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Collaboration entre les grands investisseurs commerciaux et les paysans locaux: le cas du secteur du sucre au Mozambique

Dans la nouvelle économie de marché mozambicaine, la collaboration entre les communautés et le nombre croissant de grands investisseurs commerciaux dans l'agriculture pourrait être un moyen efficace de concilier le besoin d'attirer des capitaux dans le secteur, tout en se souciant de la pauvreté et de la sécurité alimentaire des populations rurales. Ce principe, cité dans la Loi foncière de 1997, est explicitement reconnu dans les documents des stratégies du gouvernement pour le développement du secteur agricole. Mais, en l'absence d'une politique proactive visant à favoriser et à promouvoir une collaboration concrète, il restera lettre morte. Le cas du secteur du sucre est emblématique sous plusieurs aspects. Les investisseurs étrangers, concernés par la réhabilitation des complexes agro-industriels sucriers autrefois étatisés, n'ont pas intérêt à mettre en marche une collaboration économique avec des paysans mozambicains non qualifiés et sous-capitalisés. Une attitude de laisser-faire du gouvernement se traduira par des possibilités de développement perdues, dans le meilleur des cas, et par des conflits territoriaux dans les zones de production de sucre, dans le pire des cas.

Alianza entre los grandes inversores comerciales y los agricultores locales:

el caso del sector del azúcar en Mozambique

En la nueva economía de mercado de Mozambique, crear alianzas entre las comunidades y el creciente número de grandes inversores en la agricultura podría servir para atraer capital hacia el sector sin dejar de lado en ningún momento la pobreza y la seguridad alimentaria de la población rural. Este principio se basa en la Ley de la Tierra de 1997 y de él se habla explícitamente en la estrategia del Gobierno para el desarrollo del sector agrícola. Sin embargo, esto no será posible sin una política a favor de la acción que facilite y promueva una alianza eficaz. El caso del sector del azúcar es emblemático por muchos motivos. Los inversores extranjeros empeñados en la rehabilitación de las que fueron fábricas de azúcar y fincas públicas no tienen incentivos para comenzar las alianzas económicas con los agricultores mozambiqueños no especializados y mal pagados. En el mejor de los casos, la actitud de dejar actuar al gobierno les hará perder una valiosa oportunidad de desarrollo rural, y en el peor, generará conflictos de tierras en las zonas de producción del azúcar.

Partnership between local peasants and large commercial investors: the case of the sugar sector in Mozambique

A. Marini

Alessandro Marini is an economist at the National Sugar Institute, Ministry of Agriculture and Rural Development, Mozambique

In the "new" Mozambican market economy, partnerships between communities and the growing number of large commercial investors in agriculture could be an effective way to reconcile the need to attract capital to the sector with concerns for poverty and food security of the rural population. This is the principle behind the Land Law of 1997, and it is explicitly recognized in the government's strategy for development of the agriculture sector. But in the absence of a proactive policy to facilitate and promote effective partnerships, it will remain a dead letter. The case of the sugar sector is emblematic in many respects. The foreign investors involved in the rehabilitation of the former public sugar factories and estates have no incentive to start up economic partnerships with undercapitalized and unskilled Mozambican peasant farmers. A laissez-faire attitude by the government will result, in the best scenario, in missed opportunities for rural development or, at worst, in land conflicts in sugar-producing areas.


Shortly after obtaining independence from Portugal, Mozambique entered into a civil war between the ruling Marxist Frente de Libertação de Moçambique (FRELIMO) government and Resistência Nacional Mocambiçana (RENAMO) opposition forces. During the war, which lasted for more than 15 years, the country experienced an exodus of the population from unsafe rural areas towards other more protected rural areas, urban and peri-urban areas and neighbouring countries.

In October 1992, at the end of the war, more than 6 million people (slightly less than half the population at that time) were either internally displaced or refugees outside the country. Vast rural areas were underpopulated or even abandoned, and infrastructure and services had almost completely collapsed. The postwar years saw a massive return of the population to rural areas, opening and expanding farms and reactivating agricultural production.

Meanwhile, by the end of the 1980s the Mozambican government had embarked on a structural adjustment programme under which it gradually abandoned the socialist system to embrace the market economy. The country's remarkable success in stabilizing its macroeconomic environment, together with its rich natural resources and the ambitious privatization programme being undertaken, soon attracted the interest of foreign investors, in particular from richer neighbouring countries.

Apart from these incentives, regional investors from South Africa, Mauritius and Zimbabwe, who account for a considerable share of the actual investment in the agricultural sector, were driven into Mozambique by difficult socio-economic conditions in their own countries, in particular land shortages, rising labour costs and social tension.

