Contract farming is agricultural production in accordance with an agreement between buyer and farmer. The farmer agrees to provide a specific quantity, quality standard, and delivery schedule. The buyer agrees to purchase the product at a pre-determined price and often supports production.
In Indonesia, contract farming has proven to be very useful for small farms for a number of reasons. For example, it is often very difficult for smallholders to access crucial market information. By contracting with a large agribusiness firm, they put themselves in the mix of market characteristics. Also, large firms have more access to new technology and are eager to share the knowledge to achieve a more efficient process. In rural areas of Indonesia, gaining market access independently is very much a struggle.
In this scenario, a contractual agreement is mutually beneficial. It is a way to spread production and marketing risks between agribusiness and smallholders. In this way, producers can focus on effectively producing the product and the larger firms will take care of the marketing and exports. By connecting rural economies to the international market, contract farming leads to substantial improvements to the broader economy.
http://aciar.gov.au/sites/aciar/files/node/533/tr54.pdf
There is a relatively new controversy over milk in New Zealand and Australia. The claim is that protein in regular milk (A1 protein) can make its way into the bloodstream, causing diseases such as autism, schizophrenia, juvenile diabetes, and heart disease. Scientists disagree whether this claim is valid. The benefits of A2 milk seem to be mostly hype at this point, but consumers that believe A2 milk is beneficial continue to purchase the more expensive A2 milk. A2 Corporation and Freedom Foods companies created a joint venture, A2 Milk Company, in order to take advantage of the hype and capture a share of the relatively small market. It’s interesting that they created a joint venture in order to spread out the risk between the two companies in case scientific evidence proves there is no benefit to consuming A2 milk instead of A1 milk, and the A2 milk market falls through.
To read the full report, go to the following link: http://www.abc.net.au/7.30/content/2010/s2866747.htm
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Recent changes in food consumption habits of people in developed countries have included a growing demand for a greater variety of value-added products, which, in turn, has given rise to greater sophistication in food processing and distribution systems. One of the main principle mechanisms that agribusiness uses to secure supplies is contractual relations. This includes sharecropping, purchase-sale agreements and contract farming.
Procurement methods depend on product type, seasonality, demand, type of grower with whom firms establish relationships, positive or negative experiences from earlier relationships and specific policies point out that land tenure and political conditions of a country also influence decisions. These factors affect the relationship between firms and their labor force. There needs to be flexibility which allows regulating the labor supply in line with production cycles and minimization of costs such as health insurance and paid leave. Firms protect themselves from politically organized labor to ensure a stable workforce. They do this by practicing sharecropping or contract farming.
http://www.accessmylibrary.com/article-1G1-134777787/agribusiness-and-farmers-mexico.html