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7. CONCLUSIONS AND RECOMMENDATIONS
Liberalisation has had the effect of attracting new companies into purchasing horticultural produce for the domestic and export market. Most horticultural products are perishable such that without proper handling they will deteriorate and loose quality. On the other hand the export market on which the produce is to be sold demands first grade produce. To meet the stringent quality levels, the companies contracted to supply horticultural commodities on the export market prefer to contract farmers directly. Even companies dealing with paprika, a crop which is not likely to loose quality very quickly, prefer to work directly with the farmers. The companies are also of the opinion that horticultural crops need to be grown under good management and they would like to supervise the farmers so that the best crop is produced.
However in operationalising the sub-contracts between the companies and the small holder farmers, there are a numbers of aspects which farmers need to guard against lest they end-up losing. During this study evidence of loopholes which sometimes lead to revenue losses were encountered eg. some companies change the terms of the contract or do not pay for the delivered produce.
The potential for marketing horticultural commodities through sub-contracts is very large and needs to be exploited by farmers. Informed sources in the horticultural industry estimate that sub-contracting currently contributes 10 percent of fresh horticultural produce exported whose total turn over in US$30 million. There is potential for this contribution to increase to 30 percent if the necessary strategies where put in place. Companies are also working towards increasing this contribution. Hortico is to increase the number of growers from the current 700 through the creation of more farmers' groups. Canpac is to initiate new contracts with farmers for the production of fine beans. More irrigation facilities can be set up. One of the bottlenecks is farmers' lack of information about where and with whom they can enter sub-contracts.
Overally, contract marketing is advantageous to communal area farmers. This is especially so for horticultural produce which requires marketing expertise. By committing themselves to contracts the farmers are assured that there will be a buyer for their crop. The buyer also makes sure that particular products are sold for export when they are most likely to give the highest prices and highest returns to the farmers. Marketing through contracts provides smallholder farmers with an opportunity to reduce the risk of not finding a market for their produce. It ensures that they are able to plan ahead where the prices and logistical arrangements are decided even before the crop is harvested.
In entering a contract farmers need to consider the attractiveness of the other options of marketing the produce or even other commodities that could be produced at the same time as the contract crop. Where prices have to be agreed to at an early stage, they might seem attractive at the time of signing or entering into the contract, however at the time of
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delivering the produce, due to high inflation rates, contract prices might have depreciated to such an extent that farmers might feel cheated by the buyer when they compare the contract price against the open market ones.
For field crops companies are also keen to produce through contracts since that enables them to work out their cash flows appropriately. They are however concerned that farmers can decide to sell the contracted produce through channels other than those specified in the contract.
Farmers need to be monitored constantly during the period of production to ensure that they feel part of the contract. When the company representatives do not visit the farmers, they feel that they have been forgotten and may make them feel insecure. The farmers might panic and sell the produce through other channels.
Experiences which farmers at Principe had with sub-contractors showed that even though there might be potential, the prices offered by the sub-contractors, which have to leave a profit margin for the middle-person, are not attractive to farmers. For the field crops, as in the case of cotton, farmers only sell through sub-contracts, not out of wish but due to pressing financial requirements they have to meet before the crop is harvested.
Farmers entering into contracts to produce a given crop need to ensure that they have clarified details about the following aspects of the contract:
The following recommendations are also made:
© Friedrich Ebert Stiftung | technical support | net edition fes-library | Januar 2002