Contract Farming and Riverine Aquaculture

The Realities of the ‘Slave Contract’ and the Risks that Farmers Must Bear

Sumeth Panchamlong

Thailand Alternative Agriculture Network

From the first ever Development Plan up until the present time, small-scale farmers who
wished to do mainstream agriculture in line with prevailing government policy have changed
from traditional production methods to new production methods which employ modern
technologies with market support. Such practices started with planting jute, cassava,
sugarcane, rubber, eucalyptus, raising chickens for meat and eggs and raising pigs.
Eventually, around 1997 there began be promotion of riverine aquaculture, with companies
promising farmers that they would guarantee prices and claiming there would be agricultural
advances such as funds to support production and simple and convenient technologies. These
different things can simply be identified as the various elements of ‘contract farming’.

The word ‘contract farming’ refers to agreements between a company or group of investors
and a group of farmers regarding the production of agricultural produce (it should be noted
that such agreements are usually made on an individual basis with individual farmers). These
may be written agreements or simply verbal agreements. For example, in the case of riverine
aquaculture, local stores selling agricultural and aquaculture products often act as
representatives of companies wishing to make contracts with local farmers. The stores make
agreements directly with the farmers on behalf of the companies. The stores promise to
provide assistance in terms of fish stocks, fish food, knowledge regarding aquaculture and
help in finding markets etc. This effectively leads to small-scale farmers becoming part of the
informal labor sector, creating a whole host of problems for small-scale farmers in the
process. The companies, investors and stores involved in such agreements are trying to avoid
the usual laws and regulations associated with the formal labor sector. So instead of hiring
the farmers as formal labor, they make agreements which are more like sub-contracts for the
production of agricultural produce. In this way, the farmers become indirectly responsible for
investing funds themselves, and must face all the risks associated with producing the
agricultural produce as agreed in the contracts made.

From the lessons learned by the Project to Improve the Quality of Life of Agricultural
Laborers – Contract Farming and Hiring in 4 Ecosystems in Northeastern Thailand, it has
been found that contract farming agreements in the riverine aquaculture sector are very
unfair and unjust. This is because these non-written agreements do not provide any
assurances regarding the price that will be paid for produce, the items and consumables that
will be used in production are determined solely by the companies in question, and farmers
have no right to negotiate prices when it comes to selling produce. Furthermore, in reality in
order to request the various kinds of assistance promised by the local stores and the groups
of investors, the local farmers have to use their own assets (usually their land or their homes)
as financial insurance. This can take one of two forms, either the farmers come together as a
group and use their own assets as insurance in requesting assistance from the local stores
and groups of investors, or else the farmers go to the Bank of Agriculture and Cooperatives
to borrow money directly, again using their own assets as insurance. If problems occur and
additional funds are required, the farmers do not have much bargaining power with the
stores, groups of investors, or even with the bank, because they risk their assets being seized
if they cannot keep up repayments. So usually the only option is to ask to delay their
repayments. These types of agreements are simply a way for the stores and groups of
investors to be able to avoid direct responsibility or liability under the law. For this reason,

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this new form of trade known as ‘contract farming’ has come to be called ‘slave contracts’ by
local farmers.

Case Study: Khwao Yai Sub-district

Khwao Yai Sub-district, Kantarawichai District, Mahasarakham Province is in the central Chi
River area between Mahasarakham Ban Kui Chueak Check-dam, Kosum Pisai District,
Mahasarakham Province and Ban Wang Yang Check-dam, Kamala Sai District, Kalasin
Province. From the experiences of conducting aquaculture in this area it was found that in
1997 a farmer called Mr. Bualee started to practice aquaculture after learning about the
experiences of his friend from a nearby village. He started in 1997 with around 40
aquaculture cages, and by 2001 he had expanded to 52 aquaculture cages. A local store in
the center of Mahasarakham provided with a loan for fish stocks and fish food and providing
him with access to markets. Additionally, the Bank of Agriculture and Cooperatives provided
him with a loan for other aquaculture equipment e.g. the metal frames needed to construct
aquaculture cages. Such assistance, both from private investors and the bank, resulted in 150
additional families starting to practice aquaculture in this particular community. In 2001 each
of these families had an average of 6 aquaculture cages, with a total of 900 aquaculture
cages across the entire community.

