1. INTRODUCTION


• 1.1 Problem statement
• 1.2 Objectives of the study
• 1.3 Defining marketing through contract and sub-contracts

2. INFORMATION REQUIREMENTS AND METHODOLOGY

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1. INTRODUCTION

Agriculture in Zimbabwe is conducted by two broad sectors i.e. the large scale commercial farmers and the small holder farmers. The small holders comprise the communal area farmers, the small scale commercial and the resettlement farmers. The contribution of the communal area farmers to marketed output increased tremendously since 1980. This phenomenon was attributed to factors such as improved access to marketing depots, improvement in the road network and favourable producer prices, extension advice etc. The various marketing depots were owned by the government marketing boards. This development occurred before the introduction of market reforms, ie. when the marketing environment was highly regulated with the government regulating prices levels. Farmer organisations lobbied for price adjustments on behalf of their members. Marketing was conducted by government parastatals which dealt with specific commodities as given in Table 1. Government aimed to ensure food self sufficiency through offering good prices to producers while it also had the obligation to protect the urban consumers who mostly were of the low income group. This forced the government to burden itself with a high bill for subsidising the consumers.

Therefore the marketing boards became largely dependent on subsidies to sustain their operations. They could not operate commercially. With the introduction of the Economic Structural Adjustment Programme (ESAP) in 1990, marketing in the agricultural industry was liberalized. The former parastatals were required to operate along commercial lines . They could not depend on government subsidies. This necessitated them to shed off some operations which were not viable. The activities of the marketing authorities have been commercialised except for GMB's role of maintaining a strategic maize reserve. The strategic grain reserve represents the minimum quantity which can meet the country's grain requirements over a period which allows the government to mobilise resources and import

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grain into the country. All costs incurred by GMB in maintaining the strategic reserve are borne by government. Horticultural products have always been sold through private companies, individuals or directly to the consumer. Therefore the liberalisation of the market did not have a major effect on the organisation of the market. The only effect which market liberalisation might have had was the opening up of the economy to entrepreneurship. As a result the number of companies dealing with horticultural commodities for the domestic or export market has risen.

1.1 Problem statement

Commodities are being sold by producers through contracts with buyers. The contracts specify the quantities and quality a farmer should supply. For some commodities like red sorghum, contract marketing has been practised for a long time. Other commodities have recently started to be purchased in this manner after the introduction of a liberalised market. Having become accustomed to marketing through the regulated and very formalised parastatal boards, for the majority of the farmers selling of produce through contracts is a new phenomenon. The farmers still need to be enlightened on the pros and cons of the various contracts they could enter. On the other hand large scale commercial farmers are better legally advised and are likely to enter into contracts in which they are not likely to lose.

Sub-contracting is also another way in which farmers sell their produce. Currently, sub-contracting is happening in an uncoordinated manner. There is need to clearly document what is taking place and explore what potential there is for communal area farmers.

At the same time liberalisation of the marketing regulations resulted in the entry of new actors on the scene. Reports indicate that some of the people who are purchasing commodities in the communal areas are unscrupulous and ripping the farmers. Information on how farmers can market at best advantage are desperately needed.

1.2 Objectives of the study

The objective of this study was to look at the types of contracts into which farmers and sub-contractors enter, the commodities for which the contracts were being made and the benefits and costs associated with the contracts. The study also proposes to identify ways of improving marketing through contracts or sub-contracts.
This report will identify the major types of commodities which are currently being sold through contracts. For each contract the alternative marketing channels will be identified and the advantages or otherwise of using the channel will be explored.

1.3 Defining marketing through contract and sub-contracts

Contract marketing occurs when the producer and the established buyer of a commodity make an undertaking to do the sell before delivery of the produce. The agreement can either be

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in a written and signed contract, a verbal contract or an implied contract. With the written and signed contract, the obligations of either parties are stated. Since it is binding, it is rather not very flexible. The verbal and implied contracts are loose and flexible. For example if provision of transport had not been stated when entering into the contract, if it is felt that this is an essential component, an agreement can always be made to include it. With the signed contract, the signed document would need to be altered and then be signed by parties to the contract to reflect their undertaking to the amendment. This will be time consuming and expensive. This is especially so for communal area farmers who are numerous and only produce small quantities per farmer. As part of the contract other services can also be rendered by the contracting buyer in order to enhance the chances of the producer to meet the terms and stipulations of the contract eg. extension, empty bags, transport etc.

In sub-contracting on the other hand, the producer does not interact directly with the companies which really utilized the raw commodity. In this case the company contracts another farmer to supply it with a given quantity of produce. The contracted farmer then further sub-contracts the smallholder farmers . Since large scale commercial farmers operate as companies, it is difficult to distinguish the middle person on the basis of being a company or farmer. In any case some companies eg. Hortico which used to have their production and marketing activities under one company have split into specialised companies to increase efficiency. Therefore it would now appear as if the marketing company is contracting for all its requirements.

With the liberalisation of the market, companies competing with the former parastatals have emerged. While these companies can also purchase directly from farmers, they can also contract or purchase with or without contracts from middlemen. When the major competitors eg. Cargill enter into contracts with farmers, this is regarded as contract marketing in this report. However when farmers are contracted by another person or company who eventually sells to the farmers parastatals or to the established companies, this is regarded as marketing through sub-contracts. The middle person can be another farmer, a broker, an entrepreneur etc. As in contract marketing, an agreement which can also be written or verbal on sell of the commodity is entered into.

2. INFORMATION REQUIREMENTS AND METHODOLOGY

1. Review of government publications and other relevant literature sources.
   • Review of the changes in marketing arrangements in Zimbabwe using the various changes in government marketing rules and regulations.

2. Survey of farmers who are producing for companies on contract.
   • Determine the nature of the contracts entered into and the level of the farmers understanding of the contract.

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   • The farmers assessment of the benefits or costs associated with the contracts.
   • A comparison of procedures followed when using contracts versus the alternative marketing systems.
   • Assess the conditions, social and economic, which determine the farmers' ability to go into contracts.

3. Interviews with stakeholders in the agricultural industry on the modalities, merits and lack of merits in sub-contracts for the small holder farmers and other considerations.
   • Assessment of the likely trend/ potential in the use of sub-contracting as a marketing tool.
   • Draw up an inventory of the commodities that are currently purchased through sub-contracts and those that are likely to be brought on stream.
   • The logistical considerations which determine where sub-contracts are awarded.

4. Review of the contract documents which have been signed between farmers and companies.