Iran Applies the Global Comparative Experiences for Executing Approaches of the Contract Farming Doctrine; Deputy Minister
The results of the long term studies, as well as thematic analysis, prove that the contract farming aid farmers to reduce the risks due to the price fluctuations and guarantees the crop sale. Notwithstanding, it could bring negative consequences including unpredictable risks such as deformation of the agricultural normal structure due to increasing the consumers' purchasing power.
The shareholders of the Rural Production Cooperatives (RPCs) will be able to boost their income only through engaging in the contract farming, Hossein Shirzad, who is also the CEO of the Central Organization for Rural Cooperatives of Iran (CORC) said in the sixth symposium of the Contract Farming.
Categorizing the market inefficiency into price inefficiency and technical inefficiency, Shirzad went on that the price inefficiency occurs because of the high cost of the production factors including (labor force, storage, transportation…), while, the technical inefficiency is due to the crop wastage. Contract farming boosts the productivity of the labor force, the wholesale and the retails sale with no effect on the quality.
"The high marginal value, meaning the low share of the farmers of the Crops' final value, should be controlled in the level that no parties (producer and consumers) bear any loss. The official data prove that livestock products, crops, and horticulture products bring about for the producer the minimum market margin accompanied by the maximum share of the final products, respectively. Therefore applying the contract farming for the horticulture sector appears as an essential axiomatic.
It seems natural that some crops show more flexibility to be produced under the contract farming regime. In 2018, about 90% of poultry products, 68% of the pig-raising products, 90% of tobacco and sugar beet have been produced by the contract farming in the USA, while these figures are 25% and 23% for soybean and wheat, respectively. In conclusion, the statistical data prove the increasing trend of contract farming in Europe, Africa, and the USA", he added.
Citing the global experience, Shirzad referred to the direct relation between the size of farms with the yield of farming, going on that in 2008, more than 70% of USA large farm, earning at least 1 million US. $ were working under contract farming while this figure for the small farms was 7%.
Furthermore, conducting a bi-step similar survey in Brazil, Brazil, Peru, and Argentina demonstrates identical results, in 2010 and 2011.
The results of the long term studies, as well as thematic analysis, prove that the contract farming aid farmers to reduce the risks due to the price fluctuations and guarantees the crop sale. Notwithstanding, it could bring negative consequences including unpredictable risks such as deformation of the agricultural normal structure due to increasing the consumers' purchasing power.
There have been many innovations in financing of the contract farming. Contracts revitalize indoor and overseas capital rising because they guarantee the crop production for few but target-oriented customers, as well. The Iran experience in the 70s on asparagus farming in the Khuzestan agro-industry companies bears out the above-mentioned result", the official added, adding that for as much as the contract farming can balance the financial portfolio and capital risk portfolio.
" The comparative study of contract farming throughout the world teaches us that first, applying this system needs a supportive Legislative Power that respects the private ownership too. Contract farming should focus on large and integrated farming systems like RPCs, agro-joint stock companies, and agro-industry corporations. Contract farming in the broiler and egg-laying hens industries of European and American countries is pioneer, and third, contract farming links the national value chain and overseas markets through securing financial affairs "Shirzad added.
Citing to the evolutionary trend of India's legislative system for contract farming, Shirzad asserted these Rules and Regulations should protect the interests of the farmers, as the weaker of the two parties entering into a contract.
Finally, shirzad concluded that considering the status quo, RPCs, agro-joint stock companies, and agro-industry corporations possess the most appropriate structure for contract farming; however, we always should apply the experience of the pioneer countries in the field of contract farming to understand the obvious and hidden governing rules. Having a prosperous agriculture system requires to use the global experience to approve the Rules that adopt a unified approach in policymaking, procedures, and designing.