Monitoring performance

Introduction

Most agricultural ventures are in a constant state of change as a consequence of new technologies, changing consumer demands and increasing farmer sophistication and knowledge. Regular attention thus needs to be given to all activities of contract farming ventures in order to take full account of such changes. Any anomalies that are found may require amendments to the contract, technological modifications or the reorganization of field extension services.

All farming ventures need reliable records to provide monitoring, evaluation and diagnostic functions of the key activities that determine the product's performance. Dependable statistical information on both past and current production is vital in order to provide all involved with the facts on which to base quota allocations, crop yield estimates and forward marketing strategies. Managers need to accumulate, analyse and distribute information not only for the maintenance of project and farmer records but also to evaluate production performance and calculate yield indicators. Such monitoring is particularly necessary in large ventures that involve thousands of farmers, where it is difficult for management to have close interaction with individual farmers.

This chapter emphasizes the need for monitoring and suggests methods for management to use to ensure that the objectives of the contract are achieved. The basic elements of monitoring, or "process control",⁴⁶ are essentially the same in all industrial or agricultural activities: management should identify each component, measure its performance, compare the results to a benchmark and, if necessary, take action to rectify any problem at an early stage.

MONITORING QUALITY AND YIELDS

A routine analysis should be carried out to ensure that current and future production remains within the quality and quantity parameters required. Deterioration of quality can have serious and far-reaching consequences for any business venture. Quality controls are especially critical for high-value crops such as exotic fresh fruits and many varieties of vegetables. Quantity shortfalls can reduce processing efficiency and jeopardize markets. How a project's extension staff can monitor quality and quantity is discussed below.

Quality controls

Each venture must develop quality control and monitoring systems suitable for its particular operation. Management must prioritize monitoring procedures and decide how often they should be carried out, in what locations and who should be inspected and assessed. Checking product quality can take place before, during and immediately after harvesting as well as at the time farmers grade their own production and when the products reach the company's processing or packaging facilities.

Quality controls may start as specifications in a written contract or as verbal explanations of quality standards given in both pre-season and pre-harvest farmer-management meetings. Perhaps the most practical method is for management to demonstrate by visual presentation the quality criteria that must be met, either for the entire production or, where appropriate, for different grades. When extension staff at the farmgate or buyers at processing stations purchase crops they should explain to the farmers the reasons why they are grading the crop as they are. Where farmers have mixed their grades they should, if practical, be given the opportunity to regrade.

Some contracts contain clauses which specify that sponsors may carry out certain crop production activities if the farmer fails to meet cultivation specifications. Under such clauses, management may hire outside labour to eradicate weeds, apply insecticides or harvest mature crops. Such practices can be a frustrating, but necessary, feature of contract farming as the failure of a few farmers to follow recommended practices could jeopardize the production of neighbouring farmers. Some of the major causes of poor quality are the failure to apply fertilizer, ineffective weed and insect controls, disease, immature harvesting and indiscriminate grading and packaging. Quality can also be affected during any on-farm processing and after the raw material has been purchased from the farmer.

In one case involving quality manipulation, inferior crops from non-contractual sources were being sold to take advantage of the higher prices offered under the contract. At the same time, prime quality produce was being siphoned off to the open market for even higher prices. The managers admitted that they had lost control of the buying operation. Infiltration of non-contractual produce from unregulated sources may cause a deterioration of quality standards, the introduction of disease and problems of excessive supply. To stop such practices, clauses in contracts could stipulate the designated origin of the contracted crop. However, this may be difficult to apply in the case of the informal individual developer who is buying crops from farmers over a wide area where it is virtually impossible to enforce agreements. In Uganda, cotton ginners faced with this problem established the Uganda Ginners and Exporters Association, which placed monitors at each ginnery in an attempt to control extra-contractual sales that would lower quality standards.⁴⁴

Where problems regarding quality are encountered, a detailed investigation is necessary to discover why. One such study was carried out to identify why farmers harvested tobacco in a very immature state; a practice that resulted in the serious deterioration of leaf quality. The study highlighted a number of constraints cited by farmers and management that they alleged influenced immature harvesting. Their rationale for the poor harvesting is presented in Annex 9 with a summary of the study's evaluation of each of the perceived constraints.

