BRAZIL
Illycaffè, Italy
The company. Illycaffè is an Italian coffee roaster that, among other products, markets worldwide an elite arabica coffee brand. The company is a major purchaser of superior-quality Brazilian green coffee, which makes up 60 percent of its coffee blend.
The markets. Illy coffee is marketed in 70 countries worldwide through 40,000 outlets, which serve an estimated five million cups of coffee daily. During the early 1990s, coffee beans exported by Brazil were often of low quality, with 70 percent of supplies submitted to Illy's strict selection process being rejected. It was essential for Illy to identify Brazilian producers who could supply fine coffee beans, meeting the company's quality standards and enabling it to purchase quality raw materials directly from suppliers.
The linkages. The company instituted in 1991 an annual competition (Prêmio Brasil De Qualidade Do Café Para Espresso) for Brazilian growers of the best green coffee. The winner receives a cash prize of US$30 000 and a 30 percent premium price over the market price for the winning coffee lot. Second prize is US$20 000 and so on, with even the 10th place finisher receiving $1 000. Over 600 small and large Brazilian producers now take part in this competition. Prize rules give Illy preferential rights to buy the lots submitted by all 50 finalists. Illy's incentive approach has stimulated the development of relatively unknown regions producing fine coffees, such as Cerrado Mineiro, 'discovered' in the 1991 competition and today an international "signature" for quality products. Illycaffè encourages producers to invest in quality by paying them prices above the market average.
The company buys certified Brazilian coffee beans in sealed lots directly from the producer. To expand its supplier base, the company reduced its minimum lot quantity from 150 to 100 sacks, allowing small-scale producers to aggregate their production.
Training and support services. In addition to the Brazil Award, Illy has instituted, in cooperation with the School of Economics and Business of the University of São Paulo, the Illy Coffee University (Unilly), dedicated to sharing information on coffee production as a chain of economic activities, ranging from production processes to management techniques. Since it opened April 2000, Unilly has held short courses, workshops and seminars attended by more than 2 200 people. Illycaffé also created in 2000 the Illy Coffee Club to bring together Illy's key suppliers. Club members take part in promotions of Illycaffè products, receive market information updates and participate in technical training and development programs.
The results. The company has secured a supply of coffee that meets its demanding quality standards, the Brazil coffee industry has enhanced its reputation as a quality producer and Illy growers enjoy higher profits.
Source: Alianzas Productivas: Estudio de Caso - "Illycaffè e os desafios do crescimento no Brasil" (FAO/RLAC, 2001)
ECUADOR
Summer Flower Production, Ambato Tungurahua province
The company. The firm is a summer flower producer and exporter located on 26 hectares in a valley near Ambato , in the Tungurahua province. Ambato is a commercial center of about 250,000 that supports the nearby rural areas that have tr aditionally produced a range of fruits and vegetables for domestic consumption. The farm employs 126 people and produces 19 varieties of summer flowers primarily for the US export market. The dollarization of the Ecuadorian economy in 2000 caused a substantial increase in labour costs thus providing the incentives for the initiation of con tr act farming with local farmers.
The farmers. The region near Ambato has traditionally been an important agricultural region. Farmers in the region typically produce vegetables on small plots of land (<800m 2 ). Farmers face unstable market prices for vegetables due to fluctuations in supply and demand dollarization.
The markets. The company markets its flowers for export through a webpage. Approximately 80 percent of production is sold in the US marketplace to the US supermarket industry. The remainder is sold in Canada and Europe . The US mass market is highly price sensitive with extremely small margins.
The linkages. The company initiated an informal contract production model with twenty small vegetable growers producing a total of five hectares of larkspur. The contract is seasonal. Farmers easily rotate larkspur production into their standard vegetable crop rotation and production methods. The only restriction is that larkspur cannot be planted on the same plot of land until at least five other crops have rotated through the plot, to prevent soil-borne diseases. The contract farming agreement is verbal one, but reinforcing incentive structures produce positive outcomes for both parties. This is because: (1) dollarization has provided a stable business environment; (2) contract farming was a commercial decision; (3) extension and technology assistance reinforced the mutual commitment; and (4) Larkspur's low production risk, location specificity and rotation requirements provided low entry barriers for new farmers; (5) cost and price transparency properly aligned incentives on both sides; (6) a business leader was critical to the projects success; (7) technological spillovers from cut flowers benefit contract farmers in vegetable production.
