Vertical organisation of small scale farmers

Abstract

Small scale farmers represent 80% of all farmers in sub-Saharan Africa and contribute up to 90% of agriculture production. Small scale farming is not without its problems and sub-Saharan Africa has one of the lowest agriculture productivities in the world - this despite ample land and water availability. These problems include inter alia, the fundamental lack of economies of scale and access to market, high transaction costs, and limited access to finance. This is in a global environment, where contract farming is becoming very dominant in agriculture: In 2010, 41% of the North American agriculture output was sold on contract, compared to 11% in the ‘60’s. The research objective was to evaluate contract farming as a vertical integration mechanism for small scale farmers to take advantage of this growing long term trend. To this end, a hypothesis was proposed that contract farming is a practical model that increases farm income for the small scale farmer. In support of this hypothesis, five propositions were tested, viz: does contract farming provide market linkage, reduce transaction costs, increase rural development, raise production output, and can it be applied across different crops. The research followed a deductive approach and a qualitative data collection method. The propositions were tested using empirical evidence obtained from semi-structured interviews with companies involved in contract farming. The hypothesis was confirmed by the evidence presented. The individual propositions: market linkage, transaction costs, rural development and different crops were all supported. However the evidence presented that contract farming raises output was inconclusive. These findings are however, subject to solving a number of issues - such as land transfer, mitigating the effect of low economies of scale, controlling side selling, and having a dispensation that increases profits over the long term. Further to the findings, a model framework is proposed to structure a contract farming system. With 60% of the sub-Saharan population involved in agriculture, the ability to increase farm side income presents an enormous opportunity to contribute to rural economic prosperity. This is not only for the benefit of farmer, but also for his community, via the multiplier effect.