POVERTY REDUCTION THROUGH CONTRACT FARMING

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POVERTY REDUCTION THROUGH CONTRACT FARMING

• LESSONS FROM SRAKAEW PROVINCE, THAILAND

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POVERTY CIRCLEIN THE AGRICULTURAL SECTOR IN
THAILAND

• Structure of land holding
• Small holders with small, irregular volume
  harvested
• Leased land farming
• Market accessibility
• Very limited or no direct access to wholesale
  markets
• Have to sell to middleman or venders at a
  relatively low price

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POVERTY CIRCLE
In sufficient income to meet farming and living
expenses. Has to get loan.
Has to sell at relatively low price.
Small plot small harvestable quantity.
Limited or no direct market access have to sell
to middleman or merchant who finance his farm
operation.
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POVERTY AND DOWNWARD SPIRAL

• Low income from farm can not cover
• living and farming expenses
• Low standard of living, mostly on or
• slightly above subsistence level
• One or a few crop failures forced them
• to get loans
• They are caught in powerful downward
• spiral

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DOWNWARD SPIRAL

• Small and very small farm plots

Small quantity in daily harvest, irregular supply
Limited or no direct market access, due to high
transport cost/unit
Have to sell to middlemen or merchants who
finance farm operation
Have to sell at low price
Not enough income to meet farm and living expenses
Have to get loans. Additional debt financing
burden
In downward spiral, they can not pay back the
loans lose farmland
Farming on leased land
Wage earners in the agriculture sector or take
jobs as unskilled workers in the industrial sector
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PREVAILING MARKET MECHANISM

• Wholesalers develop networks of regular
  suppliers and
• oblige to buy from them first
• Buy any excess at a low price, if at all.
• They give good price to any supplier only when
  there
• is a shortage of supply
• High degree of price fluctuation in the market
• Any losses from poor post-harvest, handling, and
  
• transportation systems are pushed back to
  growers.

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CONTRACT FARMING

• Contract farming can be a powerful tool in
  breaking poverty circle
• It solve irregularity and small volume of supply
  by organizing small growers into well managed
  groups
• Farm production plan and combined farm produce
  provide sufficient volume for economical
  transport. Regular delivery meets buyers
  requirement
• Good farming practices improve quality and
  product safety of supply from farms
• Cost saving in buyers operation and production
  line lead to higher selling price
• Direct access to market is guarantee at minimum
  or no cost

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CONTRACT FARMING IN SRAKAEW

• Contract farming of organic asparagus was
  organized in the year 2000.
• A small group with a total of 47 members entered
  into contract with Swift Co., Ltd. in early 2001.
• The combined planting area was 94 rai or 37.6
  acre.

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LOCATION IN SRAKAEW
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INCOMESASPARAGUS AND OTHER MAIN CROPS
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RAPID EXPANSION OF CONTRACT FARMING IN SRAKAEW

• Success of the first group lead to rapid
  expansion in late 2001
• Many new areas are added in 2002, 2003 and the
  first half of 2004
• From a modest beginning of 37.6 acres, the total
  acreage has been increased to 440 acres in early
  2004.

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CONTRACT FARMING GROUP IN 2005
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RATE OF GROWTH
Total acreage and number of growers Total acreage and number of growers Total acreage and number of growers Total acreage and number of growers Total acreage and number of growers
Year Acreage (Rai) Number of Growers Rate of Growth Rate of Growth
Year Acreage (Rai) Number of Growers Yr. On Yr. From Base Year
Early 2001 94 47 Base Yr. Base Yr.
End of 2001 180 90 191 191
2002 361 171 200 384
2003 660 314 182 702
2004 1,100 493 166 1,170
Early 2005 1,152 550 104 1,225
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FARM MAINTENANCE COST
Conventional and organic farms/ cost per rai/one harvest Synthetic fertilizer Organic fertilizer Sub- strate Agro-chemical Approved organic Bio-products Total per harvesting crop Total/ year
Conventional farming in Nakornpathom 1,424.0 920.0 16,032.0 2,179.0 0 6,126.2 24,504.8
Organic farming in Srakaew 0 1,900.0 240.0 0 356.0 2,496.0 9,984.0
The organic farm maintenance cost was 59.26
lower than that of the conventional farm
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CERTIFICATION

• Organic farms of the original group was certified
  under JAS standard by OMIC (Overseas Merchandise
  Inspection Co., Ltd.) in 2001-2002
• In 2002-2003, OMIC was again the CB for a larger
  planting acreage of the original group
• In 2003-2004, BCS (BCS öko-Garantie) of Germany
  is the CB for EU and JAS standards
• The new additional farms will be certified as
  Farms in Transition to organic in early 2005

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SUMMARY OF THE FINDING

• Organic farming was introduced to the potential
  members in the preparation period in the year
  2000.
• Extensive training on organic farming guidelines
  and practices under JAS and EU standards.
• The willingness of members , the regular
  training, transfer of technology, and on-spot
  problem solving paid off handsomely.
• Average yield per acre is on par with that of
  conventional asparagus farming.
• Average maintenance cost per acre is less than
  half of that in the conventional farming.

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CONCLUSION

• It is rational to conclude that contract farming
  is a powerful tool in breaking poverty circle,
  and hence poverty reduction.
• To be successful contract farming must be well
  designed.
• Careful and efficient implementation is needed.
• It is critical to built a strong and well
  disciplined core members and a strong pioneer
  small group.

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ATTACHMENT

• KEY SUCCESS FACTORS IN ORGANIZING CONTRACT FARMING

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KEY SUCCESS FACTORSGROUP 1

• Good groundwork preparation
• Careful selection of members
• Sufficiently long contract term
• Organizing only one small group in the initial
  period
• Assist in designing organization structure and
  management of the group
• Development of relationship as partners

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KEY SUCCESS FACTORSGROUP 2

• Training and technology transferring
• Active participation in farm preparation and
  maintenance
• Development of group collective responsibility
• On-spot problem solving in organic farming
• Regular farm auditing by Swifts agronomist

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KEY SUCCESS FACTORS GROUP 3

• Every party benefit fairly from the pricing
  policy of the company
• Price incentive reflects improvement in quality
  of supply
• Transparency in business transaction
• Equal treatment to all members
• On time payment
• Financial assistance and interest-free loan

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THANK YOU
SWIFT CO., LTD