Training and support services. The contract farmers receive larkspur transplants on credit. They also receive free training from the flower farm's production technician to ensure the flowers meet export quality standards. This is important for the success of the contract farmers because they lacked previous experience producing cut flowers. Technicians visit twice a week making pest control, fertilizer application and harvest recommendations.
The results. The contract model has been operating successfully for the past three years. The flower farm has been supplied with sufficient larkspur for its export market needs at a price lower than it could produce for and has gained increased flexibility. The contract farmers earn nearly three times as much profit per square meter producing export cut flowers as opposed to vegetables for the local market with minimal disruption to their normal rotation or production practices. Additionally, the vegetable farmers gain access to the country's third largest export.
Lessons and distinct features. This is an example of contract farming initiated by a private domestic firm as a response to increased labour costs. The strong commitment of the flower farm and the technician as well as the farm's close ties with the community and a thorough understanding of the market and production have been a big part of the success. Early on the flower farm secured the support of a key farmer, very well known and respected in the community. He acted as the business leader, willing to take the initial risk of producing cut flowers.
Source: Meredith Blumthal and Hamish Gow , University of Illinois at Urbana-Champaign
GHANA
Blue Skies Company Ltd
The company. Blue Skies Company Limited is located about 25km north of Accra near Nsawam, in the Eastern Region of Ghana. Established in 1998 by an expatriate, the company processes fresh chilled pineapple, mangoes, watermelon, passion fruit and papaya for export. Blue Skies' products are certified to meet the EUREPGAP protocol for quality practices. Fruits processed by Blue Skies are sourced mainly from the Eastern and Central regions of Ghana, with supply gaps being filled by imports from Brazil, Egypt, Kenya, South Africa and the UK.
The markets. Blue Skies targets the high value end of the European market and exports its fruit products to major European supermarkets.
The linkages. Linkages between farmers and the company were established through visits and meetings, and further strengthened with the introduction of EUREPGAP certification. The company has taken on the technical and financial responsibility of certification for all its suppliers. Those who are EUREPGAP-certified are obliged to sell to the company because of the investment it makes in obtaining certification. The company sources from some 135 suppliers, including 77 small-scale producers of pineapple who have recently been certified as organic Fair Trade. Blue Skies operates with individual farmers and not cooperatives. Fruits are delivered either to the factory or the farmgate and are paid for two weeks after delivery. The company does not provide credit to farmers nor links them to any financial agents, but does offer inputs and equipment on hire-purchase without interest.
Training and support services. Farmers receive free technical training and advice from Blue Skies staff to ensure that produce meets safety and quality requirements, and experts from Europe and South Africa visit farmers to ensure that they comply with EUREPGAP standards. Blue Skies has also adopted a code of responsible business practice that is partly in response to demands by its major customers, but extends beyond the minimum guidelines required by buyers. The company has developed social, environmental and safety standards for its suppliers as well as its operations inside the processing factory, including permanent employment contracts, medical insurance and social security benefits for employees.
The results. Since it began operations, the company has grown rapidly, increasing its processing capacity from one metric ton to about 120 metric tons of fresh fruit per week. Blue Skies is known to pay its farmers promptly and also to offer a higher price per kilogram of pineapple than other companies in the Nsawam area. With prompt payment and higher prices, farmers are encouraged to save and invest in their farms and communities.
Lessons and distinct features. The strong commitment and team spirit of Blue Skies management and staff, the company's close link with its customers and a thorough understanding of market demand have been the major contributing factor to the success of its business. Training in EUREPGAP standards and certification of farmers, as well as prompt payment and competitive prices, has ensured regular supplies from producers. Improvement in road infrastructure has enhanced access of farms by company trucks, which reduces the burden on farmers to transport produce to the processing plant.
