Appendix 1: DETAILED DESCRIPTIONS OF ACTIVITIES OF SOME COMPANIES INVOLVED IN CONTRACT MARKETING


• 1. COMPANIES INVOLVED IN FIELD CROPS
  • 1.1 AGRICULTURAL SEEDS AND SERVICES
  • 1.2 TRINIDAD INDUSTRIES
  • 1.3 ZIMACE
  • 1.4 CHIBUKU BREWERIES
  • 1.5 COTTON COMPANY OF ZIMBABWE
  • 1.6 OLIVINE INDUSTRIES
• 2. COMPANIES INVOLVED IN HORTICULTURAL CROPS
  • 2.1 SELBY ENTERPRISES
  • 2.2 HORTICO
  • 2.3 CAIRNS Holdings
  • 2.4 HY-VELD

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Appendix 1: DETAILED DESCRIPTIONS OF ACTIVITIES OF SOME COMPANIES INVOLVED IN CONTRACT MARKETING

The companies have been divided between those involved in marketing of field crops and those in horticultural crops.

1. COMPANIES INVOLVED IN FIELD CROPS

1.1 AGRICULTURAL SEEDS AND SERVICES

The company based in Harare, is a relatively new and small one. It is involved in the purchasing of seeds of open pollinated crops. The company prefers to use communal area farmers to produce such crops since the crops do not require a great deal of management expertise and should be hand harvested to enhance germination viability. In addition to cowpea seed, the company has also contracts farmers to produce sunhemp seed. It intends to go into sunflower, groundnuts and other crops. With sunflower the other scheme is for the company to provide hybrid seed then buy the produce for oil expressing through its subsidiary company. Other crops which the company will buy on contract are Jatropha and Maringa.

Contract

A written contract is signed between the company and each grower, implying that a lot of administrative effort has to be expended to handle the contracts.

The contract specifies the following:

• The quantity, purity and germination percentages of the planting seed supplied. It also specifies the price at which the seed is sold.

• Details of the crop to be delivered by the grower i.e. address at which seed is to be produced, area to be plated, planting rate, quantity to be produced, measures put in place to ensure that the crop is isolated.

• The contract sets the minimum purity and germination expected from seed produced by the grower and the price at which the seed will be bought.

Grower are expected to clean the seed before selling it.

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Inputs:

The company delivers chemicals to the communal area which farmers can purchase at cost. However it is felt that there is need for some other organizations to assist the farmers to purchase sprayers since the company is not able to supply.

Problems

The company is concerned about the communal area farmer's appreciation of the implications of entering into a contract. In some instances, the farmers have sold to parties outside the contract. As a result the company fails to satisfy the export orders.

1.2 TRINIDAD INDUSTRIES

The company promotes and offers the services for the growing of Castor beans through a multi-faceted approach.

A number of organisations collaborate with Trinidad Industries in promoting Castor bean production in communal areas i.e. Agritex, ZFU, key farmers and NGOs.

Agritex has the necessary infrastructure at farmer level ie. extension workers, farmer groups. It is in the forefront of assisting Trinidad. ZFU has its own farmers groups in some communal areas. It is possible for Trinidad to work with NGOs but very little happening at the moment. Key farmers also approach Trinidad on their own. They also organise groups of farmers where they come from.

Inputs

Seed is the most limiting factor in Castor bean production in Zimbabwe. Nearly all seed is imported thus making it very expensive. Hybrid seed from Israel is landed at Z$72/kg which the company will sell at cost. At time s the company has to subsidise the farmers seed to ensure that the viability of the crop is maintained and the farmers continue to produce.

Where the area under Castor is large and producers are clustered, shelling machines which use DDF tractors are supplied at 7 cents per kg.

Prices

The producer price is determined by a number of factors , paramount of which is the price prevailing on the international market. Other factors are the producer prices for other competing crops eg. sunflower. The company would like to maintain castor with a competitive edge over such crops.In 1996/97 the price was Z$2 950.00 per tonne. Payment is based on weight, no grading is done.

Cheques are issued to individuals. Payment is made after three days from delivery. Payment is not delayed beyond two weeks.

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Needs

In 1996 the company received 400 tonnes of Castor bean. The company has got machinery which can handle a minimum of 4,000 tonnes of Castor per year, therefore currently there is a shortfall in the quantity supplied by farmers. As a result of limited Castor bean supplies the company restricts the number of product lines they are making. In the event that its needs were met, they could also export the oil.

Contracts are signed between the farmer and the company. Farmers organise themselves into groups. According to the contract, the farmer will sell all produce to the company.

