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Human rights criteria for making contract farming and other business models inclusive of small-scale farmers 2011, para. 22
- Paragraph text
- While the ability of buyers to purchase inputs at wholesale prices might allow them to pass savings on to farmers through lower prices, it may also be that when a farmer has access to inputs only through a buyer, the buyer will charge farmers higher than market prices for those inputs. In the course of consultations, the Special Rapporteur received a communication indicating that in the absence of public services, contract farming can create potentially devastating dependence by small farmers on the technology, credit, inputs and services provided by their contracting companies. This not only points to the danger of the Government relinquishing its duty to support farming communities by providing adequate public goods in the hope that private investors will fill in the gap, it also highlights one of the main negative effects of contract farming for farmers, which is its potential to trap them in cycles of debt. One common occurrence is that farmers must borrow money to invest in agricultural production as required under the contract and then do not earn enough money to cover their debts, for instance, because of falling market prices or poor harvests. This risk is particularly important where the investment on the land is related specifically to one type of production for which the contracting firm is the only buyer, a constraint that may be exploited by the firm as a way to exercise monopolistic power and thus gradually impose lower prices on farmers. Crops that rely on complex production and processing technologies and substantial specialized inputs that are unfamiliar to most growers and require large capital outlays significantly increase the level of risk confronted by growers, as illustrated by the Smallholder Sugar Authority and Smallholder Tea Authority contract-farming schemes in Malawi. The resulting cycle of debt can trap farmers into contractual arrangements that are neither optimal nor easily abandoned, either because of the debt itself or for other reasons, for example, because the soil was degraded by heavy pesticide use or because farmers have lost their relationships with former transaction partners, are unable to re-establish traditional cultivation methods or products or have become too dependent on the firm for other services.
- Body
- Special Rapporteur on the right to food
- Document type
- Special Procedures' report
- Person(s) affected
- N.A.
- Year
- 2011
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