Zimbabwean Companies that contract farmers in field crops and the type of produce
Field crops have traditionally been marketed through government parastatals (Table 1). With market liberalization new companies now also purchase directly from farmers. Table 3 shows the companies involved in purchasing field crops.
Agricultural Seeds and Services
Beans, Peas and TomatoesCowpeas, Sunhemp
All crops except Horticultural, Tea and
Field crops are either sold through contracts or directly without contracts. Both written and implied contracts are used. For example Chibuku Breweries has a contract signed between itself and a group of farmers. The contract stipulates the obligations of either parties in the contract. Table 4 gives a summary of the contracts which companies enter into with communal area farmers for the production and marketing of field crops.
Implied contracts are not based on any type of agreement but are based on the existence of certain relationships between the company and the farmers. The purchasing companies offer services whose provision can only be sustained if the farmer continues to sell his/her crop through the company. A typical example is COTTCO which has always offered crop packs
to communal area cotton growers. Those who sell their cotton through the company will be beneficiaries of subsequent disbursements of crop packs in subsequent years. Recently COTTCO has been more direct in its contracting of farmers to sell through it. In addition to the crop packs, farmers get loans for packaging material if they sell all their cotton through their company. Failure to do so would mean that the farmer would not be able to get packs in the following season.
Farmers sometimes decide to sell the contracted crop through channels other than the contract company. In Shamva, Olivine reported that the beans that they had contracted farmers to produce were all sold to other buyers. Agricultural Seeds and Services believe that this defaulting was part of the farmers’ learning processes. The company would therefore like to build a relationship of trust with the farmers so that they do not default. The hope to do this by ensuring that planting seed is given to those who will market the produce through the company.
Being poor, communal area farmers will nearly always be in cash flow problems. Companies that contract them will need to purchase the produce very timeously otherwise they will sell it to the buyer who approaches them first with cash. The Olivine experience showed that small price increments above the contract price eg. 50 cents per kilogram are enough to entice the farmers to sell to the non-contract companies. Farmers growing red sorghum also ended up selling their crop to middlemen when Chibuku Breweries had delayed providing transport. The non-contract companies are able to offer slightly higher prices since they have no costs to recover as they would not have invested anything leading towards the production of the crop.
Prices are stated at the time the farmers go into the contract, for example, castor beans, field beans and red sorghum. For cotton the prices might be revised during the marketing period with farmers being back paid for any arrears. In a number of years COTTCO has come back to the farmers at the close of the season to award the farmers ‘bonuses’ to reflect the higher prices which the company would have realized when selling on the international market. These bonuses are given to all farmers who would have sold their cotton to the company regardless of whether the farmer had received credit from the company or not.
It is recommended that contract prices be made available before production commences since .farmers will also be making decisions about future activities.
|Table V||Characteristics of the major companies involved in contract marketing and possibility of contract marketing in field crops|
|Company||Level and Nature of Contract||Services Provided||Grading system||Prices and payment||Transport|
|Seed sold on loan at stated price.
Pamphlets provided and follow up done
|Only minimum quality specified.||Price given in contract||Company provides transport but cost is deducted|
|Variety for planting specified and also sold for cash. Field days sometimes held.||Only minimum quality specified.||Price given in contract||Provided free for 30 tonne consignments|
|Agricultural Seeds and Services||Individual/
|Seed supplied and cost deducted upon delivery of produce.
Extension provided in conjunction with Agritex workers.
|Only minimum quality specified.||Price given in contract||Produce collected from village by company at its own expense|
Extension provided in the form of literature. Visits done when possible.
|Only minimum quality specified.||Price given in contract||Not provided for in contract but when requested, company can provide freely.|
Contract is part of group’s constitution.
|Seed bought through cash or provided on loan. Chemicals and fertilisers also provided of loan.
Extension provided by Agritex and input companies.
|Grade determined at the depot.||Based on grade. Price not necessarily given in contract. Basic payment made initially then the rest after two weeks.
Payment by cheque.
|Farmers deliver to depot|
With signed contracts, whether transport is to be provided or not is stipulated in the contract. Companies want to have produce delivered to their nearest depot or collection point within the village. Beyond this point the company would cater for the transport. Chibuku Breweries offers free transport for each quantity of red sorghum which is 30 tonnes. Quantities below this weight have to be delivered to the nearest Chibuku Brewery.
