Over the years, there have been cries from farmers stuck with farm produce that they cannot sell after being duped by brokers and buyers. For instance, a new crop is introduced in the area, with the potential of making huge returns, attracting a good price, and the ‘buyer’ comes with a narrative that they cannot meet the consumer’s demand. And farmers fall into the trap.

The ‘buyer’ goes ahead by saying that he needs more farmers to grow the crop and all farmers need is to purchase the seeds from him. Immediately when the produce is ready, the buyer disappears, goes offline, and does not answer calls or messages thereafter. The farmers make huge losses.

Contract farming is a business arrangement between a buyer and a farmer in which the buyer provides the farmer with inputs, such as seeds, fertilizers, and technical assistance, in exchange for a guaranteed purchase of the farmer’s crop. This arrangement can be beneficial for both the buyer and the farmer, as it can help to ensure a steady supply of high-quality products for the buyer and a reliable income for the farmer.

What are the advantages of contract farming?

1. Access to a Ready Market

One of the key advantages of contract farming is that it provides farmers with a guaranteed market for their products. Buyers, such as companies processing agricultural products or supermarkets, enter into contracts with farmers to secure a regular supply of raw materials that meet their quality and quantity requirements. This removes the unpredictability of markets and allows farmers to plan their production and sales in advance.

2. Price Stability

Contract farming also helps protect farmers against price fluctuations in the market. The price to be paid to the farmer is agreed upon in advance, ensuring that the farmer receives a fair and stable price for their produce. This stability allows farmers to make better financial plans and minimize the risks associated with inconsistent prices.

3. Access to Inputs and Technical Assistance

In many contract farming arrangements, buyers provide farmers with inputs such as seeds, fertilizers, and technical advice. This support helps farmers improve their production practices, enhance crop yields, and maintain the quality standards required by the buyer. Access to inputs and technical assistance can significantly increase harvests and profits for farmers.

4. Risk Sharing

Contract farming plays an important role in mitigating risks and reducing the impact of uncertainties such as crop failure. Under a contract, the buyer and farmer can share the risks and losses that may arise from these events. This shared responsibility provides a safety net for farmers and reduces their vulnerability to unpredictable weather patterns and other external factors.

5. Income Generation

Contract farming, particularly for high-value crops, can significantly increase farmers’ income. By accessing reliable markets and receiving support from buyers, farmers can command higher prices for their produce and improve their overall financial well-being.

How to get started in contract farming

If you are interested in getting started in contract farming, here are some tips:

• Identify a suitable crop. Not all crops are suitable for contract farming. You need to choose a crop that is in demand and that you can produce at a competitive price. Some popular crops for contract farming in Kenya include fruits, vegetables, flowers, and coffee.

• Research potential buyers. Once you have chosen a crop, you need to research potential buyers. There are several companies in Kenya such as Oxfarm that engage in contract farming, so you should be able to find one that is interested in your crop.

• Negotiate a contract. Once you have found a potential buyer, you need to negotiate a contract. The contract should specify the terms of the agreement, such as the price, quantity, quality, and delivery date of the produce.

• Form a group or association. It is often easier to negotiate a contract with a buyer if you are part of a group or association of farmers. This is because buyers are more likely to trust a group of farmers than a single farmer.

• Meet the buyer’s requirements. To be successful in contract farming, you need to meet the buyer’s requirements, which meeting certain quality standards, using specific inputs, or delivering the produce on time.

Challenges of Contract Farming

While contract farming offers numerous benefits, it is crucial to acknowledge and address the challenges and risks associated with this arrangement.

• Powerful imbalances and exploitation.

• Limited crop diversity and market dependency.

• Delayed payments. Buyers may sometimes delay payments to farmers, which can put a strain on farmers’ finances.

• Lack of transparency. Farmers may not be fully aware of the terms of the contract, which can lead to disputes.

• Unfair terms. Buyers may sometimes impose unfair terms on farmers, such as requiring them to use specific inputs or to sell their produce at a below-market price.

• Legal and contractual issues.

High-value crops that farmers can try under contract farming

In contract farming, farmers can consider growing crops such as:

• French beans

• Snow peas, sugar snap, and garden peas

• Corn

• Beetroot

• Vegetables

• Cucumber, Gorgets, cauliflower

• Herbs such as Gypsophila and Amy

• Fruits such as avocado, mangoes, macadamia, strawberry, and grapes

• Flowers

Contract farming is common for export crops like French beans, peas, fruits, flowers, and vegetables.

What does a contract farming agreement contain?

Generally, a contract farming agreement contains:

• The parties

• The purpose. Reason for the contract, & name of the commodity to be produced.

• The production site. Estimate land size, location, and whether the land is leased or owned and evidence of lease agreements.

• Obligations of both parties. They must clearly describe what the farmer should produce, the mode of delivery, and what the buyer will provide. This can be either technical assistance, inputs, or support in accessing inputs.

• Average product price, payment method, how the price will be calculated, and the after how long the product will be paid.

• Input provision. If provided by the company, the contract will outline the repayment mode and schedule, prices, and how they will reach the farmer.

• Third parties that may assist in contract success.

• Exceptions and excuses for not delivering such as crop failure.

• Dispute resolution methods between the buyer and the farmer.

• Remedies in case one party is unable to meet the specified obligations.

• Duration, renewal, extension, and termination of contract.

• Signatures of both parties and witnesses.

Farmers should thoroughly review and understand the terms and conditions in the contract agreement and seek assistance in places where there are unclear clauses.

Contract farming presents a promising opportunity for smallholder farmers in Kenya to enhance their market access, increase their productivity, and improve their profitability.