By Insight Post Uganda
Kampala, Uganda
To effectively meet the growing demands of the increasing population in Uganda and the broader East African region, there is an urgent and crucial requirement for strong food production systems, according to agricultural experts.
Contract farming refers to an agricultural arrangement where farmers enter into contracts with agribusiness companies, processors, or exporters to produce and supply specific crops or agricultural products.
These contracts outline various terms and conditions, including the type and quantity of crops to be produced, quality standards, delivery schedules, and often pricing mechanisms.
These systems, they state, will serve as fundamental pillars in providing sustainable nourishment for these rapidly expanding communities.
This strategic move is viewed as a pivotal stride towards attaining food security and fostering trade within the East African Community (EAC).
In a concerted effort to empower the agri-food industry and counter the adverse effects of global crises on regional food security, the East African Business Council (EABC) and the German-Ugandan development cooperation (GIZ) recently orchestrated a comprehensive learning workshop to act as serve as a platform to educate agricultural stakeholders on the significance of contract farming, dissecting its potential advantages in depth.
As part of its endeavours, the EAC has embarked on Capacity-Building Workshops for Trainers on Contract Farming. These workshops are designed to amplify the competitiveness of the agri-food sector and to shield the region against the repercussions of global upheavals on its food security.
According to John Bosco Kalisa, CEO of EABC, the pressing issue of food scarcity in the region, is particularly attributed to the ongoing conflict between Russia and Ukraine. The aftermath of this conflict has gravely impacted food availability, causing more than 20 million individuals to grapple with shortages.
Kalisa underscored the EAC’s abundant arable land, accounting for 60% of its terrain, which renders the region capable of not only nourishing its population but also exporting surplus produce to neighbouring areas.
To harness this untapped potential, Kalisa emphasised the pivotal role of contract farming, a practice entailing formal agreements between farmers and purchasers, including supermarket chains. He further voiced concerns about the lack of value-adding entities in the region and advocated for stronger collaboration with the private sector.
Additionally, he shed light on the importance of surmounting non-tariff barriers, investing in cutting-edge infrastructure, and leveraging technology to elevate agricultural productivity and minimise food losses.
Businge Rwabogo, General Manager of Operations at Mukwano Industries and adept in Logistics and Supply Chain Management, acknowledged the existence of contract farming in Uganda, particularly in sectors like tea and sugarcane.
Nevertheless, Rwabogo stressed the need for its broader implementation to ensure food security and elevate Uganda’s standing within the African Continental Free Trade Area (AFCFTA). Manager emphasises that successful contract farming necessitates meticulous organisation, expert guidance, and a focus on export-oriented strategies to yield significant results.
According to Dr. Sarah Kagoya, the Principal Agribusiness Officer at the Ministry of Agriculture, the farmers must fully comprehend the nuances of contract farming. She cautioned that some farmers might unwittingly enter into agreements that lack binding authority, which can lead to issues such as substandard products and breached agreements.
This caution stems from the fact that countries establish stringent food standards for cross-border agricultural trade, encompassing sanitary and phytosanitary (SPS) measures vital for safeguarding public health.
The AfCFTA incorporates specific provisions addressing these measures, which have increasingly superseded tariffs as impediments to trade due to high compliance costs, particularly for smaller producers and traders.
Furthermore, Robert Rukundo, Chairperson of the Horticulture Exporter’s Association in Rwanda, shared his insights, noting that while contract farming is already in practice within the region, there’s a dire need for heightened focus on the comprehensive development of the agricultural sector.
Rukundo further drew attention to challenges related to Non-Tariff Barriers (NTBs) and political conflicts that impose on regional trade. Furthermore, the absence of centralised facilities and infrastructure support for the horticulture industry remains a significant obstacle.
The Intra-EAC Trade Brief Analysis report by the EABC revealed a staggering decline of over 33 percent (equivalent to $1.8 billion), reducing the total trade value among EAC member states to $3.6 billion in 2022 from $5.4 billion in the previous year.
The EABC policy brief for 2023/24 underscores the pivotal role of cereals as a vital food product within the EAC. However, some EAC nations, including Burundi, Kenya, and Rwanda, grapple with high cereal import dependency ratios due to insufficient domestic production.
To address this vulnerability, experts advocate for the widespread adoption of contract farming to bolster local cereal cultivation and curtail dependency on imports.
During the period spanning from January to September 2022, the EAC region witnessed a gradual surge in food price inflation, attributed to supply chain limitations and the spillover effects of the Ukraine conflict on commodities and imports.
“Contract farming emerges as a promising remedy to fortify agricultural output, heighten food security, and invigorate trade within the region,” they say.
The success of this approach hinges on the collaborative efforts of private enterprises, governmental entities, and agricultural stakeholders to fully unlock its potential and realise sustainable food security across the East African Community.
What it entails
In a contract farming system, the company provides the farmers with resources such as seeds, fertilisers, technical assistance, and sometimes even financing. In return, the farmers commit to growing the designated crops according to the agreed-upon specifications.
The contracted crops are typically destined for specific markets or processing facilities, ensuring a steady supply of raw materials for the company.
Contract farming offers a multitude of benefits to both farmers and agribusiness companies. For farmers, it provides improved access to resources and technology, leading to increased productivity through enhanced inputs, knowledge, and equipment provided by contracting companies.
Furthermore, contract farming assures farmers a consistent market for their produce, mitigating risks related to post-harvest losses and price fluctuations. It also reduces their overall risk exposure, as they have reliable buyers and technical support, minimising uncertainties in the market.
On the other hand, agribusiness companies can maintain specific quality standards for their produce, which is crucial for downstream processing and effective marketing. These contracts also enable companies to establish a reliable supply chain of raw materials, minimising the possibility of shortages.
Moreover, the predictability of the quantity and timing of incoming produce allows agribusinesses to streamline their operational planning, enhancing efficiency.
Finally, contract farming contributes to the development of farmers, as companies can offer training and support, leading to improved agricultural practices and better overall livelihoods.
Nevertheless, contract farming can present various difficulties, including but not limited to problems associated with unequal power dynamics between corporations and farmers, unjust pricing, and disagreements over contract terms. It is crucial to have well-crafted contracts, open negotiations, and robust legal structures in place to guarantee that contract farming is advantageous for all stakeholders and plays a positive role in fostering sustainable agricultural progress.
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