Enact policies to regulate contract farming, urge sector players

Stakeholders in the agricultural sector have called for the urgent formulation and implementation of policies that will regulate contract farming, a practice that holds significant potential for improving food security across the continent.

Speaking during the International Conference on Contract Farming (ICCF) in Nairobi yesterday, actors from the public and private sectors stressed the need for clear regulations to ensure that the benefits of contract farming reach smallholder farmers and contribute to economic growth.

Kenya Private Sector Alliance (Kepsa) Carole Kariuki highlighted the importance of the government's intervention in crafting policies that would protect farmers and guarantee their access to fair contracts.

“Contract farming, which connects smallholder farmers with larger agribusinesses, is a powerful tool to increase agricultural productivity, enhance market access, and boost economic growth,” Kariuki stated. “However, without clear, enforceable regulations, the most vulnerable farmers may be left behind. We must establish a regulatory framework that safeguards their interests,” said Ms Kariuki.

Contract farming links farmers, often smallholders, to larger agricultural buyers who provide support in the form of seeds, fertilisers, and technical assistance in exchange for a commitment to purchase the produce at an agreed-upon price.

This model has been particularly successful in sectors like tea production in Kenya, where it has improved yields and market access for farmers.

However, experts caution that without well-defined regulations, the arrangement can also leave farmers vulnerable to exploitation with issues such as price manipulation and delayed payments.

Lan Li, an economist at the Food and Agriculture Organisation (FAO), emphasised the need for an inclusive, well-regulated system to avoid such risks.

“Contract farming has the potential to empower smallholder farmers and improve their livelihoods,” Ms Li said.

“But to achieve this, we need a policy framework that ensures fairness, transparency, and effective dispute resolution. Without it, we risk leaving farmers exposed to market fluctuations and unscrupulous business practices.”

Experts said contract farming can revolutionise African agriculture by providing farmers with reliable markets, access to better technologies, and consistent income streams.

Agriculture Secretary Collins Marangu(left) and Sunflower Events(K) Ltd Founder and MD Peris Gakui consult during the International Conference on Farming 2024 at the Edge Hotel and Convention Centre, Nairobi on November 12, 2024. [Boniface Okendo, Standard]

Contract farming is seen as a means to address long-standing issues of food insecurity, low agricultural productivity, and the lack of market access, particularly in rural areas.

For countries like Kenya, which saw a 6.5 per cent increase in export earnings in 2023, largely driven by the horticultural sector, contract farming offers a proven model for success.

“Contract farming has worked well for our tea sector, and we can replicate this model across other sectors such as coffee, tobacco, and horticulture,” said Agriculture Secretary at the Ministry of Agriculture and Livestock Development Collins Marangu.

Mr Marangu also stressed the importance of scaling up contract farming by unlocking public land for agricultural use and providing training to farmers and SMEs on how to navigate the markets.

“For contract farming to succeed, we need to ensure that farmers are trained and equipped to meet the demands of the market, including compliance with contracts,” he added.

The model opens up new job opportunities in rural areas, supports the creation of farm-related infrastructure, and fosters economic diversification.

Contract farming also provides a means for integrating technology and innovation into traditional farming practices, creating a ripple effect of job creation and economic development.

While the potential benefits of contract farming are undeniable, experts warn that poor contract management, unclear terms, and imbalanced negotiations often place farmers at a disadvantage.

A common issue is the lack of a minimum price guarantee, which can expose farmers to fluctuating market conditions.

Additionally, farmers often have limited bargaining power and little understanding of their legal rights in contract negotiations.

One of the key recommendations from the conference was the urgent need for governments to establish policies that include a minimum price guarantee, effective arbitration mechanisms, and protections against exploitative contract terms.

“There are situations where farmers invest their land, time, and resources, but the buyer fails to pay the agreed price, or worse, leaves prices open to market fluctuations. This puts farmers in an extremely vulnerable position,” said Kariuki.

To address these challenges, Mr Marangu emphasised the need for robust legal frameworks to ensure that contracts are fair, transparent, and mutually beneficial.

“Our farmers must be educated about their legal obligations and rights in these contracts,” he said. “Furthermore, businesses must also understand that fair contracts are essential for the long-term success and sustainability of the industry.”

As African agriculture continues to face challenges such as low productivity, poor infrastructure, and a lack of investment, stakeholders agree that contract farming, when properly regulated, can serve as a key solution to these issues.

By empowering smallholder farmers, improving food security, and creating sustainable economic growth, contract farming has the potential to transform the agricultural landscape in Africa.