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Research Report

THE STATUS OF CONTRACT FARMING IN MALAWI

Ian Kumwenda
Mathews Madola
Copyright Date: May. 1, 2005
Pages: 13
OPEN ACCESS
https://www.jstor.org/stable/resrep00669

Table of Contents

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  1. (pp. 1-1)
  2. (pp. 2-3)
  3. (pp. 5-6)

    Following independence the Malawi government followed interventionist economic policies with government both regulating markets and actively intervening in markets through parastatals. The only legal body through which smallholder farmers sold and bought their farm produce and inputs was through the Agricultural Development and Marketing Cooperation (ADMARC). ADMARC guaranteed a market for the entire smallholder farm produce. Government was also the main provider of agricultural extension services and agricultural credit through the Ministry of Agriculture. Extension was mainly based on the transfer of technology approach, whereby information and training were disseminated through supply driven programme while agricultural credit was subsidized through...

  4. (pp. 6-8)

    Parastatal crop authorities which were formed in the 1970s to promote the production of sugar, tea, coffee and flue cured tobacco practiced some form of contract farming in Malawi. These crop authorities played an important role in the provision of extension services, marketing of the produce, training and information and provision of inputs to smallholder farmers. Farmers were thus assured of a market for their produce at predetermined prices. However, the reduction in funding, coupled with weak management controls resulted in the collapse of most of the crop authorities in the late 80s and 90s. Government with technical and financial...

  5. (pp. 8-11)

    The Illovo sugar Company runs a smallholder out grower scheme at its mill in Nchalo, Chikwawa and another one owned by government through the Smallholder Sugar Authority at the Dwangwa factory. The company supplies seed, fertilizer, chemicals, irrigation equipment and land development costs on credit to contracted farmers. The company also provides extension services to the farmers. Smallholder out growers have achieved good technical results and earn good income as long as their repayment of loans (associated with land development and irrigation equipments) are frozen. The structuring of these loans together with the devaluation of the kwacha in the mid...

  6. (pp. 11-11)

    A private sector-smallholder partnership must be based on common goals, with the planned results practically defined and roles and relationships and responsibilities clearly established. The strengths of the partnership rests in a joint-stake holding, which should encompass managerial, financial, institutional and resource ownership arrangements.

    A systematic management of the production process is necessary to guarantee good crop yields, high quality and derived financial benefits. The farmer’s role in management is necessary to ensure that that the growers concerns are heard and that the productivity enhancement concept is accurately communicated.

    Tight financial control should be maintained throughout, supported by accurate and...

  7. (pp. 11-12)

    A company may break a contract with farmers for example by failing to deliver farm inputs and services at the correct time, reduce to receive a produce or arbitrarily raising quality standards and late payments. Farmers can also default sometimes because of a production failure or simply because farmers have sold the produce to competing buyers partly to avoid repaying debts. The absence of strong legal systems, the lack of collateral held by smallholder farmers and weak insurance systems create a considerable risk for farmers entering into contracts.

    Potentially high transaction costs in for example in service delivery and monitoring...

  8. (pp. 12-12)

    To establish an agrarian economy that ensures food and nutrition security to its growing population, raw material for an expanding industrial base, surpluses for export and a fair an a equitable rewarding system for the farming community, ‘commitment driven’ contract farming is in no doubt a viable alternative farming model that provides assured and reliable input service to farmers and desired farm produce to the contracting firms....

  9. (pp. 12-13)