The return of millions of people to rural areas and the surge of interest mainly (but not only) of foreign investors in the natural resources, combined with the rapid population growth and limited off-farm employment opportunities, create the potential for land conflicts. However, although some competition over natural resources can occur between local peasants and large commercial investors, in the context of the "new" Mozambican market economy, capital investment in agriculture plays a crucial role in increasing the incomes and food security of rural households.

The challenge for the policy-maker is to look beyond the rigid dichotomies of small-scale growers versus large-scale commercial growers or peasants versus agro-industrial enterprises to understand the high potential for interlinkages and complementarities between these two groups. This article looks at Mozambique's sugar sector from this perspective to illustrate the range of policy issues opened up by this new attitude.

The first section reviews some theoretical issues concerning the interrelationships between large commercial investors and local peasants in cash crop sectors in developing countries. After a brief discussion of the different possible modes of production, the main factors determining choice are considered.

This is followed by a discussion of the sugar sector in Mozambique and an analysis of the factors behind the choice of mode of sugar-cane production by the large foreign investors involved in the rehabilitation of the industry.

Finally, some conclusions are drawn and policy recommendations made for this specific case, which could, however, be widely applied in other contexts.


Vertical integration, spot markets and contract farming

Cash crop production in developing countries has historically been organized according to a plantation system. The main features of this system are:

From the 1960s, radical changes have shaped the structure of many plantation sectors. In some cases, foreign ownership has retreated in the face of the nationalization of newly independent countries embracing socialist systems (such as Cuba, Indonesia and the United Republic of Tanzania) or has given way to a local capitalist sector, such as in Brazil and Malaysia. In other countries, former plantations have been split into two components, processing and agricultural production, with the latter being increasingly left to local private growers. Kenya is a notable example of successful involvement of indigenous smallholders in plantation crops such as tea, coffee and sugar.

Nowadays, agro-industrial complexes and plantations are still an important component of the agriculture sector of many developing countries. However, vertical integration, involving direct control of the whole process, from the field to the final product, is no longer necessarily considered the most efficient mode of production for cash crops. Cash and export cropping in developing countries can be efficiently organized under different modes of production. The centralized agro-industrial complex is just one extreme of a continuum of institutional arrangements characterized by different levels of contractual relationship and interlinkages between producers and processors. At the other extreme, independent growers buy their inputs and sell their produce in the spot market, where they meet with the demand from processing or exporting companies.

Along the continuum is contract farming. In its simplest form, this contractual arrangement links independent farmers to processors and/or traders through exclusive sales contracts where the cropping area, prices and quality standards are specified in advance, generally at planting time. But contract farming can be much more complex than a basic exclusive sales contract and can include the delivery of different services by the processor/marketer to the producer, thus resulting in a rather articulated and flexible contractual relationship. Typically, the contract may include the supply of inputs, such as agrochemicals, and the provision of services, such as extension, irrigation, transport, aerial spraying and other mechanized services. In some cases, the costs of inputs and services are discounted from the final price of output, which is an implicit form of credit.

A useful distinction can be made between contract farmers cultivating their own land and those cultivating a company's land under lease or sublease. The latter contractual form leaves much less flexibility to the farmers, as they cannot change crops in response to changes in their relative returns. It also increases their dependence on the company, as they work under threat of eviction in the event of an unsatisfactory performance. On the other hand, it gives the company higher security in terms of product supply and more incentive to invest in land improvement and infrastructure.

An important issue is the scale of the growers' activity and the way this relates to the mode of production. In the literature, contract farming is often associated with small growers, and vertically integrated plantations are simply treated as extremely large farms. This is a misleading oversimplification. A plantation today is a very particular type of large farm, generally specialized in one or two crops, with a high capital investment, large permanent and seasonal labour forces and management systems for control of the production process and labour force supervision. Contract farming per se does not imply any specific size of grower.

Moreover, in rural development literature, the term "smallholder" does not refer just to size in terms of area owned and/or cultivated, but includes a significant socio-economic characterization. The smallholder sector usually referred to is primarily subsistence-oriented, mainly using family labour with little use of purchased inputs and hired labour, low levels of productivity and little or no access to markets.1 

To identify contract farming with the necessary involvement of the family sector may be oversimplistic and misleading. Under certain conditions, and depending on the specific characteristics of the crop, small-scale family production may be the most efficient mode of production from a social and economic point of view and a valid alternative to vertical integration - but not necessarily. In some cases, medium- and even large-scale commercial growers may be a preferable option for the sector and the whole economy.