From the study conducted, it was found that the key reasons why people increasingly decided
to practice aquaculture were:

1. Investing in aquaculture does not require any significant assets and is easy to do. Any
family needing money to invest in aquaculture is able to use their rice farming land and other
assets as insurance with the Bank of Agriculture and Cooperatives or with local stores in
order to borrow funds.

2. It is possible to achieve results and generate income quickly in the early stages. E.g.
practicing aquaculture for just 90 days yields fish weighing 700 – 800 g, which can be sold at
a price of around 40 Baht per kg, providing an income of around 4,000 – 5,000 Baht per
aquaculture cage.

3. Because most of the villagers in the community practice aquaculture. (150 out of a total of
180 households in the community are engaged in aquaculture.) Additionally the fish stock
and fish food company arranges a seminar and party each year for those villagers practicing
aquaculture. Those families not practicing aquaculture therefore feel left out of local society
 
and not up to date with local affairs.

Riverine aquaculture in Khwao Yai

Sub-district, Kantarawichai
District, Mahasarakham Province
is in the central Chi River area
between Mahasarakham Check-
dam, Ban Kui Chueak, Kosum
Pisai District, Mahasarakham
Province and Ban Wang Yang
Check-dam, Kamala Sai District,
Kalasin Province.

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After 2001 the number of people engaged in aquaculture reached a high of 150 families,
before falling to the present levels where only 40 families remain engaged in aquaculture.
Many villagers cite a number of reasons for this reduction in the number of aquaculture. An
example is Mr. Home from Ban Kee Lek Village, who practiced aquaculture for 5 years
between 1997 – 2002, who said “Many people say aquaculture makes a lot of profit. But at
the present that is not true. It’s just an illusion. Because the cost of juvenile fish, the cost of
fish food and the cost of other materials has increased. But over the last 8 years the price for
selling fish has not increased from its original value of 40 Baht per kg. Only the local stores
which sell us fish food are able to make any profit from this. And those who have already
invested in aquaculture, even though they may be losing money, are forced to continue with
aquaculture because they have made agreements and borrowed money from the companies
and local stores.”

Another issue is that villagers are not able to manage the debts they have incurred, so they
must continue aquaculture however difficult it is in order to have money to be able to
continue to pay of their debts. Mrs. Ubol, who has practiced aquaculture from 1998 until the
present day, said “At first there is good profit to be made, because raising the fish takes only
90 days. But at present it takes around 120 days to raise the fish, because so many people
are engaged in aquaculture. Villagers do not know what is the most appropriate time to sell
their fish. They do not have a good relationship with the local stores, and so do not receive
good information from the local stores about the most appropriate time to sell their fish. As
soon as this kind of situation arises, villagers will immediately start to lose money.

Risks in Investing in Riverine Aquaculture

From studying the problems of aquaculture in the project sites, it was found that villagers
have to invest money in two main areas:

1. Investing in materials and equipment for aquaculture, with the materials and equipment
having a life of about 5-8 years. The Bank of Agriculture and Cooperatives provides loans for
this type of investment at an interest rate of 9%. The amount of money each villager is able
to borrow depends on their individual needs and also on the value of the assets they are able
to use to insure their repayments.

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 Table Comparing Investment in Establishing Aquaculture and Necessary
Equipment for Aquaculture for 6 Cages at 6 x 9 m per Cage

First period of production Period that farmers ceased production

Item (1997 – 2001) (2001 – 2006)

Source Unit price Total Cost Source Unit price Total Cost

10,000 12,000
1. Fish cage structure x
Local store 10,000 Local store 12,000
6 cages (6 x 9 m)
(wooden) (metal)

400
2. Metal bucket x 24 Local store 200 48,000 Local store 96,000
(plastic)

3. Underwater netting x
Local store 3,100 6,200 Local store 3,100 6,200
2 rolls

4. Green mesh netting

Local store 80 160 Local store 80 160
x 2 rolls

5. Rope Local store 500 Local store 500

6. Bucket x 10 Local store 50 500 Local store 50 500

7. Scales (no less than

Local store 600 600 Local store 600 600
20 kg limit)

3,000
8. Shed for working /
Self-made 3,000 Self-made 3,000 3,000
storing fish food

9. Boat x 1 - 0 Villagers 6,000 3,000

Total 68,960 Total 121,960

Information: Interview with small-scale aquaculture farmers at Ban Kee Lek Village, 2006

When you compare aquaculture in the early stages with aquaculture in the later stages, it
becomes clear that the conditions and factors which require investment at each stage
gradually increase, until there is a difference in the investment required of 53,800 Baht. The
means that villagers have an increasing burden of debt to carry, whilst the companies and
the local stores see this as something normal and necessary in maintaining quality production
standards.