Box 15 Monitoring milk production in Croatia Some 33 820 dairy farmers supply milk under contract to Croatia's biggest dairy. The company maintains records which include farm size, the number of milking cows, details of farm machinery and production data. Such information provides the basis for decisions on which farmers are able to expand their production. Company staff members regularly monitor milk quality in addition to all the contractual obligations of the agreement. The company has stringent quality specifications that include milk fat, protein and acidity parameters. In addition, there are clauses in the agreement that specify the absence of colostrum, arsenic, mercury, antibiotics, cleansing agents and disinfectants. There are also other stipulations regarding micro-organism levels and milk temperature at delivery. Farmers obtain feedback information on milk quality through the group's 1 600 collection points. The company's technologists determine quality by sampling milk at either the pickup points or in laboratories, with samples being taken in the presence of both the farmer and the company representative. The company is under no obligation to collect milk that does not meet the quality standards specified in the contract and the contract authorizes the technologist to "punish" the producer with a 30-day ban on milk delivery. If antibiotics have been traced, the price of milk is reduced by 15 percent and repetition of this is considered a breach of contract. The farmer has the right to complain by writing down complaints in a register located at each pickup point if he/she believes the measurement terms have been violated.

Yield estimations

Yield forecasting has become increasingly important in agriculture for processing, marketing and budgeting as well as for monitoring of production. Where production is limited to a target quantity, any major shortfall can cause serious embarrassment for the sponsor as a result of inability to meet forward orders. Overproduction will result in expenditure above budgets, unnecessary and expensive stockpiles and quota reductions in following seasons. This will result in income loss for many farmers. The aim of all contract farming ventures is to maximize economic returns. It should be borne in mind that with some crops the highest yield does not necessarily mean the highest income as high yields may only be achieved at the expense of quality or through the uneconomic use of inputs.

There are two basic ways in which yields can be estimated: visual observation by experienced extension workers and, less commonly, by statistical analysis. Calculated yield indicators (CYI) can then identify farmers, villages or districts that may have infiltrated crops in to, or out of, the buying system. Excessive production could occur when farmers overplant their allocated quotas. Extension workers need to verify that the exact quantity allocated has been planted and also need to estimate the potential yield of each farmer. Normally, a farmer's crop yield should be estimated three times during a single season. The first estimate is based on the quota given at the beginning of the season and is referred to as the target estimate; the second is carried out a short time after sowing or transplanting, once the crop is well established. A third estimate can be made when the crop is fully developed, normally immediately before the first harvest. If marked disparities occur between the final estimate and the actual quantity supplied, the variations must be explained and accounted for. In established projects individual crop estimates per unit area are often based on the mean of the previous three seasons. Yield estimates should be based on knowledge of production in the area or by trial plots that the sponsor has planted before quotas have been distributed to the farmers. If a new crop is introduced to a district, estimates should be based on the productivity of that particular crop grown in similar environments.

Calculated yield indicators

A number of methods can be used for forecasting crop yields. These include a top-down model using a hierarchy of variables to the point where optimum performance cannot be improved further, as well as the Baysian model using categorical variables based on experience.⁴⁸ Another model for crop forecasting is through the Monte Carlo simulation method based on soil and management parameters.⁴⁹ In many cases, however, visual methods based on the knowledge of experienced field staff should suffice to estimate yields.

Annex 7 illustrates the use of calculated yield indicators (CYI). Higher than expected production justified an investigation to identify those villages introducing produce from outside the contract. The wide variation between actual and calculated yields discovered in this example reinforced the belief that extra-contractual production had been infiltrated into the project. Indicator models provide information for management to identify farmers who circumvent buying procedures. The modelling of a calculated yield indicator is, however, dependent on reliable data and the ability of the assessors to interpret it.

Production matrices

Simulated modelling of crop production on a scientific basis is a highly complex, ever-expanding and normally efficient discipline.⁵⁰ Analytical decision models, such as a production-marketing-consumption (PMC) matrix,⁵¹ are useful in agricultural projects to evaluate managerial, agronomic and infrastructural factors necessary for the success of the crop. The model was first introduced in California in 1979 to structure the production and marketing requirements of a new commercial crop, jojoba. The basic concept of the production matrix, a subsystem of the total PMC matrix, is to formally identify all the key components that influence production in terms of their significance, responsibility and performance. The information on which to base the performance assessment can be extracted from production statistics, farmer records and field observations.

