Contract Farming: What Every Farmer Should Know

Farmers often face challenges in production and marketing of their produce. Among the factors that contribute to this include lack of; start up capital, access to quality inputs and financial services, a ready market for their produce as well as the technical know how on the production and management of some crops.

Contract farming offers solutions to these challenges by guaranteeing a ready market and support to the farmers. In most cases, a farmer will not be good at everything. You could be good at production and farm management, but lack important marketing skills. In this case, you will end up with a lot of produce, but nowhere to take them. Contract farming allows you to concentrate on production as it guarantees farmers a market for their produce, at an already determined and agreed upon price.

Depending on the contract, farmers also get easier access to inputs and credit for their projects. They also benefit from trainings to improve production and management skills. As such, the venture enables the farmers to establish a steady source of income. Additionally, contract farming opens up new markets which would otherwise be unavailable to some farmers.

Even so, it is important for a farmer to critically analyse the reason they choose to get into contract farming and how it works.

For starters, some of the challenges that a farmer could encounter could include loss of flexibility to sell to alternative buyers when prices increase, possible delays in payments from the buying organization, breach of contract in some cases such as late delivery of inputs which could in turn affect production. Some contracts could also be binding in such a way that a farmer will have to plant only one type of crop while the environment could have changed, this could in turn affect production.

It is therefore advisable for the farmer to critically examine the merits and demerits before committing to any agreement.

Do a background check

Before signing the contract, ensure you are dealing with reputable buyers or companies that are registered by the government and have a good reputation on how they relate with farmers. You can ask to see their audit reports and other relevant documentation that proves they are credible and also certified by the relevant authorities.

Engage a legal representative

It is important to engage a legal mind before signing the contract. They will help you identify any areas of concern. The contract document should be clear and concise setting down the basic terms such as pricing, payment schedule, quality of produce cross compliance, health and safety measures, insurance among others.

Contract negotiation:

Be prepared to ask questions and request changes to certain clauses that you think need to be adjusted. Always try to get the best of the situation, attempt to negotiate on pricing, quality, payment and product delivery if they seem unfair or impossible to achieve. Sign the contract only after a full agreement on all the conditions has been reached and the negotiation phase is completed.

Watch out

Be careful to fully understand the contract’s position on matters such as the duration of the contract, termination of contract, renewal of the contract, clauses relating to actions (remedies) that may be applied when one party fails to perform and the dispute resolution options available within the contract. Finally, ensure you have a written contract that is signed and stamped by all parties involved.