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 Table Comparing Investment in Aquaculture for 1 Cage Between a Local Store
Acting as a Rep for a Company and Establishment by Typical Farmers

Company / Individual /

Local Store Group

Item Quantity Difference Note
Unit Unit
Total Total
Price Price

1.
Juvenile
1,000 Must be large than
fish x 2 2,000 1 1,000 1,000
fish mesh size
1,000
per cage

2.
Juvenile 2 sacks 470 940 400 800 140 Day 1 – 40
fish food

3. Adult
66 sacks 460 30,360 390 25,740 4,620 Day 40 – 120
fish food

1,000 fish per cage,

4. Sale 1,000 40 per 40 per avg. 800 kg

-
price fish kg kg
(death rate 20% of
total)

1 person watches 6
cages
5. Labor
1 person 3 3,000 3 -
costs 150 Baht per day

total of 120 days

Total 36,300 30,640 5,760

Information: Interview with small-scale aquaculture farmers at Ban Kee Lek Village, 2006

Looking at the amount of money that villagers must borrow from companies or local stores if
they do not have their own money to invest, the study found that around 5,760 Baht extra
has to be paid in interest for each cage, substantially lowering the income that the villagers
can potentially make form each cage.

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 Table Summarizing Investment and Production from Aquaculture per Cage
(Cage Size 3 x 3 m, 1,000 fish)

Item Investment Product Note

Raise 1 cage of fish 3 x 3 Purchase juvenile fish, 1 cage yields approx. Farmers lose around
m in size – 1,000 fish – fish food and other 1,000 fish, avg. total 4,300 Baht per fish cage
120 days management costs weight 800 kg, sale price
approx. 36,300 Baht 40 Baht per kg, total price
32,000 Baht

Information: Interview with small-scale aquaculture farmers at Ban Kee Lek Village, 2006

The study found that each time villagers raise fish they will lose about 4,300 Baht per fish
cage. In calculating this risk of loss of investment, the majority of farmers do not include the
cost of their own labor or any other management costs (labor costs amount to about 3,000
Baht). The only possible chance that farmers will be able to make a profit is if the rate at
which fish die is less than 20% of overall fish stock levels. As soon as farmers begin to make
financial loses, they become unable to manage their debts and so risk their valuable assets
becoming the property of the local stores that promised to help, or else of the Bank of
Agriculture and Cooperatives. The study found that the majority of farmers who stop raising
fish have made loses or developed debt of no less than 200,000 Baht per household.
(Information: From interviews with villagers from Ban Kee Lek Village 2006.)

Dead fish in aquaculture

cages resulting from waste
water problems – February
2006.

Risks for the Chi River Environment

Aquaculture is carried out at various stretches along the Chi River, with the aquaculture cages
being placed in the areas between check-dams. There are a total of 8 check-dams along the
Chi River. The study area is specifically located between Mahasarakham Check-dam, Ban Kui
Chueak, Kosum Pisai District, Mahasarakham Province and Ban Wang Yang Check-dam,
Kamala Sai District, Kalasin Province, covering a stretch of the river approximately 25 km in
length.

In the study area it was found that:

1. Each aquaculture cage produces 3 kg of fish excrement and waste every day.
With 40 families currently engaged in aquaculture with a total of approximately 240 cages,
the result is that around 7.2 tons of fish excrement and waste flows into the Chi River every
day. This greatly impacts upon the quality of the water in the river, which is a source of water
for household consumption and agricultural production within the community. The companies

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that promote aquaculture maintain that this situation is the villagers’ own doing, and not
anything to do with the companies themselves, which is clearly unfair and unjust. Because if
you look at the profits from exploiting the natural resources of the river to practice
aquaculture, all those profits go to the companies themselves, not the villagers, so the
companies must therefore be responsible for rehabilitating the natural environment.

2. Aquaculture in the Chi River area is strongly market driven, and so aquaculture activities in
the river increase every year, impacting upon water quality. (Information: Interviews with
female fish merchants in markets from Mahasarakham to Ubol Ratchathani provinces, 2006.)
Native fish that are unable to adapt to the reduction in water quality die in numbers and
eventually become extinct, impacting upon the natural balance of the Chi River. Once the
natural balance of the river is affected, this in turn impacts upon other riverine plants and
animals. But the companies that prosper from aquaculture in the area place no importance on
the problems that are occurring, and all of the problems that occur are left for the
communities themselves to resolve. The companies must be made responsible for
rehabilitating the natural environment.

