Ministry Mops Up Contract Farming Provision

Financial losses due to contract farming are poised to be addressed with renegotiation according to the Ministry of Agriculture’s bill drafted to tie up loose ends on implementation. Officials hope to revolutionise the agricultural sector with the bill curtailing the seven-month-old law, which is expected to eliminate side hustles resulting in millions of birr losses. Farmers often find themselves at a disadvantage during pre and post-harvest periods or sudden scarcity of resources, limiting their output without legal recourse to renegotiate prices. The lack of well-defined modalities for renegotiating prices based on changes in production quantity and quality has been at the core of the problem.

Recent instances in Amhara Regional State, where four million quintals of produce were abandoned by investors claiming a sharp fall in international prices and dwindling exports, serve as stark examples of the challenges. The bill currently under consideration introduces competency certification, bank statements, investment licenses, and offices as prerequisites for engaging in contractual farming agreements with farmers which is expected to bring accountability. Sultan Mohammed, contract farming director at the Ministry, emphasised the importance of legal structures to safeguard the interests of both parties involved.

“Inept investors had taken advantage through loopholes,” Sultan underscores.

The Director observes that some farmers also use inputs for purposes outside their initial agreements for consumption or putting it on the market. With the bill, renegotiations are possible when failure to deliver quality inputs and technical assistance or shortcomings to meet the demand without unprecedented disruptions. Studies estimate the income variation between contracted farmers over those operating freelance can reach up to three quarters. The integration of small-scale farmers into global agricultural value chains brings technical assistance, market access, and reliable inputs.

Known for its lush coffee and tea farms, the Southwest Regional State has ventured into contract farming, doubling the yield from a couple of years ago. Last year, around two million quintals of crops were produced through contract farming arrangements between 409 investors and close to 1,750 farmers across three zones. While farmers’ livelihoods are reaping significant benefits, conflicts persist. Mitiku G. Mariam from coffee tea & spice directorate in the regional state, points to the lack of contractual clarity on prices and quality standards as the primary cause.

“Accountability can only come from clarity,” he told Fortune.

While contract farming creates a stable market for farmers and a reliable supply for buyers, the development of technical expertise and a strong judicial system to offer recourse in case of contract breaches are critical pillars, according to industry players. Tongo Import & Export has maintained a steady supply of red kidney beans and soybeans for nearly 421 farmers for the past 12 years. Although 12,000qtl of yield was harvested last year, nearly 20pc of the yield was rejected for the United States and Dubai markets due to quality issues.

Despite facing challenges such as the lack of skilled farmers and improved seeds, Hussien Kebero, an operational manager, observes potential in the contract farming landscape. “Side selling was still an issue,” the manager ruefully told Fortune, expressing his hope the loopholes would be addressed in the directive. He points out that contracts with prices above 10pc of the prevailing market rate are signed to leave room for fluctuations.

As the directive awaits approval from the Ministry of Justice, those in the agriculture sector express optimism that the proposed changes will lead to a more equitable and transparent system.

Ashebir Belay shares his farming struggles over the past two years despite the agreement. As one of the 175 members of the Michiti Tea Producers Association in Southern Regional State, Ashebir strictly provides his produce to Wush-Wush Tea Development Enterprise. The father of three has been selling for about 10 Br a kilogram despite production challenges fueled by high costs. However, the price caps decided by the Enterprise have left him feeling that the quality stipulations are a mere pretext for buying at a lower price.

“I sell at whatever price they decide,” he said.

Despite a parliamentary nod to prepare the contract farming framework dating six years ago, officials indicate that the number has doubled since the proclamation approval of four types of contractual arrangements with the Agricultural Ministry setting exportable commodities as a top priority, signalling the potential for growth in the sector. Nearly 600,000 farmers across three regional states (Oromia, Amhara, and Southwest) and 656 cooperative unions produced 16 million quintals last year.

As Ethiopia charts its course toward a more robust agricultural sector, the proposed changes in contract farming regulations play a pivotal role. Agricultural economists like Abebe Dagnew (PhD) place much of the blame on investors for undermining the potential benefits of contract farming. He points to the shortage of quality seeds provided by investors and their subsequent failure to meet initial price agreements as underlying causes. He observes the illiteracy of farmers who might not understand contractual obligations as an enduring challenge, indicating that building trust is an important factor.

“There are deeply embedded issues,” he told Fortune.

The expert based in Gonder highlights the need for comprehensive government intervention to improve implementation capacity, enhance the skills of smallholder farmers, and address logistics hurdles in challenging political environments.