Trinidad Industries transports the bean ‘free’ of charge from the grower’s site. The same is also done by Agricultural Seeds and Services for the seed crop it purchases. COTTCO charges for transport up to the depot. If they provide any transport before the produce gets to the depot then it will be charged against the farmer’s account. Nevertheless the company provides its own trucks for transporting the cotton from the village collection point to the depot.
It would be best if companies provided transport and deducted the transport costs from the money due to the farmers. Deliveries would then be made more timeously.
4.4 Payment and Grading
Companies which purchase produce on contract indicated that they try to pay for the crops as quickly as possible. The maximum time taken before a payment is made is two weeks. Compared to the long periods of up to several months which GMB took before paying farmers in 1996, it would mean that selling through contracts enables the farmer to have cash sooner.
Companies dealing with grain crops stipulate the quality parameters on whose basis the crop will be accepted. Specifications are usually made regarding moisture content, unthreshed grain, chipped grain, defective grain, extraneous matter etc. Therefore a flat price is quoted in the contract. In the event that the quality specifications are not met, a price will have to be negotiated. Farmers are particularly happy with the system whereby grain is accepted only if it meets the specifications and one price is paid for the commodity. With cotton the crop has to be graded first before payment is made out.
Among other reasons, delays in getting paid make farmers sell through middle men. Farmers sell through the middleman since instant cash is given instead of cheques which are used by the big companies. Cheques have a number of disadvantages for farmers:
- Due to the lack of banking facilities in the rural areas, farmers who need cash after being paid by cheque are forced to spend a significant proportion of the value of the cheque on goods in the store before being given the balance. The value of the goods to be bought depend on the value of the cheque, the relationship between the farmer and the trader or even the amount of cash at hand in the store. Due to this practice, farmers are sometimes forced into buying goods which the do not really require, thus resulting in great waste.
- Where the banks exist, the standing rule is that crossed cheques can not be cashed immediately. Only after two weeks will the cash be available. This is a long time to a farmer faced by a number of problems at home. In any case if the farmer has to wait for the two week period, they have to board buses to and from home again at additional costs.
- The banks also want farmers to keep a certain minimum balance in the account. When they are desperate for cash they regard this minimum balance as a waste of their monies.
Farmers are aware that they will have to settle for low producer prices when they sell through middle men. However they are forced to do so due to a number of reasons. These include need for money to do the following:
- pay school fees at the beginning of the year;
- procure chemicals for spraying the cotton and
- for other pressing needs in the household.
Companies buying field crops on contract have very limited capacity to offer extension services to the growers since the farmers are many and scattered throughout the country. Therefore AGRITEX extension workers provide the extension services as part of their normal duties. The representatives from the companies then liaise with the extension workers in identifying the area where more emphasis or knowledge would be required. In some cases field days are held at which the farmers are shown how the crop can best be produced in their own environment. Farmers are also free to get advice directly from the companies’ agronomists. However this is expensive since it usually involves travelling to the company premises. It is only used as a last resort.
4.6 Production inputs
The companies source and sell the seed to grow the crop they will be interested in. This is given on credit. Chemicals required in the production of the crop are also sourced by the companies and sold at cost.
COTTCO provides loans for the production of cotton. In Shamva, when farmers who had taken out loans did not deliver cotton to Cottco and when it was clear that the cotton had been sold through other channels, the farmers’ assets were attached to COTTCO. It would also mean that the farmer would not be eligible for receiving loans in future. The other companies like Cargill do not give loans. They simply want the farmer to deliver the produce and the farmer is paid promptly. Since COTTCO has to check its records to establish whether a farmer was given a loan, it pays out $150.00 per bale on delivery. The rest of the payment is made out after two weeks.
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Olivine Industries sells the seed required for production of the bean variety they are interested in. Due to high administration costs it is not able to give out the seed as loans.
The tobacco marketing act stipulates that all tobacco has to be sold through established auction floors. The activities of both the producers and buyers are regulated by the Tobacco Marketing Board. All producers are licensed to produce the crop. They also furnish the TMB with the acreage and expected output from the planted area. The declared output is then brought before the auction floors of the farmer’s choice. Therefore sub-contracting is illegal and can not be practised since there are checks along the away which would get those who breach the rules. Speculators have to buy the crop from the auction floors. They can then regrade the crop, repack and bring it to the auction floors for final sale. However this has to be done within the limited time when the auction floors are open.
For Oriental tobacco, the quantities produced are not yet large enough to be sold through the auction system. TMB licences those who want to buy the oriental tobacco. However no contracts into the production of the crop are entered.