Contract Farming in Nigeria
Contract farming is an agreement between a farmer(s) and a buyer (usually a company) specifying the quality, quantity and the price of the farm produce to be delivered on a future date.
Contract farming is simply giving a farmer money, farm inputs and other necessary support to farm for you. After harvest, the farm produce will be delivered to your specified address.
This is an ancient practice that dates back to our Ancestors but it is still in vogue in our time.
This agreement is always between a farmer or group of farmers and a company or a wealthy individual.
It is a ‘take this and give me this kind’ of arrangement that is mutually beneficial to both parties.
A good example is gathering a community of smallholder farmers to contribute their farmland in one big cluster. And the buyer will now provider farm equipment, farm inputs such as improved seeds, fertilizer, herbicides, pesticides, advice and transportation logistics to the group of farmers. With the agreement that at harvest they will give him a specified quantity of the said produce. Delivered directly to him.
As a country experiencing food shortage and famine, it is high time food processing companies, fast moving consumer goods manufacturers, animal feeds makers and all the companies that make use of produce as raw material for production extends contract farming opportunities to smallholder farmers in Nigeria.
The Benefits of Contract Farming in Nigeria
- Contract farming will drastically reduce the exploitative tendencies of the middle men between the farmers and these companies.
- It will reduce the burden of manual labour on the smallholder farmers in Nigeria.
- It will lead to bumper harvest as it is only high yield seeds that the farmers will be farming as against the old system of recycling the seeds bequeathed to us by our Ancestors that bring low yields.
- It will give smallholder farmers in Nigeria access to mechanized farming which is more productive and profitable.
- It will lead to knowledge and skills transfer between peasant farmers and agriculture experts.
- It will drastically reduce food shortage and end hunger and famine in Nigeria.
- It will guarantee trace-ability and transparency in the handling of the food we eat from farm to the fork.
- It will create jobs for vulnerable women and youths in rural and last mile communities.
- It will increase our GDP and boost our local and national economy.
Types of Contract Farming
Eaton and Shepherd identify five different contract farming models.
- The centralized model is when a company provides support to smallholder production, purchases the crop, and then processes it, closely controlling its quality. This model is used for crops such as tobacco, cotton, sugar cane, banana, tea, and rubber.
- Nucleus Estate model is when the company also manages a plantation in order to supplement smallholder production and provide minimum throughput for the processing plant. This approach is mainly used for tree crops such as oil palm and rubber.
- The Multipartite model usually involves a partnership between government bodies, private companies and farmers. At a lower level of sophistication, the Intermediary model can involve subcontracting by companies to intermediaries who have their own (informal) arrangements with farmers. Finally, the Informal model involves small and medium enterprises who make simple contracts with farmers on a seasonal basis. Although these are usually just seasonal arrangements they are often repeated annually and usually rely for their success on the proximity of the buyer to the seller.
The Disadvantages of Contract Farming in Nigeria
- Lack of trust. The company may not trust the farmers enough to keep to their terms of agreement until the produce is delivered.
- The farmers may farm and decide to sell the produce to other buyers.
- The farmers may divert the farm inputs to other farming projects instead of using them for the project it is meant for.
- The company may want to review the price against downward market decline and not keep to the terms of the contract.
- There is serious risk in farming. Poor weather condition, drought, fire outbreak and other natural and man made disasters may affect the projected yield of the farm. Who bears the cost? The farmer or the company?
- The huge cost of security is another factor. If the farm is not well secured, cases of theft may jeopardize the chances of keeping to the terms of agreement.
The existence of an adequate legal framework is thus crucial for the successful implementation and long-term sustainability of contract farming operations. A system of law is essential to assist farmers and their buyers in the negotiation and drafting of contracts.
It is also important to protect them from risks that may occur during contractual execution, such as abuse of power by the stronger bargaining party or breach of contract.
Strengthening farmer organisations through capacity building to improve their contract negotiating skills can redress the potential for subsequent misunderstandings.
Different countries have enacted policies and legislation to ensure fair contractual practices and offer remedies for dispute resolution. A “Legal Guide on Contract Farming” was developed in 2013–15 by the International Institute for the Unification of Private Law (UNIDROIT) in partnership with FAO.
Wealthy individuals and companies in Nigeria must look beyond the disadvantages and consider the benefits of contract farming as a panacea for hunger, poverty and unemployment in Nigeria.
When modern farm implements are engaged in agriculture by these companies, it will attract several young Nigerians to embrace it as a viable source of livelihood. This will reduce the over-dependence on white collar jobs in Nigeria. The youth constitute 75% of Nigeria’s population and their involvement in farming will greatly boost the nation’s economy.The benefits therefore outweighs the disadvantages of contract farming in Nigeria.
We recommend that our Legislators enact laws that will prompt companies to engage in contract farming in Nigeria. The government through public-private partnership can also engage in multipartite contract farming with every partners roles clearly defined.
We look forward to seeing conversations around this subject with the agriculture stakeholders in Nigeria.
Farm4Me as an agribusiness company is already doing a great job empowering smallholder farmers in rural Nigeria with the farm implements and agricultural extension advocacy to educate them on modern farming techniques based on global best practices.