Blueprint for contract farming is an illusion
In theory, contract farming can be an efficient way to bring new technology to farmers and produce a high-quality crop in developing countries. In practice company managers fail to understand farmers' social relations, and that creates distrust among farmers.
Contract farming is common in countries producing export crops for a western market with high quality standards. Farmers sign a contract with a multinational food company that says the farmer will produce a high-quality crop and the company will buy it. Newly graduated Dr Sietze Vellema of the Agrotechnological Research Institute (ATO) studied the case of the multinational Dole, which offered a contract to Philippine farmers to grow high-quality asparagus for the Japanese market. The company provides inputs and extension on how to grow the crop to the standard demanded by Japanese consumers. As farmers come in contact with new technology, new markets open up for them, is the idea.
At the start both farmers and the company believed the contract to be a win-win scenario. "A romantic marriage without thinking about the option of a divorce," Vellema relates. "Contracts were very simple and didn't say a word about what would happen when business is less favourable."
Fall in demand
Unfortunately just such a situation arose when demand in Japan dropped and prices fell. The company tried to cut labour costs by advocating the use of pesticides. But the risk of pesticide residues in the product led to rejection of the asparagus by Japanese consumers. Farmers tried to cut labour costs as well by hiring cheap external labour. But these workers did not know how to grow the crop and the result was asparagus of too low quality. Dole meanwhile was unaware that the farmers had hired external labour and thought it was still dealing with the individual growers' families. Farmers blamed the company bureaucracy, the company blamed the way the farmers organised production.
The result was tension between the company and farmers. The well-meant social contract between the two parties turned into distrust. But that need not have happened, Vellema says. If the company had better understood the farmers and the way they organise production, Dole management could have anticipated what happened. The problem was that the accountants thought it was possible to design a blueprint for the perfect system. Vellema found out that however well-thought-out technically, social labour relations change, as do the tasks of both the farmer and the company. Management, Vellema suggests, should instead focus on regularly adapting the management system through continuous negotiations. Such 'sociological management' could handle changes such as those that took place in the Japanese market.
Sietze Vellema received his PhD on 12 February 2002. He was supervised by Professor Paul Richards of the Technology and Agrarian Development Group, and Ben White of ISS in The Hague.
Extension worker from the multinational Dole explains asparagus growing to a Philippine farmer. Photo Sietze Vellema