imf-wb spring meetings contract farming as a...

Author

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Rural Infrastructure and Agro-Industries Division (AGS)

IMF-WB SPRING MEETINGS

Contract Farming as a Tool for

Economic and Social Development

CREATING AN ENABLING ENVIRONMENT FOR INCLUSIVE CONTRACT FARMING OPERATIONS

Eva Gálvez


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Contents

• Why an enabling environment is important for the success of CF operations?

• Understanding the nature of the EE for CF

• Rationale for government intervention to improve the EE for CF: examples from developing countries

• The evolving environment for CF

• Concluding remarks


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Importance of creating an enabling

environment for CF

• Potentially, there are strong benefits and risks for the parties involved in contract arrangements, especially for smallholder farmers.

• The actual realization of benefits and risk reduction objectives of CF will largely depend on the business environment.


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Multidimensional environment

Enabling environment for CF

Public goods & services

Policy framework

Regulatory framework


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Enabling needs for inclusive CF


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Why governments seek to create an EE for CF?

Efficiency• Mexico’s

national support scheme for CF

Inclusiveness

• Brazilian biodiesel

• Bangladesh -poultry

• Pakistan – State Bank guidelines for CF

Fairness• Dispute

resolution…


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Trends observed

1. ‘Fix what is broken' approach vs. ad hoc regulations and policies on CF.

2. Regulatory/policy/public good elements bundled up together to form a comprehensive CF initiative.

3. CF as a key ingredient of policies and regulations linked to:

▫ agro-territorial planning (e.g. agricultural growth corridors, clusters and agro-industrial parks).

▫ public-private partnerships (PPPs) for agricultural development.


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CF being promoted in agribusiness PPPs

• 57% of PPPs for agricultural development analyzed by FAO (out of 70 cases) were devoted to value chain development: they all have CF as their cornerstone.

• CF’s key role also in PPPs for agricultural R&D (e.g. development and marketing of seeds)

PPP


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CF in agricultural

growth corridors

CF operations

Market


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CF operations btw park tenants & farmers

• India: The IFFCO KISAN agropark fosters CF operations between park firms & farmers that bring their raw materials to the park.


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Concluding remarks

• Similarities in clauses and policy conditions even across different EE contexts (“Guiding principles for responsible contracting farming” of FAO), e.g. policies regarding pricing mechanisms & side-selling (Philippines)

• Institutional quality, although difficult to measure, is essential for fostering EE for CF.

• Even under non-ideal business climates, farmers and buyers will find ways to make contracts work market opportunity is attractive enough but higher transaction costs and risks & potential for exclusion (India; Ethiopia)


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Concluding remarks (cont.)

• A favourable business climate can be outweighed by other factors influencing CF such as market structure (Russia).

• Pro-smallholder CF policies are needed in the face of structural changes. Government incentives for firms to integrate smallholders into their supply chains through contracts: improve financial benefits + offset eventual added costs associated with inclusiveness.

• But they may introduce vulnerability risks.

• Policy-makers still need to ascertain the real cost to companies of smallholder inclusion in CF schemes


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UNIDROIT/FAO/IFAD Legal Guide on CF

Guide to help address enabling environment issues•Define CF from a legal stand point (typify CF contracts)•Identify essential elements of CF contracts•Promote good contractual practices for CF•Present options for Govts to support/enhance/regulate CF

Caveats•Avoid over-protection of farmers/excessive regulation of firms

▫ Can act as a disincentive for companies to participate in CF

•Potential for negative impact on farmers’ access to finance, technical advice and markets •Guide should promote trust building rather than confrontation


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Community of Practice

legal & business matters

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imf-wb spring meetings contract farming as a...

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