Economies of scale

Increasing returns to scale in agricultural production would make it more efficient for the processors and exporters to have their own large plantations with centralized control and labour specialization than to rely on a number of private growers, either under contract or from the spot market. However, the empirical evidence (Berry and Cline, 1979) shows that returns to scale in agriculture are constant in terms of input use. Agricultural operations, especially in developing countries, are characterized by a wide use of variable production factors, which reduces the incidence of economies of scale.

Apart from technical economies of scale, which refer to the indivisibility of inputs, the literature has identified another type of economy of scale, which may support the case for vertical integration in agro-industry (Tiffen and Mortimore, 1990: 27-30). Pecuniary economies of scale refer to the better prices and conditions that a large estate is likely to obtain for its output and inputs, including credit. In rural areas of developing countries, where transaction costs and information problems prevent many markets from working efficiently, access to some key inputs is asymmetrical for agents of different size (Hoff, Braverman and Stiglitz, 1993). There are a number of ways in which small and medium growers may overcome this constraint. Contract farming with a clause of input supply, possibly concerning credit, is one way, as it "transfers" the pecuniary economies of scale of the processor or exporter to the growers.

The picture is very different on the processing side of an agro-industry, where heavy physical capital investment generates considerable technical economies of scale. The processor must ensure a minimum flow of crop to the processing plant, which is often quite large, to minimize production costs and guarantee the viability of the agribusiness. This does not necessarily imply the need for vertical integration of production and processing within the same unit, provided it is possible to set up an efficient system of coordination between these two components. The more perishable the crop, such as sugar cane, oil-palm fruit and bananas - which must be processed and/or marketed within a short time after harvesting - the more important is coordination. This creates a great incentive for vertical integration.

Access to land

Increasing land scarcity as a combined effect of sustained population growth and lack of off-farm income earning opportunities is a common phenomenon throughout the developing world, even in regions that have traditionally been considered to have abundant land resources, such as most of sub-Saharan Africa. This phenomenon is stronger in those areas where a dynamic form of economic development and increasing commercialization of agriculture raise the value of land as a productive factor, and hence the competition for it.

In such a context, it is becoming increasingly difficult for a company to maintain direct control on arable land and even more difficult to obtain new land to match the expansion of the capacity of the processing plant and the demand of new markets. Moreover, there is widespread evidence (Tiffen and Mortimore, 1990) that most plantation estates tend to control more land than they actually need for production purposes. Varying reasons for this are, for example, for the purpose of land speculation; to ensure flexibility for crop patterns and future expansion plans; to maintain continuity in the plantation tract or to avoid problems with squatters and rights of way on the property; and to gain political and social power. As a result, these plantation estates underuse the land - perhaps keeping it under grazing for cattle merely to avoid its expropriation as idle land - and this can eventually lead to tensions and conflicts in a context of growing land scarcity.

Pressures from the local community and the government, or simply a shortage of free arable land, can thus induce the company to opt for forms of contract farming involving local growers instead of vertical integration. Of course, as the shortage of land becomes more acute, the smaller the size of the land, and the greater the number of growers, which may eventually create problems of coordination at harvest time.

Apart from problems of land availability, traditional tenure systems - especially in sub-Saharan Africa where freehold individual property rights are not in general recognized - may make investment in the agriculture sector unattractive for large companies, in particular foreign ones. The absence of an unconditional right to sell or mortgage the land but, even more, the uncertainty surrounding land tenure regimes in many developing countries may convince foreign companies to concentrate on the processing and marketing side and leave the agricultural production side to private local growers.

Uncertainty and risk

The "new institutional economics" explains the efficiency of contract farming in terms of its risk-reducing and risk-sharing properties for the two parties involved (farmer and marketer/processor) in an environment characterized by uncertainty and imperfect financial and output markets (Grosh, 1994).

Two main sources of risk contribute to the high unpredictability of agricultural income in developing countries:

From the farmers' point of view, contract farming is preferable to spot markets insofar as it reduces their exposure to market risk. Information on the final market and the effective coordination of production and marketing are crucial for the commercialization of agricultural products. A large specialized company is in a better position, in this respect, than individual, dispersed growers who bear the brunt of transport and communication constraints.

From the point of view of the processor/exporter, contract farming is preferable to vertical integration as it allows the company to shift the agricultural production risk to another agent. On the other hand, with respect to spot market purchases, contract farming reduces risk by guaranteeing a more reliable supply of produce and en-suring greater control over the production process. As seen in the previous section on economies of scale on p. 49, a minimum constant flow of produce is a sine qua non for the profitability of a processing plant and/or of an articulated marketing system.

