By Caroline Hambloch, Helena Pérez Niño and Mark Vicol / New Rhythms of Development blog series
Contemporary debates in agrarian studies have been predominantly focused on land and property issues, at times to the detriment of questions about production and exchange. The large and expanding footprint of contract farming is one example of a relatively neglected – yet significant – dimension of contemporary agricultural systems in the Global South. Farming contracts are one of many forms of coordinating production and exchange that seek to avoid the uncertainty for producers and buyers of finding each other more spontaneously in open markets. Contract farming involves a non-transferable agreement between farmers and buyers that specifies the terms of production and marketing, typically relating to the price, quantity, quality and delivery of the product.
Decades of research and case studies suggest that contract farming is widespread in local, domestic and export-oriented agricultural commodity markets, both linked to large multinational corporate buyers, as well as within the informal networks of small-scale traders. Research on contract farming in the Global South consistently attributes this expansion to two intertwined effects: one is the liberalization of agriculture due to structural adjustments that stripped states from their coordinating roles in production. The other is the active promotion of contract farming by multilateral development agencies, who proposed it as a win-win alternative after the demise of state-led coordination.
International organizations, governments and agribusinesses have promoted contract farming as key tool to integrate smallholders into markets and modernize agricultural sectors. Contract farming is hailed as a source of jobs, income and stable markets for smallholders, and for providing a stable supply base and profits to agribusiness. However, whether contract farming actually does lead to win-win outcomes remains highly contested. Political economy studies reveal that unequal power relationships are inherent to contract farming arrangements, demonstrating that (i) buyers tend to benefit more than smallholders, (ii) not all producers benefit equally (small producers are highly differentiated and many hire labor), and (iii) many smallholders actually lose out from these schemes as they bear the brunt of production risks and enter vicious cycles of indebtedness. As a result, we often see a mosaic of winners and losers.
Contract farming, an avenue for rural development?
Since the 1990s, international organizations such as the FAO and the World Bank have been promoting contract farming as a tool for inclusive growth in rural areas. Responding to criticisms that these arrangements tend to disproportionately benefit buyers and may expose small producers to indebtedness and impoverishment, international organizations have put their weight behind the promotion of “fair contracts” and better governance and transparency in contractual arrangements. However, political economy studies still question this rebranding of contract farming as an inclusive business model by showing how “fair contracts” focus solely on the unequal power relations between small producers and agribusinesses, while missing the range of inequalities that exist among and between farmers, agricultural workers, unpaid household labor and those who provide ancillary services to small-scale producers. Moreover, many contract farming schemes rely on monopsony power, often leaving producers unable to renegotiate or withdraw from contracts, let alone benefit from price spikes. The monopsony position of the contracting firm refers to a situation where it is the only buyer of the crops produced by the contract farmers. This gives the contracting company exclusive access to the crops of the contract farmers.
Supermarkets, food multinationals and small traders: the new cast of actors in contract farming
With the ongoing restructuring of the global food system, contract farming and a cast of new actors have come to the fore. On the one hand, corporate buyers are expanding their customer base and sourcing geographies. For these actors, contract farming arrangements are a way to ensure standardized and steady supply of agricultural commodities in globalized markets. Most notably, supermarkets make use of contract farming arrangements to supply high quality and standardized vegetables and fruits to consumers around the world. Even though smallholders who are able to comply with the standards set by supermarkets tend to benefit from supermarket contracts, poorer farming households tend to benefit less and may even be excluded from such arrangements altogether.
On the other hand, specialist traders and local procurers increasingly use contract farming (both formally and informally, i.e. with and without written contracts) to source directly from smallholders or act on commission as intermediaries between smallholders and agribusinesses. In the absence of government support, these intermediaries may take on a seemingly developmental role by offering informal extension services, providing road infrastructure and loading necessary materials and machineries to smallholders.
Agency and resistance
Despite the uneven contribution of contract farming to rural development and productive upgrading for small scale producers and agricultural sectors of the Global South, political economy studies highlight that smallholders are not passive victims of corporate buyers and merchants (whether large or small), but often resist and challenge the contract farming relation. This may take the form of overt resistance through protests and strikes, but also of informal and often hidden strategies that take the form of everyday struggles. For example, oil palm contract farmers in the Philippines have reacted to a lopsided contract, unsustainable levels of indebtedness, and the risk of losing their land by side-selling their produce to other agribusinesses, refusing to harvest, or burning oil palm trees. Tobacco contract farmers in Zimbabwe have responded by switching to other crops or diversifying their sources of finance. However, both cases show that contract farmers’ agency and resistance is limited by available resources and alternatives.
Towards a new research agenda
Over the past three decades, political economy studies have contributed to a much better understanding of the differentiated impact of contract farming in the Global South. Yet, important questions remain. For example about the interface of contract farming and changes in land tenure; the prevalence of unpaid household labor and the exploitation of hired labor among small-scale producers; contract farming as a form of extractivism (of the resources and labor contained in the commodity); and the ecological burden of the expansion and intensification of agriculture associated with contract farming. To move towards this new contract farming research agenda, we have founded the Contract Farming Initiative, a network that brings together a diverse group of critical contract farming scholars and activists. The initiative is geared to support cross-country analyses of contract farming schemes. As one of our first tasks, we are mapping contract farming arrangements in the Global South to get an overview of where contract farming scholarship is concentrated and where more research is needed. We warmly invite other scholars to contribute to this project.
As part of our activities this year, we will host a panel at the EADI CEsA General Conference 2023 to bring together scholars from different geographies and critical perspectives to discuss contract farming’s potential for rural development by focusing on dynamics of financialization, resistance from smallholders, social differentiation as both a cause and outcome, and labor exploitation dynamics.
Caroline Hambloch (Humboldt-Universität zu Berlin), Mark Vicol (Assistant Professor, Rural Sociology Group, Wageningen University) and Helena Pérez Niño (Assistant Professor, International Institute of Social Studies, The Hague) are co-editors of the recent special issue in the Journal of Agrarian Change The Political Economy of Contract Farming: Emerging Insights and Changing Dynamics (January, 2022), and co-founders of the Contract Farming Initiative research network.