415
governance forms to market failures and transaction characteristics in the region
(Kirsten and Sartorius 2002). Almost all countries in SSA are witnessing major
changes in terms of property rights and market set-up following the previous and
on-going economic changes including market liberalization (Poulton and HanyaniMlambo 2004) and transformation and the modernization of global food systems
(Swinnen and Maertens 2007; Maertens et al. 2012). These changes have caused
new private vertical coordination systems to emerge to address market failures
resulting from the collapse of state-managed systems and other market shocks. The
most significant challenge is that liberalization, and technological and other market
changes, can hardly allow smallholder farmers to gain market access and realize
increased productivity and income growth unless coupled with appropriate institutional innovations that fuel market development and address other market entry
barriers.
The predominant forms of vertical coordination are contract farming and collective action. However, most of the means of vertical coordination are biased towards
producers of export crops (e.g. cotton), estate crops for large-scale processing and
export (e.g. sugarcane), highly perishable products (e.g. milk) and selected highvalue crops (e.g. vegetables and flowers), also for export, but not smallholder farmers’ food crops.
Contract Farming
In the context of agricultural commodities, contract farming entails a farmer committing to produce according to a prior agreement and a buyer to purchase the
produce from the farmer. These agreements normally specify volume, quality and
time of delivery as well as the type of input to be used and the price or pricing
formula to be adopted. Contract farming may particularly be important when spot
purchase is ineffective to facilitate commodity exchange and assure compliance
with requirements such as volume, codified standards and traceability (Narrod
et al. 2009; Kirsten and Sartorius 2002). Formal contractual agreements have been
reported in countries such as Zimbabwe (Nhodo and Changa 2013), Kenya
(Abdulai and Birachi 2009), Senegal (Swinnen and Maertens 2007), Madagascar
(Minten et al. 2009), Malawi (Kumwenda and Madola 2005) and Ghana (Eaton
and Shepherd 2001), while informal contracts have been reported in Uganda
(Bolwig et al. 2009) and Zimbabwe (Masakure and Henson 2005). Moreover, variants that lie between the ‘loosely coordinated’ and ‘closely coordinated’ forms of
contracting, herein generally referred to as ‘hybrid forms’, have also been reported
in countries such as Kenya (Strohm and Hoeffler 2006). The hybrid forms of coordination entail one or more intermediary agents, where famer co-operatives fit in
pertinently.
An evaluation of contracts involving smallholder farmers in SSA reveals both
good and bad prospects. There have been concerns with respect to the emergence
of captive markets, where a wider adoption of legally binding contractual agreements might depress spot market prices and reduce farmers’ earnings, which has
Integrating Smallholder Farmers to Commodity Value Chains in Sub-Saharan Africa…
governance forms to market failures and transaction characteristics in the region
(Kirsten and Sartorius 2002). Almost all countries in SSA are witnessing major
changes in terms of property rights and market set-up following the previous and
on-going economic changes including market liberalization (Poulton and HanyaniMlambo 2004) and transformation and the modernization of global food systems
(Swinnen and Maertens 2007; Maertens et al. 2012). These changes have caused
new private vertical coordination systems to emerge to address market failures
resulting from the collapse of state-managed systems and other market shocks. The
most significant challenge is that liberalization, and technological and other market
changes, can hardly allow smallholder farmers to gain market access and realize
increased productivity and income growth unless coupled with appropriate institutional innovations that fuel market development and address other market entry
barriers.
The predominant forms of vertical coordination are contract farming and collective action. However, most of the means of vertical coordination are biased towards
producers of export crops (e.g. cotton), estate crops for large-scale processing and
export (e.g. sugarcane), highly perishable products (e.g. milk) and selected highvalue crops (e.g. vegetables and flowers), also for export, but not smallholder farmers’ food crops.
Contract Farming
In the context of agricultural commodities, contract farming entails a farmer committing to produce according to a prior agreement and a buyer to purchase the
produce from the farmer. These agreements normally specify volume, quality and
time of delivery as well as the type of input to be used and the price or pricing
formula to be adopted. Contract farming may particularly be important when spot
purchase is ineffective to facilitate commodity exchange and assure compliance
with requirements such as volume, codified standards and traceability (Narrod
et al. 2009; Kirsten and Sartorius 2002). Formal contractual agreements have been
reported in countries such as Zimbabwe (Nhodo and Changa 2013), Kenya
(Abdulai and Birachi 2009), Senegal (Swinnen and Maertens 2007), Madagascar
(Minten et al. 2009), Malawi (Kumwenda and Madola 2005) and Ghana (Eaton
and Shepherd 2001), while informal contracts have been reported in Uganda
(Bolwig et al. 2009) and Zimbabwe (Masakure and Henson 2005). Moreover, variants that lie between the ‘loosely coordinated’ and ‘closely coordinated’ forms of
contracting, herein generally referred to as ‘hybrid forms’, have also been reported
in countries such as Kenya (Strohm and Hoeffler 2006). The hybrid forms of coordination entail one or more intermediary agents, where famer co-operatives fit in
pertinently.
An evaluation of contracts involving smallholder farmers in SSA reveals both
good and bad prospects. There have been concerns with respect to the emergence
of captive markets, where a wider adoption of legally binding contractual agreements might depress spot market prices and reduce farmers’ earnings, which has
Integrating Smallholder Farmers to Commodity Value Chains in Sub-Saharan Africa…