Sources: Angela Dannson, Stephanie Gallat and Alexandra Röttger
INDONESIA
"Bali Fresh" vegetables
The farmers. Sixty female farmers in the Kintamani and Karangasem areas of Bali are producing a wide range of vegetables. This number is due to increase to one hundred in the near future.
The market. This is provided by the company PT Dif Nusantara, which markets produce under the "Bali Fresh" brand. It was seeking additional, reliable and safe supply for the Bali hotel, restaurant and supermarket sectors, and also for export (e.g. cherry tomatoes to Singapore).
The linkages. The company initially approached a few women living in a relatively poor area of Bali to identify their interest in farming. Land was rented for the women and also for a company nursery which tests varieties and growing methods and provides the farmers with seedlings which, because of its specialized facilities, are of higher quality than the farmers can produce themselves. Depending on crop type harvest can start just four to twelve weeks after planting, permitting a rapid response to customer needs. After harvest the produce of each Female Farmer (some farmers work in groups) is weighed and registered. It is then packed and transported in cold storage trucks to the processing and storage facilities of PT Dif Nusantara in Sanur, Bali where washing, grading and packing take place.
Training and support services. The company assisted with land clearance and preparation and installation of irrigation equipment. Considerable training of the farmers has been carried out and learning by doing has been an important part of this. Monthly Female Farmers meetings are organized. Vegetables are marketed as "Bali Fresh Female Farmers Partnership". The company employs extension and marketing staff in the production areas. Marketing staff monitor crop growth and try to ensure continuity of supply to meet the needs of the market. Since starting this Partnership the company has been successful in attracting support for the women from various aid agencies; such support has been used to establish a revolving fund for input payment, and provide literacy and bookkeeping courses.
The results. Female farmers now earn over twice the minimum wage. Following bomb attacks on the island there had been a collapse in the local economy and there were few income-earning opportunities for such women.
Lessons and distinct features. This is an example of a linkage developed directly by a company without initial external support. Although the venture subsequently generated external funding this came about only after the success of the venture had already been demonstrated. Traders who lack suitable supply can be proactive in seeking new supply sources even, as in this case, from people who had little or no farming experience.
Source: Andrew. W. Shepherd, FAO and Ronald Serhalawan, "Bali Fresh".
KENYA
Brookside Dairies Ltd
The company. The Brookside Dairies Ltd was established in 1993 with an initial processing capacity of 5,000 liters of milk per day. The main plant is located in Ruiru, 25 km from Nairobi and is now supplied by more than 15,000 dairy farmers.
The markets. Milk processed by Brookside is sold in Nairobi and other urban centres.
The linkages. Brookside Dairy Ltd has developed an elaborate relationship with farmers in order to ensure a regular supply of raw milk for processing. The firm initiated this relationship though farmers themselves introduced subsequent refinements, such as provision of some services. Milk farmers are organized and registered as suppliers through a formal supply contract, which indicates how much milk each farmer will deliver daily. These arrangements are an important planning tool for the company, determining capacity utilization and ensuring optimal use of its transport fleet. Farmers are normally grouped into collection centres, which serve to collect milk and provide a service facility where farmers obtain inputs. At the delivery centre, raw milk is entered into each farmer's account after it has been tested for quality. The firm then collects the raw milk for transportation to the processing plant in Ruiru. Collection centres have been established in all major producing areas.
Training and support services. Brookside Dairy Ltd provides extension services, artificial insemination and quality veterinary drugs, as well as animal feeds sourced from reliable companies at wholesale prices. These are resold to dairy farmers through the collection centres. All the above services are provided to farmers on credit, which is then deducted from milk proceeds. The prices charged by Brookside Dairy Ltd are generally wholesale prices plus a small margin to cover transportation and other overhead costs.
The results. By 2001 the firm had increased processing capacity to 200 000 liters per day to become the leading milk processing firm in Kenya, commanding about 40 percent of urban market for processed milk.
