POVERTY REDUCTION THROUGH CONTRACT FARMING

POVERTY REDUCTION THROUGH CONTRACT FARMING

LESSONS FROM SRAKAEW PROVINCE, THAILAND

LESSONS FROM SRAKAEW PROVINCE, THAILAND

POVERTY CIRCLEIN THE AGRICULTURAL SECTOR IN THAILAND

POVERTY CIRCLEIN THE AGRICULTURAL SECTOR IN THAILAND

Structure of land holdingSmall holders with small, irregular

volume harvestedLeased land farming

Market accessibilityVery limited or no direct access to

wholesale marketsHave to sell to middleman or

venders at a relatively low price

POVERTY CIRCLEPOVERTY CIRCLEPOVERTY CIRCLEPOVERTY CIRCLE

In sufficient income to meet farming and living expenses.

Has to get loan.

Small plot – small harvestable quantity.

Limited or no direct market access have to sell to

middleman or merchant who finance his farm operation.

Has to sell at relatively low price.

POVERTY AND DOWNWARD POVERTY AND DOWNWARD SPIRALSPIRALPOVERTY AND DOWNWARD POVERTY AND DOWNWARD SPIRALSPIRAL

Low income from farm can not cover Low income from farm can not cover

living and farming expensesliving and farming expenses Low standard of living, mostly on or Low standard of living, mostly on or

slightly above subsistence levelslightly above subsistence level One or a few crop failures forced them One or a few crop failures forced them

to get loansto get loans They are caught in powerful They are caught in powerful

downward downward

spiralspiral

DOWNWARD SPIRALDOWNWARD SPIRALSmall 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

PREVAILING MARKET MECHANISMPREVAILING 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.

CONTRACT FARMINGCONTRACT 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 buyer’s requirement

Good farming practices improve quality and product safety of supply from farms

Cost saving in buyer’s operation and production line lead to higher selling price

Direct access to market is guarantee at minimum or no cost

CONTRACT FARMING IN SRAKAEWCONTRACT 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.

LOCATION IN SRAKAEWLOCATION IN SRAKAEW

INCOMESASPARAGUS AND OTHER MAIN CROPSINCOMESASPARAGUS AND OTHER MAIN CROPS

RAPID EXPANSION OF CONTRACT FARMING IN SRAKAEW

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.

CONTRACT FARMING GROUP IN 2005

CONTRACT FARMING GROUP IN 2005

RATE OF GROWTHRATE OF GROWTH

Total acreage and number of growersYear Acreage

(Rai)

Number of Growers

Rate of Growth

Yr. On Yr. From Base Year

Early 2001 94 47 Base Yr. Base Yr.

End of 2001 180 90 191 1912002 361 171 200 3842003 660 314 182 7022004 1,100 493 166 1,170

Early 2005 1,152 550 104 1,225

FARM MAINTENANCE COSTFARM 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

Nakornpathom1,424.0 920.0 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

CERTIFICATIONCERTIFICATION

• 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

SUMMARY OF THE FINDINGSUMMARY 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.

CONCLUSIONCONCLUSION• 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.

ATTACHMENTATTACHMENT

KEY SUCCESS FACTORS IN ORGANIZING CONTRACT FARMING

KEY SUCCESS FACTORS IN ORGANIZING CONTRACT FARMING

KEY SUCCESS FACTORSGROUP 1

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

KEY SUCCESS FACTORSKEY SUCCESS FACTORSGROUP 2GROUP 2KEY SUCCESS FACTORSKEY SUCCESS FACTORSGROUP 2GROUP 2

Training and technology transferringTraining and technology transferring Active participation in farm preparation Active participation in farm preparation

and maintenanceand maintenance Development of group collective Development of group collective

responsibilityresponsibility On-spot problem solving in organic On-spot problem solving in organic

farmingfarming Regular farm auditing by Swift’s Regular farm auditing by Swift’s

agronomistagronomist

KEY SUCCESS FACTORS GROUP 3

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

THANK YOUTHANK YOU

SWIFT CO., LTDSWIFT CO., LTD