards. For crops to pass their qualifications, private contractors often provide the necessary inputs, fertilizer and infrastructure.

In India, for instance, higher yields and assured prices from contract farming has tripled gross returns in wheat, paddy and potato compared with those grown in noncontract-farming systems.

In Mindanao, technology transfer through contract farming eventually empowered farmers to graduate from contract growing to marketing their own products.

In 2002, the Federation of Agrarian Reform Cooperatives established through a joint venture with Japan-based Alter Trade the Mindanao Organic Ventures Enterprise, which directly exports bananas to Japan. Currently, the Philippines is the third-largest exporter of Cavendish banana, next only to Ecuador and Costa Rica, and has the largest yield per hectare in the world.

Contract farming, however, is not immune from dangers and abuses, especially from the side of private contractors.

In many cases, production techniques transferred to farmers are highly crop-specific; hence, it does not only deter crop diversification, but poses threats to long-term sustainability, as well.

Naturally, contractors would want to harvest from farms as much as possible, which may lead them to encourage the overuse of fertilizers and water to boost yield, but with the heavy cost of soil degradation.

Manipulative contractors also do not specify who would bear the burden in cases where extreme weather damages crops, and the more enterprising ones maneuver quality standards to get a portion of the crops at a lower price.

This is where the government role as regulator comes in. Not only is it necessary that the rule of law and a fair-contract regime are implemented, but that farmers are educated in the terms they would be entering into.

Government-sponsored research and development could also complement the technology transfer from contract farming to make it sustainable and beneficial in uplifting subsistence farming. 

E-mail: edgardo_angara@hotmail.com. Web site: www.edangara.com.

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