Iran Applies Buyer-Oriented Patterns for Financing the Value Chain of the Contract Farming: Deputy Minister

"Iran's agricultural value- chain has been threatening by oppressive sanctions against Iran's economic system in recent years. Therefore, protecting all agricultural stakeholders, including farmers, processors, traders and wholesales require adopting comprehensive patterns which not only modify the buyer –purchaser relationship but also secure a long-term relationship with an appropriate legal background for both parties, "Shirzad said.

Noting the experience of CORC in adopting efficient price-level adjustment mechanism for garlic and tomato in the summertime of 2019(August, September) and Saffron in (October, November) demonstrates that the vast agricultural cooperative network should always be ready to face the challenges due to the seasonal overproduction, the official went on however the buyer-oriented patterns seem to protect the purchasers' interests rather than the consumers. Because this pattern accelerates exporting overproduction crops from the production zones, it secures the interests of the other agro-stakeholders including farmers and processors, as well. This pattern forces them to apply debt management mechanisms like banks and other Financial Service Providers (FSP).

" Since the contract-based transaction, are driven by financing, consequently, the contract farming will be a preferable pattern for the value chain. Because this in one hand ensures the traders in terms of securing the crops, and on the other side ensures the farmers in terms of receiving the due cash of the crops. Meanwhile, the interests of traders who procure the agricultural inputs for farmers will increase by contract farming due to the farmers' facilitated financial access ", Shirzad added.

Notwithstanding, the development of an efficient value chain depends on the accurate selection of committed trade partnerships, good facilitators, appropriate financial service providers, and comprehensive administration of the whole chain, Shirzad went on, adding that we cannot expect from one monopolized bank to organize and manage the whole agricultural value chain.

"The comparative studies prove that the management of such a value chain requires the facilitator organizations such as CORC that by appropriate budgeting and an executive plan support adopting a national comprehensive approach in the agricultural value chain. Therefore, the investors will be able to guide the chain and the financial institutes will be ensured on the capability of each of the components of the value chain for the quality and quantity of products. Furthermore, the FSP can not only mange the financial affairs of each components but also provide the insurance services for all of them." Shirzad implied.

Confirming the risk-decreasing role of rural and agricultural cooperatives in the value chain, Shirzad said that the experience proves that the major of marketing risk is due to the lack of capability for on-time sell as well as lack of the standard quality and quantity, the deputy minister asserted that CORC has to tackle this challenges by using the mechanism such as contracting, forfeiting, insurance, factoring, joint venture, Banking Payment Obligations (BPO),pre-contracting and future contracts.

Future contracts decrease price fluctuations and can be used as a warranty for receiving loans. Meanwhile, joint ventures facilitate to share ownership, risks, outputs, financial resources, and market access.

The complicates state of business in the current world requires to adopt modern approaches as a historical necessity.