If I had three wishes this new year... for agriculture

The title of this column was pinched from a song of the same title. The baby boomers of my generation will remember this winningly persuasive love song composed by Claude Baum and Lew Spence, and made popular by Frank Sinatra.

To start the year, I thought of writing down a wish list of the developments I would dearly love to see in our agriculture. The list turned out to be long and overwhelming. Thus in order not to dissipate the message, I resolved to address only one among the many but which has significant immediate and long-term productivity and equity consequences.

My first wish was for a deliberate technology redirection from monocropping to multiple cropping and its corollary policy shift from rice self-sufficiency to raising farmers’ incomes (06 January 2018 column).

A dear friend and fellow Cornellian, Mario Labadan, agribusiness entrepreneur and our country’s leading poultry nutritionist, pressed me for the other wishes.

Here’s the second: wider adoption of contract growing as a business model to get around the inconvenient truth of uneconomic small farms, which are getting even smaller with each passing generation.

Our small farmers are not as productive and as competitive as our Asian neighbors because of insufficient access to 1) modern productive technology, 2) timely and affordable credit, and 3) fair markets. All our government rural development programs had been directed towards alleviating these three shortcomings. But, sadly to date, with limited success.

However, there is a neat way of simultaneously overcoming these limitations, and with little cost to government — by contract growing. Contract growing is a business arrangement where farmers are organized to supply the farm produce requirements of integrators, usually food processors, exporters, institutional buyers, wholesalers and/or supermarkets, for a mutually agreed price which is higher than what farmers usually get in the open market.

There are different modalities but usually the integrators advance the seeds (and breeding stock), fertilizers, feeds, pesticides and other inputs, the costs of which are charged against the produce delivered by the farmers.

And in order to assure themselves of quality of the product as well as volumes and time of delivery, the integrators deploy company production specialists and veterinarians to provide technical support to growers. Benefits to the small growers Contract growing is a common business practice the world over. Studies after studies show that contract growers are often much better off than their independent counterparts. Their productivity is higher and they are better protected from production and market risks. With timely availability of inputs and better management, the contract growers obtain higher yields and are less vulnerable to environment and biological risks (pests and diseases). Likewise, the prices contract growers receive are higher and stable.

Contract growers also have better access to formal credit for purchase of equipment, construction of farm structures, land improvements and other capital costs. Many banks accept marketing contracts as proof of borrowers’ bankability.

Benefits to integrators

Contract growing makes business sense to integrators for a number of reasons. In the first place they are assured of their raw materials supply both in terms of quality as well as volume and timeliness of delivery.

Their capital costs are much less because the costs of farm land, buildings, equipment and land improvements are borne by the contract growers. Integrators are also spared of land tenure issues because land ownership is retained by the contract growers. They avoid as well labor problems because the farm laborers are employed by the contract growers, not by the corporate integrators.

And very importantly, integrators enjoy the added benefit of a benevolent, caring corporate image, provided they treat their growers fairly and generously.

Organizing farmers, the most formidable hurdle

and the OTOP Approach Actually we have successful contract growing schemes for broilers, bananas, pineapple, papaya and Virginia tobacco which are our most productive and competitive sectors. Some efforts are underway to organize growers of hogs, palm oil, rubber, coffee, cacao, rice and corn. These private sector initiatives should be encouraged.

For sure integrators will welcome incentives from government like tax credits, access to cheaper money, more rural infrastructure and less regulations. But the single most important incentive government can provide, particularly the local government units (LGUs), is government support for organizing farmers and their cooperatives.

Bringing farmers together is time consuming and the most formidable hurdle integrators face in contract growing. Integrators would prefer a concentration of growers in specific production areas to facilitate supervision and to minimize logistics costs. Integrators likewise would prefer that the growers are organized into cooperatives to reduce training and transaction costs and for discipline purposes, in cases of errant farmers diverting their produce elsewhere (pole vaulting).

The neatest way to do this is to adopt the one-town-one-product (OTOP) approach being championed by the Department of Trade and Industry (DTI) to promote small and medium-scale enterprises. It will be a matter of matching LGUs and prospective integrators locators. Competition and inclusiveness

The fear that integrators will unduly exploit the small growers is more imagined than real. The integrators out of self-interest cannot afford to oppress the growers. They may succeed in the short term but in time they will run out of growers. The key is to foster competition among integrators. The growers can always terminate the partnership or switch to the competition if they feel they are being short-changed. Besides, in time the growers’ cooperatives often are able to negotiate for better terms with the integrators.

But the real challenge is inclusiveness. Integrators invariably gravitate towards the larger, better endowed farmers, to the exclusion of the small farmers who need assistance the most. Government incentives and support should therefore be directed to getting the really small growers integrated into the emerging, profitable contract growing supply chains.

***** Dr. Emil Q. Javier is a Member of the National Academy of Science and Technology (NAST) and also Chair of the Coalition for Agriculture Modernization in the Philippines (CAMP). For any feedback, email eqjavier@ yahoo.com.