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Linkages Between Farmers and Enterprises for Contract Farming Must be Improved, Workshop Told

AN GIANG, VIET NAM (12 January 2005) - The linkages between farmers and enterprises for contract farming must be improved, a workshop on contract farming held yesterday by the Asian Development Bank (ADB) in cooperation with An Giang University under the "Making Markets Work Better for the Poor" project was told.

The two-day workshop was attended by about 70 participants from local departments; research institutes; farmers' organizations and collectives' unions; purchasers and processors from the Mekong Delta provinces of An Giang, Can Tho, Tien Giang, Kien Giang, Dong Thap, and Vinh Long; donor organizations; private consulting firms; and domestic and international nongovernmental organizations.

The workshop tried to derive potential policy messages and directions for future research from a series of case study presentations on the different dimensions of contract farming and group discussions on how to improve contract farming practices based on varied experiences.

Most of the participants agreed that contract farming is profitable for farmers, collectives and enterprises, resulting in benefits for the whole society.

However, farmers are still unfamiliar with contract farming despite the enactment of Decision 80/2002/QD-TTg on 24 June 2002 by the Prime Minister, which encouraged agrifood consumption through contract farming and local authorities to improve the linkages between farmers and enterprises by a number of policies, such as "four houses" coordination, farming collective development, processing and market oriented production reorganization.

Moreover, the contracts have largely been unsuccessful. For example, for An Giang's rice industry, only 10 -15% of signed contracts were performed. This is because market forces are not strong enough to make farmers and enterprises voluntarily coordinate with each other. Supply far exceeds demand and, as such, enterprises don't face any competitive pressures from the agrifood market to sign farming contracts to establish their own input material zone. Thus, only a few contracts signed, with the total volume required far below the farmers' production capacity.

The consumption market for enterprises is also unstable, resulting in low purchase prices from farmers, and both farmers and enterprises are not fully aware of the risks in contract transactions.

As regards to farmers, the habits of small production make it difficult for them to self-organize to do contract farming. Therefore, the role of professional associations and collectives' union is critical.

Two cases featuring successful contract farming presented at the workshop, that of Lam Son Sugar Company LASUCO (sugar zone establishment) and An Giang Agricultural Technical Services Company ANTESCO (contract farming on baby corn and green soybean with Hoa Thuan collective), showed that production linkages between farmers and enterprises will be economically and socially effective once the interests of the two parties are closely linked.

The workshop suggested some solutions to limit the negative aspects of contract farming and to encourage farmers to participate in contract farming to get benefits from the agricultural value chain:

• Create a more favorable business environment to encourage both domestic and foreign enterprises to invest in agrifood trading. The participation of many enterprises in the market will create necessary competitiveness to fully exploit and increase farmers' production capacity
• Improve the legal environment, particularly articles on punishment of contract violations to improve contract performance
• Encourage and assist the development of farmers' organizations as a linkage channel between farmers and enterprises
• Encourage and create a favorable environment for enterprises and collectives coordination in improving product quality and establishing trademark for each commodity

The policy implications of these suggestions will be taken into consideration for a future study under the "Making Markets Work Better for the Poor" project.

ADB is dedicated to reducing poverty in the Asia and Pacific region through pro-poor sustainable economic growth, social development, and good governance. Established in 1966, it is owned by members - 45 from the region.

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