Capital Ethiopia Newspaper

Ethiopia establishes legal guidelines for contract farming

The Agricultural Production and Marketing Contracts proclamation has been drafted by the Agricultural Transformation Agency (ATA) to improve relations between traders and producers and establish legal contract farming in the country.

Ethiopian Horticulture Producer Exporters Association (EHPEA) raised concerns during a recent meeting held at the Prime Minister’s Office.

According to the draft proclamation, agricultural production and marketing contracts are increasingly practiced in Ethiopia, although there had been no legal guidelines until now.

Lack of laws concerning contract farming has affected both traders and farmers because the price of products often differed from projections, according to experts.

The draft proclamation indicated the existing laws were not adequately tailored to the particular nature of agricultural production and marketing agreements and were not sufficient for addressing potential risks and realizing the potential benefits of agricultural production agreements.

It elaborated that the proclamation is one of means to linking smallholder farming with reliable and big buyers.

The draft proclamation explained that the law would allow the increase of agricultural production and productivity and enhance economic development.

Agricultural produce that will be included in the contract farming proclamation or allowed to be embedded under the new law include different agricultural products such as commodities traded on the Ethiopia Commodity Exchange.

In the definition the proclamation stated that agricultural produce means all produce, whether processed or not, of agriculture, apiculture, sericulture, horticulture, floriculture, aquaculture, animal husbandry, or forestry as well as products directly derived from this produce including milk, honey, and silk.

The draft proclamation indicated that a contractor is obliged to provide appropriate agricultural inputs and other support to the producer as agreed in the contract, while the producer is responsible for producing and delivering the product.

For the last few years EHPEA conducted a study about forming a legal guideline for contract farming.

It presented the findings to the PM office to encourage the formation of the law. A week ago Tewodros Zewdie, Executive Director of EHPEA, told Capital that there was a breach from both sides when the price changed on the market. “For the last few years we have been studying the sector on the aim to expand agricultural production and export,” he added.

During the meeting chaired by Prime Minister Hailemariam Dessalegn the association mentioned the issue, while the PM stated that the government has given priority attention and will make improvements in the near future, according to Tewodros.

“There is not a contract farming law in the country and that caused a lack of confidence on both sides,” he added.

“The sector was unable to use the out grower scheme,” Tewodros explained.

Experts at the association told Capital that if the law becomes applicable it is a good opportunity to expand exports.

“The export of fruits and vegetables will increase dramatically if the law become effective,” Tedla Zegeye, Administration and Finance head of EHPEA, told Capital.

“The production volume and quality will rise significantly which will assure international buyers, who are looking for sustainable and high quality supply,” he said.

In contract farming, a specific product is cultivated after an agreement is made between a farmer and a buyer. The farmer must deliver the product in the agreed upon quality, quantity and time.

The buyer in turn must commit to purchasing the cultivated product and shall provide farming inputs that include seed, fertilizer and technical support.

Some global giants like Diageo have contracted with a small number of barley farmers through the support of ATA.