Last week, Parliament invited public views on the draft Contract Farming Bill 2023. The Bill provides a legal framework for predetermined prices of future agricultural produce and consolidation of pieces of land into a single block for agricultural purposes. The deadline for submitting written memoranda is at the end of this month.
Perhaps, some of you are muttering ‘so what?’ For starters, most of us are always looking for ways to make money and this is one of them. In a country that is only using less than 40% of its total arable land, the Contract Farming Bill is indeed a big deal.
Contract farming is a production model in which producers (farmers) and buyers (agricultural enterprises) enter into legal agreements specifying yield and quality for a certain period. The enterprises provide agricultural inputs, technical assistance and financial resources with the promise that they will buy the harvest. In turn, the farmers allow these companies to instruct them on every aspect of production.
Details such things as price fluctuations and harvest losses are dealt with in the contract beforehand. This means buyers benefit from a guaranteed quantity and quality while producers and aggregators gain from guaranteed sales. The beauty of this arrangement is that subsistence farmers can steadily graduate and integrate into the modern agricultural value chain.
For a landowner who lacks the resources to properly farm it, the passing of such a Bill into law can further monetize their holdings. In addition, a farmer’s bargaining power increases, the bigger their acreage. Being strategically located in the vicinity of a transport network also adds to the farmer’s advantage in negotiations.
The concept is not totally new to Uganda. By way of out-growers schemes, our legacy sugar millers, Kakira, Kinyara and SCOUL have been doing it for decades. In recent years, the beer makers, Nile Breweries and Uganda Breweries adopted it to ensure improved quality in the supply of sorghum and barley. The Mukwano Group of Companies is also a major player as an aggregator and processor of agriculture produce.
On a smaller scale, some smart city people have been routinely ‘renting’ land upcountry to grow crops on a seasonal basis. With the Contract Farming Bill, the government will streamline these arrangements so that every party is fully aware of their obligations under the law. Dr Abed Bwanika, the MP Kimaanya-Kabonera Division, tabled the Bill in August 2022.
Part of it reads: ‘Whereas contract and blocking farming have been embraced by farmers in Uganda there is currently no legal regime that specifically governs such arrangements in order to protect the interests of the farmer and those of the buyer. The current legal regime
only applies to the growing and marketing of Tobacco, under the Tobacco (Control and Marketing) Act, Cap 35 and the growing and marketing of sugarcane under the Sugar Act, 2020. The exclusion of other agricultural produce from legal regulation hinders the commercialization of the other agricultural produce whose growing, and marketing is not regulated by law’.
Bwanika said of the proposed legislation, “It will help the farmers to minimize post-harvest losses since the farmers will be connected directly to the buyers, so the question of them looking for where to keep their product doesn’t arise and that will help the farmers to get other benefits from agriculture as an economic enterprise.”
He said, “Block farming will help farmers benefit from individual experiences of the farmers when they do farming together. Contract and block farming will help to improve the environment under which the farmers will produce. It will help farmers to access markets and also help them to benefit from the Parish Development Model.”
In nutshell, contract farming reduces risk for agribusinesses, and provides incomes for farmers. Middlemen, who have been a source of frustration for both buyers and farmers, will eventually have no middle ground to stand on.
More importantly with a law in place, it becomes difficult for any party to renege on their obligations. This will help limit the wrangles we frequently hear about, for example in the sugar industry concerning prices, late payments and out-growers double-crossing their financial backers.
Rapid population growth across sub-Saharan Africa is incentive enough to intensify investments in agriculture. Unfortunately, no African government has managed to live up to the 2010 Maputo Declaration of annually allocating 10% of the national budget to the agriculture sector.
Africa is home to the 10 fastest growing cities in the world. Food supplies have to be stepped up and Uganda has emerged as a leading regional cereals exporter. Being better at spotting opportunities, the private sector is increasingly making investments to exploit this rising demand. An enabling law, such as a Contract Farming Act, would encourage them, because it would protect their investments.
The East African Business Council, the Arusha-based regional lobby, recently reported that the growth potential and attraction of investments in agricultural value chains face significant setbacks. These are rooted in low production and productivity, primarily stemming from limited access to modern technology, inadequate infrastructure, and inefficient land utilisation practices. Streamlining contract farming can gradually ease these constraints.
Addressing an EABC conference on contract farming recently, Dr. Sarah Kagoya, the Principal Agribusiness Officer at the agriculture ministry said, “The lack of a legal framework to enforce contracts, are the main reasons it is not a common phenomenon in Uganda. However, this (contract farming) should be the way to go especially because it assures the farmer of the market and the income.”
It is still early days yet, before certainty of the Bill becoming law is assured. Nonetheless, one cannot help feeling a little excited at the prospects. Farmers can expect their creditworthiness with banks to improve when you have a forward contract in hand. Contract farming can catapult vast swathes of rural Uganda into commercial production as well as reduce land fragmentation.
But like in any business, there are plenty of downsides, particularly failure to meet the mutually agreed-upon terms of the contract. Another point is contract farming does not absolutely protect the parties concerned from market volatility which impacts profitability for both the farmer and contracting company.
According to FAO, demand from overseas markets for products to be certified has been spreading rapidly. Exporters now have to comply with a whole range of standards and traceability protocols, increasing the need for contractual arrangements with their farmers to ensure complete compliance.
The largest food and beverage companies in the world such as Nestlé, Coca Cola, PepsiCo, Unilever, and Archer Daniels Midland, are always looking out for new areas to invest in as a means to sustainably strengthen supply chains. In light of climate change and global warming, the trend is for more regenerative agriculture.
PepsiCo collaborates with over 5,800 contract farmers in Thailand for potato production, spanning about 6,000 ha across 10 provinces. Nestlé has a similar venture in Malaysia for the supply of chilies and rice. These kinds of ventures are rare in sub Saharan Africa.
Attracting reputable agribusinesses with deep pockets requires Uganda to have a well demarcated playing field with a clearly defined regulatory framework. One disadvantage is the endless land disputes that take up considerable court time.
It is unlikely a company will risk its money in a country where ownership of land is consistently called into question. On the other hand, a farmer should not go into business with a company not known to the Uganda Registration Services Bureau.
Apart from the mandatory due diligence, mutual trust is everything in contract farming. You cannot legislate it or demand for it, but trust is implied in any contract and is the basis of a strong business relationship. No company is going to invest its money in your land if they don’t trust you or are not sure of your commitment to carrying out your side of the deal.
To a large extent, contract farming relies on modern methods of production. As the contracted farmer, it does not matter how experienced you are and how long you have been growing such and such crops—what the contract says, is what you do.