In terms of the contract, the grower undertakes to ensure that an adequate crop protection programme is observed. All land must be kept free of weeds, insect pests and fungal diseases which may necessitate routine spraying programmes. The company gives advice on crop chemicals and their usage. In addition to the seed which is given on loan, company can also advance a loan for land preparation, planting, weeding and harvesting costs. The company under takes to shell all produce,provide empty bags and provide transport from the grower's site free of charge.

One of the clauses in the contract is that, in the event that the delivered beans contains a higher proportion of impurities than that stipulated in the contract, the company may at its discretion and at growers cost, dress/machine-clean the bean to the minimum purity specified at a given rate per tonne and the wastage shall be deducted, from the total weight of the delivery. If this is impossible, the company will reject the entire consignment of bean.

1.3 ZIMACE

The Zimbabwe Agricultural Commodity Exchange was started in 1993 by the Commercial Farmers Union and Edwards Company. Initially the exchange employed its own full time brokers. Currently brokers are appointed by companies which buy on the exchange. The exchange deals with a variety of crops except for tea, tobacco and horticultural produce. Maize is the major commodity traded in.

Commission

Member brokers are appointed as agents by both producers and end users/buyers and they trade on their behalf. A broking fee is charged. The fee is negotiated between the client and the broker. While ZIMACE does not control the fee, it is generally set between one and two percent.

Contracts

Commodities are sold either through spot or forward contracts. A board situated on the wall of the exchange reflects the highest bid (buying price), lowest offer (selling price), trade or strike prices and forward delivery. Prices are dependent on the market demand and supply situation.

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In forward contracting, quantities and prices are agreed now, for future delivery, on an agreed date. Pre-planting contracts can also be entered into. By so doing , a producer goes into a crop with a firm price. The consumer is able to budget ahead of production.

Mechanism of selling through ZIMACE

To sell through ZIMACE, farmers make offers through the brokers by filling a form which specifies the following: the commodity, the tonnage and the quality of the consignment.

The farmers also need to specify the minimum price they expect. The broker then tries to sell the product at a higher price while the buyer will normally try to buy the produce at a lower price. A compromise is reached and a sell is made. The broker deducts a commission.

Brokers are trying to assist communal area farmers by purchasing storage places where the farmers can leave their grain. Once the grain has been bulked, it can then be sold by the broker. For this to happen, the farmers' produce would need to be graded before it is bulked so that the price will reflect the quality of the farmers crop.

Limitations for participation of communal area farmers on ZIMACE

For bulky crops like maize, a minimum quantity of five tonnes need to be offered. In most case communal area farmers do not have such quantities individually. If farmers want to exploit this market they need to team up and come up with the required amounts of produce.

Since prices fluctuate, farmers may not be able to offer their produce at the time of peak demand. Highest prices normally prevail very early in the harvesting period or very late as well. Communal area farmers do not have the financial background to afford to keep some produce in anticipation of higher prices on the market. In fact experience has shown that the farmers would rather sell for a lower price where payment is made immediately than sell where higher prices are offered but payment is delayed.

Recommendation

ZIMACE can only be of benefit to communal area farmers once certain mechanisms have been put in place. These include:

• farmers need to work more closely in groups for the purposes of marketing. By so doing they can offer their produce as a group thus meeting the minimum quantities accepted on the exchange eg. five tonnes for maize.

• Communication is required between the brokers and the farmers. This can be by telephone.

• Local storage facilities which allow the farmers to stock their produce before it is picked by the buyer are required.

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1.4 CHIBUKU BREWERIES

Chibuku Breweries started contracting farmers to produce red sorghum in 1989 after realising that GMB was not meeting the quality specifications required. Varieties were being mixed leading to poor quality malt. Chibuku Breweries is the only producer of malt for opaque beer in the country. The programme has been so successful that in 1995/96 they wanted to restrict production due to excess carry over stocks.

Farmers are contracted as groups. The leader of the group sign a contract. The contract specifies the seed variety to be planted and the acceptance criteria to be used by the company before grain is accepted. The acceptance criteria specifies the contamination levels accepted by the company and what the company will do if the grain failed to meet the standard.

The contract stipulates the producer price for grain with the correct specifications. Transport is borne by Chibuku for every 30 tonne load that the farmers deliver. For small loads smaller than 30 tonnes, the farmers have to provide their own transport to the nearest Chibuku Brewery. Empty bags are procured and supplied by Chibuku Breweries prior to harvesting.

Attractiveness

For the 1996/97 season crop, Chibuku was offering a price of Z$1400/t. If the tonnage which a group of farmers produced exceeds 30 tonnes, no transport costs will be incurred by the farmers. Compared to a GMB price of less that one thousand and $1200 for first grade maize (Including transport) it is evident that the option to sell Red sorghum through Chibuku was more attractive.

