Production at any level requires some measure of reliability in inputs to guarantee consistency in results and products over time. A constant supply of raw material is non-negotiable for companies involved in the large-scale production of secondary and tertiary products. This is one of the reasons contract farming is ideal for buyers, especially secondary and tertiary manufacturing companies.
Contract farming is an agreement between a buyer, usually a company, and a farmer or group of farmers to supply a specific quantity and quality of farm produce over a period to the buyer at a predetermined price.
Contract farming presents numerous benefits to both the buyer and the farmers (the sellers). Have you wondered how you can get into a farming contract and enjoy these benefits? Then this article is worth your time as you will learn the steps involved in starting a farming contract.
As a general rule of thumb, a business plan is crucial to avoid running at a loss.
- Who’s selling?
The first step isn’t overthinking the perfect business plan, even though having one is critical. Instead, your primary mission is finding who’s ready to enter into the selling contract.
You will have to do the groundwork of finding the right farmer(s) that cultivate the type of farm products you need and whether they are willing to go into a contract farming agreement, if they are not already into it. You will also need to ascertain how much knowledge the farmer or group of farmers have about contract farming, the crops they cultivate, and their track record in farming that crop.
- What model are you adopting?
After you’ve done adequate background and market checks, the next step is to determine which contract farming model will be most suitable for your project or business. There are diverse models that depend on the type of agreement between farmers and buyers and the requirements of the agreement. The popular models are the informal model, the intermediary model, the multipartite model, the centralised model, and the nucleus estate model.
- What’s in the contract?
Like all other types of business relationships, farming contracts can result in severe conflicts if the terms and agreements in the contract are not clearly stated. The process of drafting the agreement should involve a legal expert who will ensure it is devoid of vagueness. Specifics such as prices, quality, time benefits, and individual responsibility should be explicit and understood to mean the same thing to the parties involved.
- Coordination and evaluation are key
After the agreement has been fixed, the document does not instantly transform itself into farm produce. Some serious coordination and monitoring added to constant evaluation are sacrosanct. You do not leave the contract unattended because you have a paper that states that it’s all planned out. You will have to deliver on the incentives and farming inputs as agreed or promised to facilitate the work of the farmers.
It is expected that when the period of supply stated in the farming agreement comes, the buyer should be greeted with a call from the farmers that the supplies are ready for pick up – all other things being equal. But in a situation where things are not as equal or even more equal than expected, the farming agreement determines the course of action.