Lessons and distinct features. With an assured market and price for milk, farmers enjoy a low-risk environment - major farm decision parameters, such as price, market outlet, sources of production inputs and their costs, are all certain. Farmers are thus able to engage in dairy production with a clear idea of expected revenue/expenditure profiles. The provision of material inputs, such as animal feeds, at the collection centres has other benefits for farmers in terms of pricing, regularity of supply and quality assurance.
Source: "Farm-agribusiness linkages in Kenya", by Tom R. Wambua - a report prepared for FAO, 2002
NIGERIA
Guinness Nigeria Plc
The company. Guinness Nigeria Plc is a multinational company that has been in the brewing business in Nigeria since 1950. Between 1995 and 1998, the company ran an outgrower scheme with farmers in Kano, Kaduna, Katsina and Taraba States, primarily for the promotion of the ICSV 400 sorghum variety. Following termination of the scheme, due to supply problems, the company uses agents or trusted suppliers.
The markets. Sorghum is used to brew beer. Guinness invested in the outgrower scheme to benefit from high profit margins on local raw materials. In addition, the source of local raw materials could be traced to the producers and monitored if standards and quality requirements were breached.
The linkages. In the four years that the company ran the outgrower scheme, farmers were required by formal contract to produce a field of pure ICSV 400 sorghum. Contract farmers were closely monitored during planting, thinning, top dressing and harvest. The company pulled out of the scheme in 1998 after some farmers failed to honour contracts or diverted the fertilizers provided to alternative crops, such as vegetables. In addition, farmers did not follow technical advice and recommended planting dates. The current approach, using buying agents or trusted suppliers, also requires a formal contract. The company receives applications or letters of intent from prospective suppliers, then issues a local purchase order to the buying agent to supply grains within a specified number of days to the company's buying centres. The order specifies quality requirements, such as percentage of insect damage, weather damage and foreign matter content. The price paid is based on the prevailing market price but usually also covers market charges, transport, handling charges and a premium.
Training and support services. In the four years that the company ran the scheme, it provided seed, and basal and top dressing fertilizer to farmers in the four States.
The results. While the company would have preferred a farm-gate scheme to avoid intermediaries, the fact that farmers were scattered all over the country led to very expensive bulking logistics. Buying through agents and traders tends to satisfy the company's grain requirements.
Lessons and distinct features As with many contract farming arrangements, the failure of farmers to honour contracts proved an insurmountable problem. The experience of Guinness Nigeria Plc illustrates that partnerships between farmers and agribusiness firms may be more successful in areas where the firms make a conscious effort to promote and encourage farm-level production without necessarily becoming involved in actual production.
Source: "Farm-agribusiness linkages in Nigeria", by Chuma Ezedinma and Patrick Kormawa - a report prepared for FAO, 2002
SOUTH AFRICA
Sappi-Saiccor Timber Company's "Project Grow" Programme
The company. The Sappi-Saiccor Timber Company produces dissolving pulp made from eucalyptus and wattle. It is supplied by a range of company and contracted timber growers in Kwazulu-Natal, Mpumalanga, the Eastern Cape and the Highveld. The timber supply operation is co-ordinated by Sappi-Saiccor and the Sappi Forest Division, which controls the activities of all growers. Apart from company plantations and medium- to large-scale contracted farmers, Sappi-Saiccor is supplied by some 7,000 small-scale contract farmers incorporated in Sappi's "Project Grow" programme, which aims at converting rural subsistence farmers into emerging commercial operations. These farmers (of which some 80 percent are women) occupy on average 0.6 hectares and are located within a 100 km radius of the company mill. Management of Project Grow is contracted to Lima, a rural development NGO.
The markets. The South African forestry industry is an important player in the South African economy. It makes a significant contribution to foreign trade, with forestry products accounting for 8 percent of South African exports in 2000/1. The industry has demonstrated a consistent annual growth of 8% over the last ten years and is one of the most internationalized industries in the national economy.