Ngundu Red Sorghum Group

The group started delivering to Chibuku Breweries in 1994. Joining fees per person is $5.00. In 1997 membership stood at about 75.

In 1996 the group delivered more than 60 tonnes of red sorghum. Transport was provided by Chibuku Breweries from one central point in the area. The members of the group contributed money for transporting the red sorghum after Chibuku Breweries had provided transport for the 60 tonnes.

The group sometimes experiences delays of up to a month before transport is made available by which time some farmers would have started to look for alternative buyers. In 1996 some farmers desperate to sell their sorghum crop were taken advantage of by middle men who bought the grain at lower prices than the $1200 per tonne that could be realised when selling through Chibuku.

The company does not limit the quantity that the growers should produce. If anything it encourage the groups to increase their output. However this has to be stated in the contract.

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The contract form specifies the price at which the crop will be bought. In most cases the farmers do not know about the price until the crop has already been planted. Once the crop has been delivered it only takes one month for the farmers to be paid. A single cheque is issued to the group.

1.5 COTTON COMPANY OF ZIMBABWE

The marketing of cotton was originally only conducted through the Cotton Marketing Board when it was parastatal enjoying a monopoly. In 1994, other companies were allowed to purchase cotton from farmers. As a result of this new companies have gone into cotton marketing i.e. Cargill, Boka and Cotpro. Cotton Marketing Board has now been named Cotton Company (COTTCO) to reflect its new commercialized status.

Before its commercialization, CMB, operated a cotton crop pack credit scheme. Through this scheme farmers would be given seed and chemicals for production of cotton, on credit. The loans were only given to farmers organised as groups. This had two advantages for COTTCO:

1. It cuts down on the costs of administering the credit scheme;
2. Enhanced the security of the loan through joint accountability.

COTTCO devised a constitution for the groups into which cotton growing farmers would have to belong if they required loans. The constitution, among other things, stipulates that:

"The group membership shall be jointly and severally liable for any inputs/cash drawn on credit by any one of the members and shall ensure that the members pay back amounts owed by delivering their seed cotton to the Cotton Company.

In case of default on repayment by any member of the group, the group shall institute recovery action against that member and where such actions is not taken, or where the group has taken such action but fails to recover the monies in question, the Cotton Company shall take such measures as it sees fit against the group or the individual member to recover the respective amounts owed.

The group accepts that any one of its members who would have defaulted on repayments in the past shall be disqualified from being a member of the group and that the Cotton Company has the right to disqualify the group in the event of any one of the membership being discovered to have defaulted on past payments"

Other conditions set on the membership of the group by COTTCO are meant to ensure that farmers who obtain the crop packs will only sell their cotton through the company.

After the cotton is sold, the loan is deducted from the value of the delivered crop. If one did not deliver his cotton through this channel, then it was not possible for him/her to secure another loan at a later date. This scheme has been strengthened since CMB became COTTCO.

In the Herald of 14 April 1997, it was reported that Cottco was to give packaging material on loan. That would mean that those farmers who sell their seed cotton through Cottco would not need to finance their packaging. COTTCO would provide packs o credit to growers who

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commit their entire crop to the company while those who do not commit the crop would pay cash for the packs. On getting empty packs through the credit scheme, the farmer would be debited i.e. $80 per pack. Once the pack was filled with cotton and returned, the farmer's account would be credited for $60. As a result the farmer would actually effectively only pay $20 per pack.

1.6 OLIVINE INDUSTRIES

Olivine Industries mainly contracts farmers to produce various bean varieties for it. A written 'agreement' is entered into between the company and the group of farmers through the group chairperson in December ie. well before the time of planting the beans. In Lowveld, Olivine Industries have an agent who contracts growers on the company's behalf. The agent is paid by Olivine Industries on commission. This arrangement was thought appropriate due to the long distances involved.

In communal areas the company is only working with farmers in irrigation schemes since they are able to plant the beans in March after the rainy season when there are very little disease problems.

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The company has also started contracting farmers in Ngondoma Irrigation Scheme to produce tomatoes. The scheme is close to the company's factory is Chegutu. Therefore it should be possible for the tomatoes to be delivered to the factory without loss of quality.

The following irrigation schemes are involved: Mhende (there are 96 farmers each with about half a hectare under beans) and Hama Mavhaire in Mvuma, Ngondoma in Kadoma.