Risk to Farmers’ Health

The aquaculture practices of small-scale farmers are dependent on them using land as a
guarantee in order to be able to raise the necessary money. That land is used by the villagers
to grow rice, raise cattle etc. The original production methods of villagers depend heavily
upon land as a resource. When villagers start to fall into debt as a result of financial losses
incurred through their aquaculture practices, so the land with which they insured their loans
becomes threatened, and this in turn threatens their traditional production methods. Farmers
debts are therefore a huge problem, causing stress and worry about the possibility of losing
their land. Contract farming presents problems for small-scale farmers in terms of financial
losses, unmanageable debt, loss of land and loss of welfare. If we compare the situation of
these farmers with workers in the formal labor sector, the regulations, laws and welfare
system in the formal labor sector helps to protect workers in this sector from experiencing
similar problems, especially payment in the case where they fall ill, and compensation
payments if natural disasters or acts of God occur and cause fish to die, e.g. chemicals from
industrial plants which cause local water sources to be polluted

Villagers devastated
because their fish have
died, leaving them with
massive debts

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 Recommendations and Alternatives of Small-scale Aquaculture
Farmers

Recommendations for the Small-scale Aquaculture Farmers Themselves

The key problem of the farmers is that they have no authority or power in negotiating with
the companies and the local stores because they are afraid that they risk losing their fish-
selling quotas. This in turn leads to financial loses for the farmers. Therefore it is important
for the small-scale aquaculture farmers to come together in groups in order to create the
power they need to be able to negotiate on the price for selling fish, and also to ensure a
cheap price for the items they need to buy in order to be able to raise fish e.g. juvenile fish
stocks and fish food. At the same time the farmers should also investigate alternative
production methods such as raising fish in earth ponds, as this will help to reduce the high
production costs associated with aquaculture.

Recommendations for Companies and Local Stores

The essence of the problem is that the contracts set up are unfair and unjust, because the
local stores promise to provide assistance to the farmers (in terms of juvenile fish stocks, fish
food and the price for which they will buy the fish). But in reality the local stores charge price
for things like juvenile fish stocks and fish food which is much higher that the prevailing
market price, continually claiming that this is because the farmers are buying on credit, and
so cannot be given the low market price. But this is not a fair deal for the farmers, because in
reality the farmers are effectively contractors working for the companies and local stores as
contracting agency. When viewed in this way, if the price of materials and equipment
increases or other kinds of financial risk occur, the companies and local stores should fairly
and equitably share responsibility together with the farmers.

Recommendations Regarding Policy and Government Agencies

In the past, contract farming was a tripartite type agreement between companies, farmers
and, importantly, the government. Nowadays the contracts have become direct and bilateral
between the companies and the farmers directly, without any government involvement. At
the same time, the companies and local stores are using legal loopholes to avoid risks when
investing funds, by providing small-scale farmers with various forms of credit rather than
investing funds equitably together with the farmers. This clever trick on the part of the
companies and local stores to emphasize increasing their own profit at the expense of the
local farmers by exploiting various legal loopholes is rapidly and continuously spreading. In
summary the problem is unfair and unjust contracts and a lack of welfare. The government
needs to have a strategy for controlling and taking care of these matters. There should be
legal measures to control these kinds of unfair and unjust contracts. At the same time there
should be a fund to provide compensation in the case of natural disasters and acts of God,
and a fund to rehabilitate environments polluted or damaged by aquaculture, pressing the
companies and local stores to take joint responsibility. There should also be measures to
protect small-scale farmers who wish to move to new production methods like aquaculture.
For example, in taking up aquaculture, farmers could seek out their own funds from
alternative, sufficient and sustainable sources so as not to be dependent on the companies
and local stores. Additionally, the government should try to set up welfare schemes to protect
small-scale farmers who enter into contracts with companies and local stores, and make this
part of specific legislation for people in the informal labor sector, so that small-scale farmers
have a way to gain access to government welfare.

All of the above issues are genuine examples of the real problems faced by small-scale
aquaculture farmers. The question that these small-scale farmers continue to ask themselves
is – when will Thai society give importance to resolving all of these issues?

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