The enforceability of the contract is of utmost importance to the processor/exporter, to avoid any incentive for the grower to breach the contract. In this regard, some specific crop characteristics may be very important: a crop that is relatively unperishable, is easy to store and transport, can be sold directly from the field without processing and has a well-developed domestic market in addition to the contractor's purchases, is more prone to the risk of a contract breach and therefore less suitable for contract farming.

An indirect way to control the reliability of the final produce is to include the supply of inputs (agrochemicals and seeds) or services (irrigation, extension, transport and aerial spraying and credit), as these factors affect the productivity and quality of the crop.

Looking at contract farming as a risk-sharing arrangement brings into the analysis the farmers' approach to risk aversion and their ability to cushion the negative effects of a loss. The possibility for them to smooth their production-consumption gaps from one year to the other, either through efficient saving and credit channels or resorting to their own resources, is a key determinant of their attitude towards risk.

This is why a processor/exporter opting for contract farming either prefers large progressive farmers with their own sources of capital, or provides loans (often in-kind credit in the form of inputs) to the grower. In some cases, the absence of such a facility may make the contract unattractive for the farmer because of the high risk involved. However, this reduces the risk-sharing property of contract farming for the company, given the relatively weak enforceability of these contracts.

Labour costs

One of the main characteristics and factors of success of plantations during colonial times was the availability of a large pool of cheap labour. Although this form of exploitation no longer exists, labour costs remain an important factor in the choice between different modes of production, as they absorb a considerable share of the operating costs of an estate.

The empirical evidence shows a trend of increasing shortage and rising costs of labour in estate agriculture in most developing countries. Replacing direct production with a decentralized system relying on independent or contract growers is one of the ways to respond to this situation.2 

Rural labour markets have a typical dualistic structure, with small household farms facing lower labour costs than large farms. In fact, a number of distortions and imperfections create a differential in labour costs for family versus hired labour farms (such as large estates). Among these are:

Whatever the reason, it is widely observed that small household farms use labour more intensively than large farms. This brings the farm size issue to the core of the analysis, as it is the small family farm that enjoys the cost advantages in labour use, not the contract farmer per se. In this context, agro-industrial companies may have the incentive to replace the vertically integrated mode of production with other, more decentralized, forms of organization of the production process involving small family growers.

Neoclassical economists see it as a way to take advantage of the higher efficiency of the family farm in labour use. Radical economists, instead, see it as a way to take advantage of the capacity of the peasant household for "self-exploitation": under stress conditions the household tends to intensify the use of its most important production factor - labour - pushing it beyond the point that it would accept in a wage labour contract.

Overall effects on the national economy

The choice of the mode of production has strong distributional effects that are not limited to the specific sector considered, but spread over the whole local and national economy, depending on the interlinkages of the sector with the rest of the economic system.

Upstream and downstream linkages refer to the stimulus of inputs on local manufacturing, to the local industry using the final product and/or by-products and to a wide range of service-supplying activities. Large agro-industrial complexes that are managed and/or owned by foreign companies are usually more resistant to domestic purchases than local growers - since they already have established links with suppliers from foreign countries - and are concerned with quality issues. More-over, as vertically integrated plantations are usually (or tend to become) more capital-intensive than small- and medium-scale local growers, their dependence on imports is very high and thus the spillover effects on the national economy are reduced unless there is already a local industry in the country producing the required machinery and services.

The higher consumption and investment demand generated by the rising income in the area, in particular in depressed and underdeveloped regions, is an important stimulus to the local economy. The extent of the demand-led effect on the local economy depends, among other factors, on the demand composition and the capacity of the domestic supply to respond to this demand. Small and medium growers are expected to have a higher share of locally produced consumer goods and services in their expenditure basket than large estate owners and foreign companies.3  By the same token, the reinvestment rate within the local economy is expected to be higher among independent growers than for a foreign-based company, because of transnational investment policies and a strong interest in expatriation of profits.

As discussed, the whole issue of the spillover and linkage effects within the local economy is not linearly related to the mode of production, but also depends on the nationality and size of the investors involved. Although it is common to identify vertically integrated production modes with foreign investors, and large estates and growers' schemes with national small and medium investors, the issue needs to be dealt with on a case-by-case basis. Over the last decades, a process of indigenization of large vertically integrated plantations has taken place (Tiffen and Mortimore, 1990: 109-10) while growers' schemes may well include large and/or foreign growers as in the Central American banana industry (Glover, 1994: 171).



