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Contract farming strengthens functioning of Tanzanian cotton supply chain

04 June 2012

The government of Tanzania has heralded the success of its cotton contract farming scheme. According to the Minister for Agriculture, Professor Jumanne Maghembe, ‘contract farming has increased yields by 45 per cent due to availability of inputs’. The success of the scheme was also attributed to the ‘enabling policy environment for the cotton sector’ set in place by the government. The minister maintained that more investments are needed for contract farming to keep improving.

To stimulate increased private investment in the sector the government intends to withhold trading licences from ginneries that are not making the investments required to strengthen the Tanzanian cotton sector. This action is aimed at 18 ginning companies that have set themselves against the contract farming scheme.

According to the Tanzania Cotton Board Director-General, Marco Mtunga, the new system has ‘improved quality and increased transparency at buying posts’ and empowered growers to manage their own affairs.

Some 62% of the estimated 500,000 cotton growers in Tanzania have signed contracts with ginners through 5,565 farmer business groups, with all of the participating farmers (an estimated 311,000) having received inputs on credit.

However, textile industry press reports suggest that the matter is not clear-cut. The conflict among Tanzanian cotton sector stakeholders – between those in favour and those against contract farming – carries international implications. The International Cotton Association (ICA) has placed some local cotton traders and ginners on the default list ‘for alleged violation of sales contract with overseas buyers’. This ICA list ‘warns international buyers from doing business with those cotton traders and ginners who have defaulted in honouring their contracts in the past’. This, it is feared, could bring ‘further disrepute to the country’s cotton industry.

The Tanzanian Cotton Association Chair has warned that if contract farming is undermined, a further decline in the Tanzanian cotton sector is likely. Efforts are therefore taking place to reach a consensus on the implementation of the contract farming scheme in ways that address the concerns of those ginners ‘who are not able or willing to meet the costly demands of contract farming’. These operators tend to be smaller (some 18 ginners handling only 20% of the crop) and lack the necessary capital required to invest in contract farming. Ginners which have supported contract farming through making the necessary investment (17 ginners handing 80% of the crop) want government to uphold the rules of contract farming for all industry players so as to avoid ‘free riders’ who do not invest in the development of the sector.

According to local cotton sector analysts, contract farming has seen a record acreage placed under cotton this season, with significant improvement in input distribution promising higher yields. 

Editorial comment

Contract farming is at the heart of a four-part strategy for the development of the Tanzanian cotton and textile sector. The programme consists of measures aimed at:

  • reforming the regulatory framework for the cotton sector;
  •                 improving access to inputs;
  •                 enhancing farmer training and organisation to improve farming practices;
  •                 developing downstream industries linked to the cotton production.

The 2012 season is seen as being a crucial year for the overall programme, with partnerships between farmers’ groups, ginners, research institutes and local government being established to implement major programmes to improve productivity, yield and cotton quality across the bulk of the sector. If the 2012 season proves successful, a foundation will have been laid for an intensification of efforts to promote downstream value addition.

It remains to be seen whether financing initiatives can be put in place to provide the necessary loans to smaller ginners at affordable interest rates and soft repayment terms, in ways which overcome the ‘free rider’ problem and ensure healthy competition in the sector (by preventing a dramatic reduction in the number of ginneries operating). This could potentially offer a better way forward than withdrawing trading licences, and could offer a sounder foundation for moving onto local value-added processing activities at the level of textiles and clothing.

Looking to the future, strengthening the legal framework and enforcement mechanisms for contract farming would appear to be important. However this needs to be complemented by further strengthening the network of farmers’ business groups to enhance their bargaining power within the cotton supply chain, and even support for the takeover of certain ginneries by larger farmers’ groups. This could replicate the success enjoyed in the Kenyan cotton sector in the mid 1970s. However, the subsequent Kenyan experience highlights the importance of good, accountable and transparent management of farmers’ organisations and hence the importance of a step-by-step approach to building up capacity and organisational ambition.


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