The production matrix in Table 6 is structured not only as a tool for the use of managers but also to assure interested government agencies, farmers and extension workers that all aspects of a project are being monitored regularly and improved where necessary. It was designed for a multipartite export papaya project in the South Pacific. In addition to the farmers, the participants included a multinational corporation, a parastatal marketing organization and the government's agricultural department, which was responsible for quarantine controls and postharvest pesticide treatment.

Table 6
Production and postharvest matrix for export papaya under contract

Source: Adapted from Eaton, C.S., 1990: 80.

Key:
Farmers (F)	1	=	Inadequate	C	=	Critical
Multinational corporation (MNC)	2	=	Adequate	I	=	Important
Marketing authority (M)	3	=	Objectives achieved	S	=	Significant
Government (G)

The matrix identified all of the components necessary for production and postharvest handling and ranked these according to their importance in meeting the project's aims. Critical (C) components had to be achieved in their entirety otherwise the project would be placed in considerable jeopardy. Important (I) components generally had to be achieved to the maximum extent possible, although marginal performance of one or two such components would not necessarily endanger the project. Significant (S) components were considered important but not vital for the project's success.

Following the first season of fruit production, qualified personnel completed the matrix by rating the achievement. The achievement rankings of the various components showed negative performances on the part of the farmers, the multinational corporation, the marketing authority and the government agency responsible for quarantine, for four critical components. The failure of the harvesting and grading activities, irregularities in the quarantine procedures and air cargo limitations eventually contributed to the collapse of the venture.

Contract farming, which normally incorporates new agronomic and management methods, needs constant feedback regarding the acceptance of new techniques by farmers, disease tolerance of new varieties and the changing work patterns and production capabilities of farmers. A production matrix can be used to provide a blueprint of all factors that should be described, monitored and evaluated.⁵² Where possible, such matrices should be developed in full consultation with farmers, for example at farmer-management forums.

MONITORING HUMAN RESOURCES

Managing, motivating and monitoring human resources involves the recruiting, training and deployment of employees as well as an appraisal of their work. The production performance of each farmer also needs to be recorded and assessed so as to determine the need for quota changes and, on occasion, the cancellation of contracts. To support the decisions that managers must make, which can affect the livelihoods of thousands of individuals, there must be detailed monitoring procedures. The two human resource areas that managers of ventures are directly responsible for are:

• appraising employees; and
• reviewing farmer performance.

Appraising employees

Employees who have been successful in an agribusiness context that does not involve contract farming may not easily make the transition to a contract farming environment. This can apply to senior management as well as to junior staff. Some highly competent and qualified staff members have proved unsatisfactory when required to work with farmers.

In projects with only a small number of employees, staff appraisals are relatively simple as the interactions between managers and their staff members are almost on a daily basis. When a project has hundreds of employees, personnel reviews are generally carried out at the departmental or sectional level. Extension staff can be evaluated through visits to farmers' fields. This should be done at least twice a year. The most practical times for such visits are usually before the first cultivation, a short time after transplanting and at the height of the harvest. This inspection gives the manager and the employee an opportunity to discuss on an informal basis the progress of the crop and the performance of the farmers under the guidance of that employee. The manager can observe at first hand the extension officer's relationships with the farmers, gain an insight of the employee's knowledge of the state of the crop and his or her ability to organize its logistics. The second method of appraisal is to formally review all employees at the end of each season. Their performance can be measured against their job responsibilities and production targets that were estimated at the beginning of the season.

Reviewing farmer performance

Formal monitoring of the crop at all stages of its development may lead to the identification of factors that could cause poor production. For instance, the failure of farmers to notice the early signs of disease may delay the application of fungicides, thus endangering both quality and yield. Extension staff must therefore carry out routine inspections of all the farms they supervise. For some crops, such as sugar cane and fruit, inspections may be on a weekly or fortnightly basis. For vegetable crops, several visits a week may be required. Simple report cards should be kept indicating each farmer's code, locality, quota, land unit, the estimate of production and the inputs advanced. The extension officers must document the dates of sowing, transplanting, irrigation, harvesting and any other major activity carried out, such as fertilizer application and chemical use. Comments on climatic conditions, standards achieved and advice given to the farmer should also be recorded. Wherever possible, farmers should be encouraged to maintain their own records of their use of farm inputs and of their production. An example of a comprehensive farmer performance record is presented in Annex 8.

