”Land grabs” and contract farming: A win-win
situation?
Land and Poverty Conference 2016: Scaling up Responsible Land
Governance
March 14-18, 2016Washington, DC
Kerstin Nolte and Simone Gobien
GIGA German Institute of Global and Area Studies, Hamburg
Motivation

Context: Intensification of agricultural production and expansion of farmland
to meet growing demand for food and fuel

Large-scale agricultural land transactions still make headlines: about 40
million hectares changed hands since 2000 (LMI, 2016)

Large-scale agricultural investments (LSAIs) = operational farms have
strong implications on local communities, but little is known on these
implications

Key question: How to include smallholder farmers in agricultural
transformation?
 Contract farming as a guarantee for positive imlications?
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Potential positive impacts of LSAIs
 Mixed evidence on impacts, mainly based on case studies: positive
and negative impacts
 Transmission channels
 Employment generation
 Infrastructure improvements
 Spillovers on smallholder farmers (knowledge transfers, access to
markets)
 Whether potential benefits materialize depends to a large extent on
the inclusiveness of the business model
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Contract farming

Agreement between a farmer and a firm
 farmers provide a certain quantity and quality of commodity
 firm provides production support and processes the farmer’s produce or puts it
on the market

Contract farming plays an important role in LSAIs for a variety of crops
 140 LSAIs out of 299 for which we know whether CF is used or not
 Main crops: oil palm (40), sugar cane (24), jatropha (21), maize (19), soya beans
(18), rice (17), rubber (16)
Contract
Farming
Yes
No
Information
missing
Frequency
140
159
Size in million
hectares
5.7
4.5
584
15.1
Source: LMI, 2016.
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Contract farming: Depots in Zambia
Own photo, Mumbwa District, Amatheon Agri (15.9.2014 und 14.10.2015).
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Challenges in determining the effects of Contract Farming
 No random selection
 of participants and location: Firms choose the „more able“ farmers in
„suitable locations“
 difficult to isolate effect of CF, find a suitable control group
 Effects differ across time
 Many schemes become profitable only after some time
 What is the counterfactual?
 Smallholder farming
 Wage labor on a plantation
 Contract farming
 …
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Transmission channels of contract farming
 Production support: inputs, fertilizer, training
 Increase productivity and therewith income
 Increase human capital
 If combined with a loan: increase liquidity
 May have positive spillover effects on non-contract crops and nonparticipants
 Farmers may become too dependent
 Guaranteed market and fixed prices
 Reduce transaction costs
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Effects of contract farming on participants II
 Change of production and management technique
 Diversify income towards not-agricultural activities
 Increases risks due to specialization in contract crop
 Higher quality standards (e.g. certification)
 Threaten social cohesion
 Offers possibility to participate in global value chains
 Organization in group
 Increases bargaining power
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Diversity of outcomes
Outcomes of contract farming schemes debated in the literature.
Sucess related to:
 Context conditions
 Choice of crop and production model
 External factors (weather, market prices)
 Local context (legal framework, socio-economic characteristics of
participants)
 Power balance between firm and participating farmer
 Often unbalanced contracts favour firm over small-scale farmer
 Inclusion of independent third party might increase bargaining power
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LSAIs with and without contract farming
 In principle: beneficial effects of LSAIs may occur with and without
contract farming
 Contract farming increases potential for positive spillovers, and can
mitigate job losses
 Benefits from contract farming do not happen automatically but
depend on
 Context conditions
 Power balance between firm and smallholder farmer
 Contract farming can improve potential of LSAIs to benefit local
smallholders, but no guarantee
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