The development of the sugar agro-industry in Mozambique is very similar to that of other plantation sectors in sub-Saharan Africa and in other regions of the world. Started in the first quarter of this century on the initiative of English and Portuguese investors, the industry expanded rapidly during the 1950s and 1960s. By the beginning of the 1970s, sugar had become the country's third largest export and the main formal employer in the economy, with an average production above 300 000 tonnes per year.

Before independence, foreigners owned all estates and mills, while the local population supplied labour. The final product was almost completely exported to European, mainly Portuguese, markets.

By 1975, however, many foreigners, including the owners of the sugar companies, had left the country because of the new socialist regime and the state intervened to take over the management of the sugar estates. However, since the beginning of the 1990s, the government has recognized the disappointing performance of the sector and the conditions of the poor in the factories,4  and has begun to reconsider its role and recognize the crucial importance of private sector involvement, in an attempt to modernize and rehabilitate the sugar industry.

Given the lack of national investors with the needed expertise in sugar production and access to financial capital,5  foreign investors have been identified from the beginning as key actors of the rehabilitation process. Currently, five out of six sugar estates and mills have been privatized by South African and Mauritian foreign companies that have provided fresh capital, new technology and managerial capability into the Mozambican sugar industry.

However, national economic agents play an important role in the sector. The government is aware that the choice of the mode of production for cane has a strong bearing on the scope for investment opportunities for national economic agents in the domestic sugar sector. Vertical integration would mean no room for Mozambican investors who, although lacking the resources to invest in the processing units (sugar factories), may well be willing to become involved on the agricultural side, as private cane growers.

For these reasons, the strategy for the redevelopment of the sugar industry (INA, 1996) envisages a shift from the mode of production traditionally adopted in Mozambique, based on vertical integration of sugar-cane production and processing (miller-cum-planter), to a mode where private cane growers coexist with directly managed estates. This system would have two advantages (INA, 1996: 11):

Among the government's main objectives is the "positive integration of the rural community in the process of development [of the sector]" (INA, 1996: 32). This means that "the development of the sugar industry must contribute to creating a positive relationship between the economic accumu-lation and the development of the rural population ... in order to increase the social, economic and competitive efficiency of the industry and to promote the development of the mass of national economic agents, the farmers" (INA, 1996: 11).

The Land Law

The new Land Law in Mozambique was published on 1 October 1997 (Republic of Mozambique, 1997) to accommodate the new "political, economic and social context [in the country] and to guarantee the access and the secure tenure to land, both for the Mozambican peasant and the national and foreign investors" (Republic of Mozambique, 1997: preamble). To a certain extent, this law is an attempt to conceal, in the post-war context, the interests of the millions of people resettling into rural areas with the need to attract private investment in the agriculture sector as a prerequisite for economic growth and development.

Two main features of the new legislation can be identified as the most relevant for the purpose of this analysis:*

  • As given in Article 3 "the land is state property and cannot be sold, or in any other way alienated, mortgaged or pawned" (Republic of Mozambique, 1997). Land users therefore do not receive freehold property rights, but "weaker" use rights on a leasehold basis. The right of use cannot be transferred inter vivos but can be bequeathed (Article 16.1).
  • Tenure security for local peasants is protected in three ways:

    • By recognizing that the right to use land can be acquired, by formal request (Article 12.c), by occupation by individuals and local communities according to customary norms and practices (Article 12.a), or by national individuals who have already utilized the land in good faith for at least ten years (Article 12.b). No hierarchy is therefore established among the different forms of acquisition and the law explicitly states that the absence of title and/or registration does not hinder the right acquired by occupation as from Article 12 (Article 13.2 and 14.2).
    • Giving local communities an important place in the new legislation. First, they are explicitly recognized as subjects for the right to use land (Article 10.1). Second, they are assigned an active role to play in the management of natural resources, in the resolution of conflicts and in the titling process to ascertain if the land is vacant (Article 13 and 24).
    • Allowing the proof of land use rights on the basis of testimony by members of local communities, as well as through the presentation of the title document (Article 15). Again, no hierarchy is established a priori among the different ways of providing proof.

The new law is more sympathetic towards capital, both foreign and national, than the former law. In particular, foreign investors are explicitly recognized as subjects for land use rights, as long as they have an approved investment plan (Article 11), have resided in Mozambique for at least five years in the case of individuals, and have been duly registered within Mozambique in the case of collectives. In general, foreign and national capital is treated similarly, apart from the fact that foreign individuals are not eligible for land use rights through occupation; the provisional authorization period is shorter; and taxation rates are higher.