The linkages. All contracted suppliers are required to enter into a timber purchasing agreement with Sappi Forest Division that specifies the commencement and duration of the relationship, the total tonnage to be delivered to the mill during the period of the contract and the annual tonnage. It also specifies the price that the company will pay for the tree species to be delivered or, alternatively, an annual price. Specifically for small-scale suppliers, the "Grow agreement" commits the Sappi Forest Division to provide, via the management NGO, an initial interest-free loan for planting, maintaining and weeding the timber, and to provide seedlings. The grower must arrange for permits and licences, and undertakes to comply with Sappi Forest's environmental and silvicultural standards. The grower is obligated to sell the timber to Sappi Forest and the timber must comply with the stated mill specifications. The price paid is negotiated between the parties and will generally be the prevailing market price. All risk of damage remains with the grower until the timber has crossed the weighbridge, although timber that does not meet mill specifications may be rejected.
Training and support services. Lima's six extension officers and eight field assistants visit the small-scale growers frequently to provide assistance with weed control and the preparation of fire breaks. Sappi Forest, if requested by the growers and Lima, may also assist during negotiations with harvesting and transport contractors.
The results. Sappi Forest Division has invested in excess of R10 million in Project Grow and a total area of 4,223 ha is currently being managed under the programme. Timber deliveries in 2001 were in excess of 1,500 tons per month, generating some R2.6 million for the season. Contractors assist the growers with the planning and harvesting of their plots. The project generates considerable revenue for local communities, with an estimate of 50% of turnover retained within the community as a result of payments to local contractors, 42 percent retained by the grower and 8 percent refunded to Sappi as loan repayments.
Lessons and distinct features. Project Grow has successfully incorporated large numbers of small farmers in the timber-growing operation of an agribusiness partner. However, the high level of company support to the growers has resulted in a cost to Sappi Limited in excess of R10 million since 1989. The withdrawal of its support could result in the abandonment of the project, since the smallholders appear unlikely to organize their own affairs through a farmers' association.
Source: "Farm-agribusiness linkages in South Africa", by Johann Kirsten and Kurt Sartorius - a report prepared for FAO, 2002
SOUTH AFRICA
Transvaal Sugar Company
The company. Transvaal Sugar Limited (TSB) was founded in 1965 and operates in the province of Mpumalanga with offices in Johannesburg and Durban. With 4 000 employees, TSB has the capacity to produce 350 000 metric tons of sugar annually from its two factories. Sugarcane is supplied by company estates and a range of contracted large, medium and small-scale growers. Contracted medium-large growers are characterised by modern, capital-intensive, mono-cropped sugar cane production systems with high levels of management inputs. Small-scale growers include more than one thousand farmers belonging to thirty-two different supplier groups. The average farm size of these growers is 6.8 hectares.
The markets. The South African sugar industry produces an average of 2.5 million tons of sugar of which 50 percent is exported to markets in Africa, the Middle East, North America and Asia. These exports contributed R 1.9 billion to the country's foreign exchange earnings.
The linkages. The contractual arrangement between outgrowers and TSB is controlled by a cane delivery agreement, which specifies conditions and obligations that bind the respective parties over long periods of time. The price paid to outgrowers is determined by the South African Sugar Association which sets the division of the proceeds from sugar sales between growers and millers. As smallholders incur higher levels of start-up costs and transaction cost in all phases of the growing operation, they receive company assistance in financing, training, land preparation, the installation and maintenance of irrigation equipment, planting, weeding and fertilizing. Small-scale growers also require higher levels of company inputs to guide and co-ordinate harvesting and delivery transactions. Conversely, larger farmers interact on an occasional basis with TSB and transaction costs for the company are much lower.
The results. The TSB milling operation processes around 19 000 tons of sugarcane per day or an annual volume of around 3.6 million tons of sugarcane, entailing 136 000 deliveries.
Lessons and distinct features. Grower performance, analysed between 1998 and 2001, indicates that smallholder production efficiency matched that of the company estates. These results illustrated that while small-holders incur higher levels of transaction costs, they are able to compete, in terms of production efficiency, with larger contracted growers.
