August 7, 2017

Contract farming explored

Soma Group, a leading agriculture, education and infrastructure company, has signed an agreement with the Agriculture Ministry to collaborate on a modern contract farming project.

The collaboration will focus on rice, crop rotation with the use of technology for harvesting, the use of machinery, proper use of soil and pesticides, studies on soil conditions, seeking markets and raising funds to help farmers.

Agriculture Minister Veng Sakhon said the ministry strongly supported the move and added it was an opportune moment for the company to invest in the sector.

“It is a right time to for the agriculture sector to have modern technology to expand its potential to all sub-sectors of agriculture to achieve government policies and move Cambodia to a higher middle-income country in 2030,” said Mr Sakhon.

He said that the use of machinery, fertilisers, pesticides and technology in agriculture required skills and human resources with innovative ideas.

“Every farmer’s activity must comply with soil conditions and quality in a transformation from traditional to modern agriculture.

“We hope that through this modernisation and collaboration with the company, farmers will be offered a technique of farming to get high yields and ensure food safety. It will also contribute to reducing poverty and migration,” Mr Sakhon said.

Contract farming is not widely practiced in the kingdom due to mistrust between the private sector and farmers and the lack of legislation to ensure farmers do not breach their agreements by selling outside the contract for higher prices.

Lim Heng, vice president of the Cambodia Chamber of Commerce, said previously that contract farming was beneficial to farmers because it opened up otherwise unavailable markets for smallholders, provided materials, technological and financial support, and reduced farmers’ costs and the risks involved in selling their product.

“The government should enact legislation on contract farming so that there is trust between the private sector and farmers,” Mr Heng said.

Hean Vanhan, director-general of agriculture at the Ministry of Agriculture said that contract farming should also involve the participation of local government officials and provincial agricultural officers.

While contract farming is a conceptually sound institutional arrangement, lack of flexibility and coordination problems are its main liabilities, he added.

“Local government officials will be able to ensure that contract farmers do not sell their products to outsiders for higher prices during the harvest season,” said Mr Vanhan.

“The private sector can help reduce uncertainties through predetermined prices negotiated with farmers before the contracts are signed. However, this is seldom the case.”

Song Saran, president of Amru Rice (Cambodia), said there were production risks in contract farming.

“Contract farmers are often required to grow new crops or adopt unfamiliar farming techniques and these are production risks,” he said.

“They are also likely to face greater credit risks because of excessive advances by the companies, which are unsustainable to their operations.”

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