* For a more complete analysis of the aspects discussed, as well as of other relevant aspects of the new law, see Kloeck-Jenson (1997, 1998).

Mode of production

There are four sugar factories and estates currently under rehabilitation - Mafambisse, Maragra, Marromeu and Xinavane.6  The redevelopment plans of these estates can be broadly divided into two phases. The first phase covers the rehabilitation of the factory to its full potential capacity plus a core estate to supply the minimum quantity of cane needed for the economic viability of the factory. In the second phase, the companies aim to minimize unit costs by expanding production capacity and/or removing bottlenecks and inefficiencies to exploit the capacity fully. The second phase will therefore be characterized by an expansion in the sugar-cane area with respect to the first phase. For the purpose of this analysis, it is interesting to consider the mode of production adopted for each phase separately.

Table 1 summarizes the organization of sugar-cane production during the first phase. The preferred production mode is vertical integration of the agricultural and milling sides under the direct control of the company. Out of a total of 29 050 ha developed, about 73 percent, i.e. 21 200 ha, will be directly cultivated. Two companies, namely Mafambisse and Marromeu, keep all the land developed under direct control in order to supply the mill during this phase.


Mode of production for sugar cane in the first phase


Direct cultivation

Contract growers on
subleased land
(> 200 ha)

contract growers
(> 200 ha)



6 000


6 000



3 100

3 2501

6 350


11 200


11 200


4 000

1 500

5 500


21 200

4 600

3 250(a)

29 050

1 Directly cultivated on a management contract basis.

Source: Information from sugar companies.

Maragra and Xinavane sublease part of their land to large commercial growers under a long-term contract to supply sugar cane to the mill. In the case of Maragra, five growers are involved, each cultivating an area of between 400 and 1 100 ha, while Xinavane allocates the whole area of 1 500 ha to a private company. The selection criteria used are mainly based on access to financial capital, experience in cane production and managerial capability. As a result, all the growers selected are foreigners, because of a lack of national investors able to fulfil the minimum requirements. Most of them are cane growers who already have similar partnerships, in other countries, with the foreign investors owning the two companies.

Given the characteristics of the growers involved and the selection criteria used, it is evident that the choice of allocating part of the land to outgrowers is driven by a risk-sharing and risk-reducing strategy. Shortage of capital to develop all the land and/or the reluctance to make considerable investments on the agricultural side, along with the huge amount of resources already committed on the factory side, have induced the main investors to look for financially viable partners who can bear their own part of the risk.

Maragra's plans are exceptional, in two respects:

This situation is the result of the privatization process of ex-Maragra Sarl (including the mill and 6 800 ha of land for cane production), which left the new foreign investors with the control of the mill and just 3 100 ha of land (Maragra Açúcar), while the rest of the estate (3 700 ha) remained with the previous owners of Maragra Sarl, who created a new company (Maragra Comercial). After the 1998/99 campaign, however, Maragra Açúcar took over the management of Maragra Comercial, as the latter proved unable to supply the mill with the quantity of cane established by contract. The company now has direct control over cane production in the 3 250 ha owned by Maragra Comercial, although on a management contract basis.

Three patterns are evident from Table 1:

The production mode for the second phase will be very different (see Table 2). No land will be directly cultivated by the companies, which will rely 100 percent on outgrowers, against just 23 percent during the first phase. Sugar investors have opted for the "nucleus estate" model, in which part of the land is kept under direct cultivation by the processor, while the remaining is left to contract growers. This strategy balances the advantages of vertical integration, in terms of reliability of cane supply and easier coordination between the agricultural and processing sides, with the attractiveness of decentralization in terms of risk reduction and lower fixed capital investment. Because of the ongoing rehabilitation process of the industry, the "nucleus estate" model is being developed in stages. The concerns about reliability of cane supply and coordination, which dominate the first phase, are replaced by risk-sharing strategies once reasonable economies of scale have been reached.


Mode of production for sugar cane in the second phase


Direct cultivation

Large growers sublease
(> 100 ha)

Small/medium growers sublease
(< 100 ha)

large growers
(> 100 ha)





1 500

1 000



2 500





2 250


2 650










4 000

2 000



6 000



5 500

3 000

2 250


11 150

1 Marromeu has no approved plan for the second phase.
Information from sugar companies.

Apart from the marked shift from vertical integration towards contract farming, there are, however, a few common patterns between the modes of production adopted in the two phases. First, outgrowers on the company's land are preferred to independent growers. Of all the land developed in the second phase, more than 75 percent (8 500 ha) will be on sublease terms.7  Just one factory, Maragra, will have partnerships with contract growers on their own land. The main reason is shortage of land, as Maragra does not have enough land under direct control to supply the factory at full capacity, and the region is becoming increasingly land scarce. Considering on aggregate all the land cultivated by outgrowers in the two phases (19 000 ha), the share of independent growers is less than 30 percent and much lower (15 percent) if the 3 250 ha managed by Maragra Açúcar on behalf of Maragra Comercial are excluded.