Source: "Farm-agribusiness linkages in South Africa", by Johann Kirsten and Kurt Sartorius - a report prepared for FAO, 2002
VIET NAM
Nghe An Tate & Lyle
The company. Nghe An Tate & Lyle (NAT&L) is a joint venture between a local state-owned company, Nghe An Sugar Co. (NASC), and an international consortium, Anglo-Vietnam Sugar Investments, that was licensed in February 1996 and operates a factory in Vietnam's North Central Coast region. Most of the growers in the region were subsistence farmers and therefore unable to invest in the new crop. Credit is thus an indispensable component of cane-growing since it takes about 14 months between planting and harvesting of the first crop. The total investment for a new crop, including land preparation, seedlings, fertilizer (NPK and Urea), ranges up to US$300 per hectare.
The markets. Foreign investment in the sugar processing industry of Viet Nam came in response to a strong domestic demand for soft drinks, confectionary and ice-cream products.
The linkages. The project focused on the disbursement of working capital to growers in the form of short-term loans. As an initial investment NAT&L covered expenses for a total of 2 000 hectares, providing either cash subsidies worth US$65 a hectare or free seeds and fertilizer worth about US$300 a hectare. Since credit distribution to a large number of clients was very expensive, it was decided to form member joint-liability groups (JLGs), each consisting of about 50 members, governed by a board. To reduce handling costs starting capital was disbursed from the district office of the Vietnam Bank for Agriculture and Rural Development (VBARD) to the joint liability groups. Thereafter, each group became responsible for disbursement to the members. JLGs members shared liability for credit and repayments, and savings were mandatory. In the initial stages, the liquidity of the group was equal to the total amount of initial and compulsory savings. When this amount had fallen to the 10 percent of the total balance, the surplus could be used for lending to members. Loans or starting capital from VBARD's district branches to the groups were repaid, in installments, over four years.
Training and support services. Local government invested funds in promotion of cane-growing and provided a subsidy of US$28 a hectare to those wishing to engage in cane cultivation. The distribution of credit was integrated with advice on financial management and training.
The results. By August 1999, joint liability groups representing 8,674 growers and cultivating 5 702 ha had taken loans up to a total amount of nearly US$1.57 million. In the beginning of 2004, the total number of growers had increased to more than 18 000.
Lessons and distinct features Foreign direct investment provided opportunities for smallholder producers after they were organized into joint liability groups. An essential ingredient for the successful organization and integration of the smallholders was an extensive credit programme that was offered as a package with training.
Source: "Regoverning Markets: Global Issue Paper 2", by Dave Boselie and Petra van de Kop (Royal Tropical Institute, The Netherlands)
ZAMBIA
Warehouse receipt system
The system. In 1992, the UK Department for International Development (DFID) began supporting research by the Natural Resources Institute (NRI) into developing a warehouse receipts system to address smalllholders' storage problems. Under a project initiated in 2000, NRI helped establish the Zambian Agricultural Commodity Agency (ZACA) Ltd., representing various agricultural industry stakeholders, such as farmers, traders, millers, bankers, insurers, warehouse operators, inspection companies and NGOs.
The markets. Small-scale maize farmers in Zambia typically sell their crop immediately after harvest, when the market is swamped, to satisfy immediate cash needs. Their lack of marketing information and storage means that traders are able to buy their output at comparatively low prices. However, seasonal price rises mean that it could be profitable for small farmers to deposit maize in a certified warehouse immediately after harvest, selling it later when prices go up. Moreover, their immediate cash needs could be met by loans secured against the deposited crop.
The linkages. ZACA inspects warehouses and certifies them as suitable to hold crops on deposit. The warehouse receipt system became operational in Zambia during the 2003/2004 season and now involves four certified warehouse operators. When a crop is deposited, the operators issue receipts against the commodity, describing its weight and grade, and store it until the depositor wishes to collect it. Since the crop is guaranteed by ZACA, the depositor can also secure a loan from any financial institution using the grain as collateral, which relieves pressure to sell the crop immediately for ready cash. The warehouses also provide a market place, where traders can buy in bulk. While most maize deposits in ZACA-registered warehouses to date have been made by traders and commercial farmers, attempts have been made by one warehouse operator (who is also a trader) to encourage groups of smallholders to use the facility. Such groups must deposit a minimum of 30 tonnes, equivalent to one truckload, in a certified warehouse operated by the trader, who guarantees to buy the maize wherever the group wishes to sell, at the prevailing market price.
