Farmers gain from multinationals' hunger for raw materials

A new farming model is emerging in Kenya between farmers and multinationals where the companies struggling with prohibitively expensive cost of imported raw materials are contracting farmers to grow produce on their behalf, a model that has opened new markets for farmers. The multinationals looking to cut cost of imported raw materials and maximize on locally available cheap ones, are spending millions chasing farmers with incentives like free training, high yielding seeds and ready market, an arrangement that has enticed farmers who have long been grappling with low and erratic market prices for their produces.

Seed companies have also sought farmers to grow seeds on their behalf as demand for seeds outweigh  supply. In Kenya, contracted farmers produce 60 per cent of tea and sugar, and all the country’s tobacco. This business model has helped link these small holder farmers to markets and enables them share production and marketing risks with promoters while exposing them to new opportunities to earn income. For example, farmers have been able to enter into markets for high-value horticultural crops that require a high investment.

Promasidor Kenya Limited, the manufacturers of Sossi Brand has been in an arrangement with experienced soya beans farmers in Western Kenya where the firm supply the farmers with inoculants, fertilizers, insecticides and fungicide to assist them in the production of soya beans. The over 1400 farmers earn Sh55 for every kilo they deliver to the company, a better deal compared to what they sell in the market which is between Sh35 and Sh40 for the same amount.

Western seed company tasked with production and distribution of seeds in the country has also been in an arrangement with farmers in Bungoma and Trans Nzoia to plant the much sought after desmondium seeds used for insect and pest control across the world . Western Seed Company provides 250 gm seed to each of the over 300 trained farmers for planting. The company then purchases all the harvest. In the three years the arrangement has taken place, the company has managed to produce over 4 tons of the high quality Desmodium seed in Kenya per year.  

Coca Cola is also in a partnership with farmers in Murang'a, where the beverage company buys fruits for juice production. The company has turned to juice as it seeks to increase its revenue channels. According to the soft drink's vice-president Alex Cummings, Coca Cola has targeted 37,000 passion fruit and mango farmers in Kenya and another 17,000 from Uganda in a venture that would see 54,000 small-scale growers from the two East African countries reap from the two crops.

The project is spread in Central Kenya, where 5,000 farmers have been targeted. The firm has also set its sights on Rift Valley and Eastern provinces, with plans to expand to the Coast. Mango production in the area has traditionally stood at seven to 10 tonnes per acre, with a potential of producing 15 tonnes. This has been hampered by farmers lack of interest in the fruit farming as traders buy a single fruit at a paltry Sh3 to Sh5. The beverage making company has however been buying the fruit from the farmers at Sh15 which has spurred interest.

Drumnet, a project of an NGO called Pride Africa has one such project in Western Kenya. In the contract, sunflower farmers have access to credit on farm inputs including sunflower seeds from agrovets courtesy of Equity bank. They then plant the sunflower and are guaranteed a market from Bidco Oil manufacturers at a price they negotiate beforehand. Drumnet ensures that the farmer, stockist, banks and the buyer are in constant communication through an ICT system simplified to the level of using SMS. 

“Contract farming has the potential to link farmers to markets and stimulate agricultural production in the face of globalisation. Contract farming arrangements can also fill in the void left by governments in the wake of liberalisation by providing access to inputs, technologies, credit and other services,” read part of a report by the Partnership for Africa’s Development (NEPAD).

Contract farming the report further add has proven effective in integrating smallholder farmers into commercial agriculture. For instance, in Kenya, most of the more than 400,000 producers that benefited from this arrangement, are smallholders with less than one hectare of land. These producers pool resources and their farm produce to cut production costs and reduce marketing risks. Collectively, they make it easier to get inputs, credit, technical advice and services such as processing and transport.

“Although it has obvious benefits for smallholders, contract farming is not a solution for every market development challenge.
Poor infrastructure, weak contract enforcement, limited markets for financial services and political interference in product and input markets undermine the viability of this arrangement,” the report further says.