The company prefers to get a request to enter an agreement with producers to originate from the farmers who would have realised the need to produce and market through Olivine Industries. Such farmers are likely to put maximum effort in producing the crop. In addition the company considers 40 hectares as the minimum area viable for a contract to be entered into. The company has a very high demand for bean and as such more beans than currently produced are needed.

Services and Inputs

The company provides the following services:

• Extension advice in conjunction with local Agritex extension workers;
• collects the produce from the growers;
• sells to farmers the seed of the varieties that they would like grown;
• buys and sells, at cost, fertilisers.

Payment

Payment is made within two weeks by cheque. Cheques are issued to individuals.

Problems encountered when dealing with Communal area farmers

Some buyers approach the farmers before the companies which would have contracted the farmers have come to purchase the produce. The none non-contract companies offer higher prices than the contract prices. This means a loss to the contract company and a disruption of the plans which they would have made.

When farmers enter into an agreement with the company, they are provided with seed and resources are spent on extending advice to the farmers. This would be lost if the farmers decide to sell to other buyer.

The agreement specifies:

• Seed varieties to be grown:
• Seed quality
• Producer prices for each variety
• The acreage which farmers intent to plant to beans and the quantity they would like to pledge to sell on contract.

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2. COMPANIES INVOLVED IN HORTICULTURAL CROPS

2.1 SELBY ENTERPRISES

Started working with farmers in cooperatives in January, 1996. The cooperatives are operating under the supervision of some large organisations. An example is Negomo Coop. in Chiweshe Communal Area which is on a new irrigation scheme under the provisional management of Price Waterhouse through a GTZ funded project. There are about 300 plot holders each with 0.2 hectares under irrigation. The plot holders grow baby corn, passion fruit, citrus and paprika. The other growers supplying to Selby are out growers on ADA estates like Middle Sabi.

Services provided

Selby provides extension advise on:

• Acreage to be grown per plot holder on the basis of the produce they will be able to handle.
• The crop that would be most lucrative for production at each particular time in the year so that this is tied up to the time when good prices are found on the export market.
• Procure and sell to the farmers the seed for the requisite crop eg. Baby Corn seed is sourced from Thailand. This ensures that the farmers only produce one variety and of known performance as well. For passion fruit which the farmers at Negomo Cooperative had started planting and is targeted for the export market through Selby, the company only indicated where the farmers could get good seedlings of the required variety;
• Help source other necessary inputs like chemicals;
• Provide the farmers with a budget on the viability of the crop
• The company has three agronomists who conduct regular visits to the farmers. However the same agronomists have to service communal as well as large scale commercial farmers. At Negomo Cooperative, the farmers indicated that they received extension advice from AGRITEX extension workers. According to Selby, during picking time, farmers are visited once a week, when the crop is still growing they are visited once a fortnight. This probably only applies to large scale commercial farmers.

The cooperatives have mostly supplied baby corn to the company and were moving into peas and passion fruit, three season crop which needs considerable investment in poles, wire and drip irrigation.

Payment

Due to the nature of horticultural products, quantities to be produced are only determined by the market demand. The prices to be received are known when the crop is mature and even then prices fluctuate within the marketing period depending on demand and supply balances on the international market. The company works with a fixed price on a weekly basis.

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Each farmer's delivery is evaluated for quality at the company's premises. Payment is based on the quality and quantity that each farmer supplies. A bulk cheque is issued to the cooperative, 30 days after delivery.

The farmers are not satisfied with the manner in which their produce is graded. There is need for the farmers to be fully appraised about the grading system. The farmers are also not happy with the suggestion that they open bank accounts into which their money will be deposited. The fear that this will be a way in which money could be misappropriated without them being able to monitor.

Contracts:

Contracts are signed but the company says that this is only a loose agreement and no action would be taken against the farmer for not complying with it.

Transport:

The company provides transport which picks the produce from the farm. Each farmer's produce will be clearly marked. If farmers were to provide their own transport, they are compensated accordingly.

Potential

According to the company, the market potential is vast. This implies that more cooperative could sell their horticultural products through the company.

The farmers representatives thought that even with the current misunderstanding of the grading system, contract marketing in much better than selling through Mbare Produce Market.

2.2 HORTICO

The company has separated export activities from the production activities. Hortico Agrisystems is responsible for the production side. It is therefore not necessary that this subsidiary company operates through subcontractors to access producers.

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HORTICO works with a large number of communal area farmers near Murewa. The company is currently expanding the area of coverage into Mtoko East. Farmers are organised through a collection centre manned by the company's personnel. The collection point services farmers in a two kilometre radius around it.

The company is currently handling 800 tonne of produce annually. There is great potential for expansion as it has increased the pack house capacity to 3000 tonnes per annum.