Training and support services. The warehouse receipts system in Zambia was funded by the Common Fund for Commodities, with co-financing by USAID, Netherlands, IFAD, and the Government of Zambia. Services provided include training for warehouse operators and inspectors. IFAD has provided technical assistance to farmer groups wishing to benefit from the programme.
The results. By 2004, about 66 000 tonnes of grain were deposited in the ZACA-certified warehouses, of which 2 100 tonnes were the property of smallholder farmer groups. Four financing banks are participating in the scheme.
Lessons and distinct features. NRI sees the warehouse receipt systems as a means to improve marketing systems to better serve smallholder farmers and consumers.
Source: Natural Resources Institute
THAILAND
"Swift Co., Ltd" vegetables
The farmers. Forty-seven farmer households growing certified organic asparagus in Srakaew Province are part of a special group of poor smallholders cultivating land belonging to the Royal family. Once farmers on this special site are deemed financially better off than when they joined the group, they are asked to leave the site to join other groups of farmers under contract with Swift. This enables other poor households to enter the group and benefit from its advantages.
The market. Swift Co., Ltd is the sole outlet for the organic asparagus of the farmer group. Swift supplies fresh, frozen and precut fruits, vegetables and herbs to export customers in the United Kingdom , Japan and the Middle-east. The customers are very demanding; they require produce that is certified as organic according to their country's standards. Swift takes responsibility for the certification and thus pays for several certifications on behalf of the farmers' group.
The linkages. The farmers are given 2 rai (1 rai = 0.16 ha) of land each free of any lease The land is located on Royal property given out to Swift to implement contract farming of organic asparagus. Swift signed an initial exclusive supply contract with the farmer group in 2002. The company trains these farmers on organic production methods and buys the whole harvest from them at a fixed price. This price is fixed for the duration of the contract of three years. A second contract was signed in 2005.
Training and support services. Swift provides training on production techniques to the farmers, all of whom had no prior experience of growing organic asparagus. The company pays a resident agronomist on the farm site to monitor the asparagus cropping season and train farmers. Swift had the farmers nominate the staff responsible for weighing the harvest in the collection hall. After being trained by Swift, the weighing agents are thus trusted by both farmers and Swift to take an accurate measure of the quantities of the different asparagus grades supplied, which determines the sales price paid to each farmer. Swift organizes transport in refrigerated trucks to the packing house, washing, packaging, processing and marketing of the crop. Swift has also introduced a traceability system that can identify each bunch of asparagus back to the individual farmer household.
The results. The average revenue for a household cultivating 2 rai of asparagus is around $5 500 per year. This revenue is spread out throughout the year. Households usually spend half this income to pay for production inputs and to pay for their food. This leaves a sizeable income for further investment and other living expenses. The start and end of resting periods are monitored by the resident agronomist so that he can estimate the quantities produced by the farmers' group. In this way, Swift can adjust its sales plan and coordinate the production with that of other farmers' groups. Both farmers and Swift appear very satisfied with the arrangement. The former receive valuable and practical training in production and a guarantee that their entire production will be sold. The latter are assured of the quality standards of the produce for their demanding overseas customers.
Lessons and distinct features. The model implemented by Swift is interesting as a successful model of contract farming and capacity building of farmers leading to agricultural innovations and sustainable development. Nonetheless, the farmers' group in Srakaew Province benefited from special conditions, given that they did not have to pay any rent for the land they were cultivating. The exact replication of this particular model may therefore be difficult.
Source: Jean-Joseph Cadilhon and Ralph C. Houtman,
FAO and Paichayon Uathaveekul, Swift Co., Ltd |
