“Good things only happen when

planned; bad things happen on

their own. It is always cheaper
to do the job right the first
time.” (Crosby, n.d., p.2)
CONTRACT
FARMING
WHAT IS CONTRACT FARMING?
Contract farming can be defined as an agreement between farmers
and processing and/or marketing firms for the production and
supply of agricultural products under forward agreements,
frequently at predetermined prices.
 It widely used, not only for tree and other cash crops but,
increasingly, for fruits and vegetables, poultry, pigs, dairy
produce and even prawns and fish.
Contract farming (CF) is defined as forward agreements
specifying the obligations of farmers and buyers as partners in
business. Legally, farming contracts entail the sellers’ (farmers’)
obligation to supply the volumes and qualities as specified, and
the buyers’ (processors’/ traders’) obligation to off-take the
goods and realise payments as agreed. Furthermore, the buyers
normally provide embedded services (see insert) such as (for
more details see section C.2): upfront delivery of inputs (e.g.
seeds, fertilizers, plant protection products); pre-financing of
input delivery on credit (explicit rates not always charged; see
insert); and other non-financial services (e.g. extension,
training, transport and logistics).
3 areas of contractual arrangement varies according to following:
1. Market provision: The grower and buyer agree to terms and
conditions for the future sale and purchase of a crop or livestock
product;
2. Resource provision: In conjunction with the marketing arrangements
the buyer agrees to supply selected inputs, including on occasions land
preparation and technical advice;
3. Management specifications: The grower agrees to follow
recommended production methods, inputs regimes, and cultivation
and harvesting specifications.
CONTRACT FARMING FRAMEWORK
CONTRACT FARMING BENIFITS
• Marketing strategy in the light of trends on globalization
• Integrate small farmers in the agribusiness system
• Production of quality goods for competitiveness (per hectare)-
sufficient access to technology, credits and inputs.
• Increase in income
• Assures farmers of market
• Guarantees supplies to the buyer
 Shortcomings of Contract Farming:
1. Exclusion of resource-poor farmers; gives priority to better endowed, better
educated, and better connected farmers.
2. Exploitation of contract growers by integrators, and
3. Side selling to third parties or pole-vaulting.

Challenges:
1. Social Organization- dealing with thousands of small farmers is time consuming and
costly.
Contract growers in Philippines:
1. Purefoods/San Miguel- chicken broiler
2. DOLE Philippines- exporting banana, pineapple, and papaya
3. Del Monte Fresh-
4. Del Monte Philippines-
5. Sumifru-
6. Nestle Philippines- Robusta coffee
- Supplies superior coffee clones at cost
- Provides extension support, and
- Buys back the coffee beans at prevailing world market prices.
7. Kennemer- cacao; gives credit to farmers with Land Bank of the Philippines, supplies
high yielding planting materials, provides extension support, and guarantees a secure
market for cacao beans
8. Philip Morris- tobacco; from Ilocos region has established expansion in Misamis
Oriental in Northern Mindanao
9. SL Agritech- hybrid rice
- Securing its market share of the growing hybrid rice seed business by advancing to the
rice farmers its SL Agritech hybrid seeds
- Provides extension support
- Offers advances of fertilizers and pesticides to farmers short of cash.
- It buys back the palay at 2.00-3.00 per kilogram higher than prevailing market price

Objectives of Contract Farming:

- To assure the integrators’ processing plants a steady predictable supply of quality
and competitively-priced raw materials.
 Role of Government/ Local Government Unit (LGU):
- Provides small farmers better access to the following:
1. Transport (farm-to-market roads, tramlines in uplands)
2. Reliable irrigation, and
3. Rural electricity
- Organizing farmers into cooperatives, integrators associations and agrarian reform
beneficiaries.
- Linking social organizations to the integrators
- Philippine Business for Social Programs (PBSP) mobilized and give incentives to Non-
Government Organizations (NGOs) to serve as service providers in helping organize the
farmers to participate in contract growing ventures.
- One-Town-One-Product (OTOP) scheme of the DTI; Geographical consolidation in the
more agro-ecologically suited locations and closer proximity of growers.
- Assurance of strong support and protection from the local governments for agribusiness
integrators investments.
Thank You!!!