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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.
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.
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
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