At the end of every season the final production, product quality and net income of the farmers can be included in the records. By reviewing such information, management can estimate the farmers' attainable quotas for the following season. Farmer-management forums may then be used to advise future quotas and, if necessary, provide explanations for any modifications to the quota as a whole or for individuals.

PROTECTING THE ENVIRONMENT

Ecological considerations combined with sound agricultural practices should have an important role in contract farming, although the sustainability of the farming system as it relates to the physical and social environment usually receives little attention from either agribusiness or governments. Environmental issues can vary not only from country to country but also from district to district and farm to farm. Deforestation, the depletion of water resources and soil degradation are major concerns that accompany any agricultural development. However, agribusiness is frequently interested only in a single crop whereas farmers usually have permanent multicropping systems and must take the sustainability of these into account when assessing the value of contract farming.

Environmental degeneration as a result of any form of farming can become a major problem if it is not controlled. The cultivation of crops on thin soils on very steep terraces encourages high levels of erosion. Twenty-five percent of crops in one contract farming venture in China were grown on land totally unsuitable for intense cultivation. All participants of the contract - sponsors, the local managers and the village committees - allowed production on steep slopes without any regulation or apparent concern. A recent survey in Fiji confirmed that at least 30 percent of that country's contracted sugar-cane crop is grown on unsuitable land. Pressures on agricultural land are forcing sugar-cane farmers on leased land to cultivate steeper slopes. These practices were given tacit approval by the parastatal sponsor, despite land-use legislation and evidence that the soils were eroding at a rate two to three times greater than the rate of replenishment.⁵³ This situation echoes similar attitudes to those found in Tasmania, Australia, where farmers cultivating crops under contract were unwilling to acknowledge that they had serious land degradation problems.⁵⁴

Laws on control of land use are common in most countries but they are rarely enforced. Legislation governing the environment of one developing country includes "at least 25 Acts" relating to ecological policies and there are at least fourteen government and parastatal bodies that administer environmental issues, but the impact has been negligible. Action by sponsors and managers to address environmental concerns is ethically and economically imperative. The most practical way managers can control ecological compatibility is to ensure that all contracted fields are selected by the extension staff in consultation with the farmers. Choice of land should be based on criteria related to soil depth and quality, land slope and water resources. In addition, an understanding and knowledge of previous land usage is important and, if necessary, a crop rotation regime may have to be agreed with farmers. Decisions by management on land use on behalf of the contracted farmers are, however, common, with the extension staff selecting all fields. Experience indicates that when choosing land the opinions of farmers and those of management do not always coincide.

By gaining an understanding of the area and its farmers, managers can assess each farmer's production capacity and the effect the crop may have on the environment. The willingness of the managers to learn from local experiences, sometimes developed over several generations, is important when supervising farmers under contract. In the South Pacific, local knowledge was ignored by expatriate agronomists. When a government agency introduced bananas for migrant smallholder farmers to produce for export, the customary landowners informed the agency that it could lease as much land as it wanted but "it will never grow bananas". Although the venture was highly organized and adequately funded, the inherent infertility of the soils, a fact well understood by the landowners, resulted in the eventual collapse of the project. Political pressure to settle landless farmers from overpopulated areas, coupled with inappropriate technology, had caused a loss of farmer morale and land misuse.

⁴⁶ Stevenson, W.J., 1986: 763.

⁴⁷ Goodland, A. and Gordon, A., 1999: 20. 

⁴⁸ Details are provided in Hammer, G.L. and Muchow, R.C., 1994: 222.

⁴⁹ Bouman, B.A.M., 1994: 1.

⁵⁰ Penning de Vries, F.W.T., van Laar, H.H. and Kropff, M.J., eds., 1991: ix.

⁵¹ Knox, E.G. and Thiesch, A.A., eds., 1981.

⁵² Knox, E.G. and Thiesch, A.A., eds., 1981:1-4.

⁵³ Clarke, W. and Morrison, J., 1986: 10-14.

⁵⁴ Miller, L., 1995: 4.