A second common pattern is that the majority of outgrowers are large commercial growers (above 100 ha of land) with experience in cane cultivation and access to financial capital. Given these requirements, most of them are likely to be foreigners, as is already the case for Maragra and Xinavane in the first phase. The proportion of large versus small/medium growers is 70:30 considering only the second phase, while it is more unbalanced (80:20) considering all outgrowers' land in the two phases.

In the second phase, more attention will be paid to small and medium Mozambican growers (below 100 ha). For this component, the companies consider a minimum size threshold of between 10 and 50 ha, which will make the involvement of the family sector difficult. Apart from some doubts about the long-term viability of cane growers below 10 ha, given the initial capital investment required to start a cane field, companies seem to worry primarily about the eventual coordination of a large number of small growers at harvesting time, which may badly affect the economic returns to the factory.

Given the characteristics of the growers involved, this strategy does not seem to respond to the risk-reducing concerns leading companies to decentralize cane production; undercapitalized and risk-averse small and medium Mozambican growers are unlikely to represent a valid option for a risk-sharing partnership. Neither does it seem a way to "capture" the advantages of family farms in terms of labour use. Small family growers are not specifically targeted and those companies forecasting possible labour shortages in the future (e.g. for harvesting) are considering eventual mechanization. Instead, this plan seems to respond to a long-term commitment to develop local entrepreneurship by creating economic opportunities for indigenous growers, which will help eventually to reduce the potential for land conflicts in the region.

A final remark should be made with regard to the terms of the contractual relationship. As already seen, different forms of contract farming exist, depending on the services offered by the company to the farmer. In the case of the sugar sector in Mozambique, there is no economic incentive for the company to go beyond the basic form of an exclusive sales contract. The selection of experienced large commercial farmers with their own access to capital makes any support in terms of credit and extension services superfluous. The development of small and medium Mozambican growers would require a different approach, as financial capital and technical skills are likely to be major constraints. However, the sugar companies are reluctant to play a major role in this regard. Moreover, from the company's point of view, any credit to the farmer could be harmful, as it would erode the risk-reducing feature of the contract, which is the main reason behind decentralization of cane production.

Some companies are willing to play a role of service centres for the purchase of inputs, such as agrochemicals, and the supply of some agricultural services (such as land preparation, extension, light mechanical operation and harvest transport) in order to transfer some economies of scale to the outgrowers and thus increase their efficiency. However, this would be on a cash payment basis and would not include any implicit form of credit.

The main factors driving the choice of the mode of production for sugar cane in the Mozambican context are given below.

  1. Land is not a constraint for most investors. Three companies have enough land for the production capacity of their factories, even in the light of future expansion plans. Instead of looking for independent outgrowers with their own land, as in other land-scarce neighbouring countries such as Swaziland, the sugar factories are going in the opposite direction, leasing out land to selected contract growers.
    The land tenure system is not a constraint. Foreign investors feel sufficiently secure within the new legal framework, and the absence of freehold property rights does not create any disincentive to agricultural investment.
    In general, arable land is still abundant in Mozambique. However, population growth combined with food security strategies at household level and the few existing alternatives for income generation in rural areas will put increasing pressure on land. In such a context, pressure on companies owning large estates is bound to increase.
  2. Labour costs are quite low in Mozambique compared to neighbouring countries. There is a large pool of unskilled labour that keeps the agricultural wage level low and trade unions, in particular in rural areas, are weak and poorly organized. Sugar companies can still find cheap labour for their plantations. In the future, however, some companies expect wages to rise and seasonal labour shortages because of competition among themselves as well as alternative employment opportunities in rural areas, in the relatively near urban centres and in the South African mining sector. The envisaged response, however, is not decentralization based on small and medium contract growers. Instead, a labour-substituting mechanization seems more likely.
  3. Risk reduction in the context of the huge financial effort for the rehabilitation of severely damaged and obsolete factories is the main force pushing towards decentralization of cane production. This is why priority is given to large commercial growers with their own access to capital, experience in cane production and financial capability, instead of small growers more efficient in labour use.


The sugar agro-industry in Mozambique is undergoing a concerted process of modernization and redevelopment. The key players are foreign investors from South Africa and Mauritius who emerged as majority shareholders of the sugar factories and estates after the privatization process of the mid-1990s.