Contracts

The company does not sign any contracts with the producers. They say that they have not yet seen the need to sign contracts but they would be quite willing to draw up and sign contracts if there was need.

Services provided

HORTICO has got 17 extension clerks who visit the farmers twice a week to give back up extension. In addition the company supplies seeds, chemicals and fertilisers at competitive prices. The cost of the inputs given as loans are deducted from the amount paid to the farmers on delivery of the produce. Since the crop is targeted for export, the company has to advise the farmers on what crops would be suitable at particular times of the year in terms of market prices and climatic possibilities. To a limited extent, through rotating the crops that a group should grow, the company is able to impose a rotational system on the farmers. In addition, the extension clerks also educate the farmers on proper rotational systems that can suppress disease and pest build up in the area.

The company provides transport for ferrying the produce from the farms to the packaging place. By so doing the company can ensure that the produce does not get spoiled on the way.

Grading, prices and payment

When the company enters an agreement with the farmers for the production of a given commodity, the prices at which the produce will be bought is also given. It is acknowledged that farmers often complain that the prices are low but the company has to work with the uncertainty of the market in mind. In the end, farmers also see that the marketing system is more guaranteed that other options.

Grading is done at the collection centres located in the villages. Therefore the farmers are made aware of the reason why his/her produce did or did not get the highest grade since the other farmers' produce will be there for comparison. This enables the farmers to educate each other on the best method of production. The transparency of grading in the village leaves the farmers satisfied since queries are dealt with at that point.

Payment is made in cash, at most two weeks after delivery of produce. Payment of cash is especially preferred by farmers since they are able to use the money immediately.

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Services

The company is limited on the amount of credit that they can avail to the farmers. This tends to limit the number of farmers they can work with.

2.3 CAIRNS Holdings

The company contracted farmers to produce tomatoes at $700 per tonne in 1997. Farmers were not happy with this price. The farmers were provided with seed. Produce is collected by company transport once a week. Farmers felt that the marketing arrangement where they do not have to go to Mbare is most preferred. Therefore they hope that next time when they make other contracts with Cairns or any other company for that matter, they will be extremely careful on the price they will agree to.

Due to the shortage of tomatoes on the market, the farmers could fetch more than $1,500.00 per tonne. The farmers are therefore forced to divert the good produce to the open market while leaving the lower grade crop for Cairns Holdings. In Murewa the company reported being able to purchase only a third of the crop which the farmers has committed to produce. The rest of the crop was being sold on the Mbare Market. The company has decided not to make any new contracts with the farmers in Murewa due to the problems that were experienced.

2.4 HY-VELD

The company started contracting farmers to grow paprika in 1994. Since then the number of communal areas where farmers have been contracted has also increased. Farmers as far as Gokwe, at least 350 km from the factory, have been contracted by the company, showing that distance is not an impediment in being able to conduct business with Hy-veld.

Contracts are signed directly between the company and a group of farmers represented by the chairperson.

Farmers are provided with paprika seed which is enough to cover the acreage to be planted. The cost of the seed is deducted from the value of the paprika delivered. In Chitowa Smallscale Commercial farming areas farmers had the understanding that the company had indicated that if the farmers wanted to sell to companies other than Hi-veld, they were free to do so. However such a farmer would not be given seed in future. The company had no written contract signed with the farmers.

The delivered paprika is quality tested at the company's premises. A clause in the contract stipulates that "The final ASTA result upon which payment shall be made to the Producer, will be obtained by adjusting the hy-veld ASTA for the ASTA result obtained by the Purchaser's customer". Nevertheless the purchaser's costs are not stated nor is the nature of the adjustment to be done.

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Payment and price
Hy-veld makes out its payment in two parts. A basic payment is made upon delivery of the paprika. The other payment s made once a final value of the paprika, based on weight and ASTA quality, has been determined.

Paprika prices vary depending on the market place. At Zimstok Sales Auction, grade A has fetched $35 per KG. However at Hy-veld, in 1996/97, the best crop, with an ASTA result greater than 399.6 was to be purchased at 7.40 cents per ASTA unit per kilogram. This would be equivalent to a minimum of $29.50 per kilogram. However if one was to sell through a speculator who in turn would sell through the auction floors, the best price one would get is $14/kg (Mr Kennedy, pers Comm).

Transport
Transport is provided by the company if the quantities are large enough to compensate for the expenditure. For example farmers close to Harare might have a one tonne consignment ferried free while those far away might need to put together three tonne of paprika before free transport is provided.

Subcontracting
The company does not want to operate through sub-contractors since they are of the opinion that there is adequate capacity in the company to work with the groups of farmers.

Persons contacted