The redevelopment of this industry is expected to contribute significantly to poverty alleviation and, in general, to rural development through the creation of employment and income-earning opportunities in remote rural areas. Capital investment in agriculture is a necessary condition to solve some of the structural constraints affecting the economy of these areas. However, investment per se is not a sufficient condition for balanced and sustainable rural development. The kind and quality of agricultural investment and the way it integrates local communities are at least as important as its quantity in a country where more than 90 percent of the population still depend on a mainly subsistence oriented, low input-low output agriculture for its living.

In the specific case of the sugar agro-industry, its ultimate impact on poverty alleviation and rural development will depend on the way Mozambican growers are integrated in the production cycle. Unfortunately, because of the legacy of history and the current degree of economic development, there are few small and medium commercial progressive farmers with the financial resources, technology and managerial and technical skills required to become efficient cane growers.

In such a context, private investors in the Mozambican sugar sector do not have any direct economic incentive to involve national small growers, who would bring no benefit in terms of access to land (such as in other land-scarce countries) or lower labour costs (such as with cotton), and do not respond to the needs of sugar companies for risk diversification. Moreover, the relatively small size of most potential growers would entail problems of coordination at harvest time and eventual heavy economic losses. Therefore, if any independent private growers are needed, from the point of view of the sugar companies, the fewer and the larger they are, the better.

The government cannot leave the task of promoting Mozambican growers to the sugar companies: a laissez-faire attitude may not be the most appropriate to maximize the impact of the sugar sector on rural development. In the absence of effective policies to promote "suitable" national growers, foreign growers from neighbouring countries will fulfil the vacuum, as is already happening. The government should therefore create the conditions for Mozambican growers to become a feasible alternative, by designing policies and programmes to ease the constraints that make the involvement of national growers unattractive for the private companies.

The main constraints identified are:

The growth of the sugar sector in Mozambique is an opportunity for the creation of a class of domestic progressive farmers who will accumulate and reinvest within the local rural economy, thus starting an endogenous process of transition from a subsistence-oriented, low input-low output agriculture to a market-oriented, more productive one.

The government must act to create the right conditions for the positive integration of foreign investors and domestic farmers. No a priori or ideological position is valid. The plantation system is not the only possible mode of production nor is it necessarily evil. Private foreign investors are not always "exploiting" domestic resources or crowding out national investors. And neither "small" nor "large" is beautiful per se. A balanced approach should be followed and the right mix of plantation estates, foreign large outgrowers and national small, medium and large growers is likely to accommodate the interests of all the parties involved (sugar companies, local communities, potential foreign and national investors and the government) and thus promote a smooth development of the sector.

The lessons learned from the case analysed in this article are widely applicable in developing countries where the agriculture sector is attracting growing external investment. If it is true that large commercial investors and domestic farmers are not inevitably characterized by a zero-sum relationship driven by irreconcilable interests, it is also true that market forces alone may not provide enough incentive to develop these potential complementarities. A failure to act by policy-makers would therefore result in a lack of opportunities for improving the income and food security of peasant households and, eventually, result in growing land conflicts.


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1 In the literature, the term "smallholder" is often used to distinguish between "commercial" or "progressive" farmer. However, this terminology does not focus on the relevant characteristics such as productivity, market access, use of production factors and diversification of income sources. The term "family sector" seems more appropriate to identify the type of farmer described above.

2 Alternative options are to: rely on migration of a labour force from other areas; substitute a permanent with a casual labour force, thereby saving on housing and other services for permanent workers, as well as on wages off-season; employ a higher share of women and children, paid lower wages; or mechanize some agricultural activities.

3 Local wage workers of a vertically integrated estate would have a consumption pattern very similar to small and medium growers. The assessment of the demand effect of alternative modes of production should therefore compare the number and income levels of the private growers (and the workers employed by them) against the number of jobs and wages created by the alternative plantation system. It is assumed that, on aggregate, the income effect is higher in the former case.

4 By 1992, sugar production had fallen to a historical low, equal to less than 5 percent of the total capacity installed, with only two factories operating of the existing six.

5 The cost of rehabilitating the six sugar estates and mills is estimated at about US$400 million.

6 Of the two remaining, Búzi has not yet been privatized, while Luabo, belonging to the same Mauritian consortium that bought Marromeu, has no medium-term rehabilitation plan.

7 Although Marromeu has no plans for the second phase as yet, it is likely that, if any outgrower is involved, it will be on company land, given the amount of land owned by the company.

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