Contract Farming and Rice Quality Upgrading: Assessing Smallholder Farmers’ Motivation, Performance and Constraints Under the Business Services and Farmers’ Organisation (Esop) in Togo
ABSTRACT
Contract farming is emerging as a promising way to upgrade domestic rice quality in Togo. The Non-Government Organisation ‘Entreprise Territoir et Développement’ (ETD) has started promoting a kind of contract farming scheme called ’Entreprise de Service et Organisation de Producteurs’ (ESOP) in the country. The rewards from contract farming could be substantial for smallholder farmers; yet there is a serious concern about the farmers’ ability to stay in the partnership for long term because of constraints that they face. Based on the Modern Contract Theory and the Impact Evaluation Theory, this study sought to address the following issues: farmers’ motivation to work under ESOP’s contract farming, the impact of ESOP contract farming on farmers’ performance and the constraints that farmers face in ESOP’s contract farming. Primary data were collected from a total of 414 smallholder rice farmers comprising 186 ESOP contract farmers and 228 non contract farmers selected using a multiple stage sampling techniques in three (3) out of the five (5) Regions in Togo. Farmers’ motivation and constraints under ESOP contract farming were assessed using Factors Analysis and Cluster Analysis. The impact of contract farming on farmers performance was assessed using the Propensitity Score Matching Model and the Endogenous Switching Regression Model to compare the results. The results showed that i) incentive elements in the ESOP contract terms, the prevailing input output market condition in the country and farmers’ need for a reliable source of income were behind their motivation to work under ESOP contract farming, ii) by participating in ESOP contract farming, the rice yield was increased by 14%, revenue by 32%, net benefit by 92,200 FCFA/Ha, and paddy quality upgraded from grade IV (poor) to grade I (premium), iii) ESOP contract farmers face three groups of constraints: a) the price formula used by ESOP is not satisfactory b) ESOP shows no respect to the agreed payment mode and c) lack of solidarity within the Farmer Based Organisation. If these constraints are not well addressed, the ESOP rice contract scheme will gradually collapse because about 45% of farmers will exit due to the lack of appropriate incentive elements in the contract, 28% because of lack of cash and carry method of payment, and 27% because of lack of solidarity within the Farmer Based Organisation. The findings suggest that a policy intervention that facilitates capital access by ESOP from Financial Institutions is needed to avoid the contract scheme’s collapse. A new design of contract should include more incentive elements such as the split quality premium price, the respect of the contract in terms of cash and carry payment method and training on solidarity within the Farmer Based Organisation.
CHAPTER ONE INTRODUCTION
Background of the Study
- Presentation of Togo and its agricultural profile
Togo is a small country (56.600 km2) in West Africa and bounded in North by Burkina Faso, in the South by the Gulf of Guinea, , in the East by Benin and in the West by Ghana. The country is divided into five (5) Regions (the Maritime Region, the Plateaux Region, the Central Region, the Kara Region and the Savannah Region). Agriculture represents 30.9% of GDP in Togo; approximately 60% of the population are in agriculture, and 87% of the active population are in subsistence agriculture (RNA, 2013). Agriculture in Togo consists of about 90% of smallholders who use traditional techniques. Total available land is 3.4 million of hectares, but only 1.54 million hectares (45%) was cultivated in 2012 (RNA, 2013). The staple crops are cultivated on about 1,387,000 hectares against 154,000 hectares for cash crops (RNA, 2013).
The national agriculture production is estimated at 3,583,299 Metric Tonnes for 2014- 2015 among which staple crops represented 92% (USDA, 2015). The overall yield of various crops is very low (1-2 Mt/Ha for cereals, 0.5-1 Mt/Ha for leguminous plants and about 10 Mt/Ha for tubers and roots such as cassava and yam (RNA, 2013). Climate change really affects agriculture production throughout the country with a real effect in the south of the country. In the south, the Maritime and Plateaux Regions, the second rainy season has almost disappeared (RNA, 2013). The smallholders who
produce an important share of staple crops are very poor compared to the poor in urban areas.
Market liberalization and urbanization have profoundly influenced the food consumption pattern in the country. Driven by World Trade Organization (WTO), market liberalization has resulted in opening the expansion of an international market, deregulation of domestic food markets and changing food habits (Simmons, Winters, & Patrick, 2005). Crops that were not initially in the population’s food habit consumption are increasing drastically. Rice is one of these crops.
1.1.2 The rice sector in Togo
In Togo, after maize and sorghum, rice is the most important cereals consumed . Its consumption is increasing faster than any other crop. From 1989 to 2011, rice consumption increased from 64,000 Mt to 155,000 Mt (USDA, 2015). The rapid urbanization, the convenience, the easiness and rapidity of cooking rice are the key factors behind the increase of urban rice consumption (Seck, Touré, Coulibaly, Diagne, & Wopereis, 2013). Togo mostly depends on imported rice, which represents about 60% of the country’s need (FAOSTAT, 2015).
Because Togo depends on imported rice, the country suffered from the hikes in world rice prices in 2007/2008. After that crisis, Togo Government with the assistance of Donors invested in the rice sector. The aim was to double domestic rice production from 2008 to 2018. A National Rice Development Strategy (NRDS) was therefore launched in 2010. The production targeted in NRDS were 85,540 Mt for 2008, 151,083 Mt for 2013 and 232,750Mt for 2018 (Demont, 2013; MAEP, 2010). The
investment initially focussed on production. There was little attention of quality
performance nor any clear marketing strategies, which are both critical to consumers preferences (Demont, 2013; Demont & Neven, 2013).
The investment focussed on lowland management and irrigation schemes for rice production (Demont, 2013; MAEP, 2010). Elbehri (2013) indicates that when critical complementary measures (such as strengthen producers’ organization, upgrading rice quality, developing marketing strategies, etc.) are absent , investment in the production will only produce reverse/opposite effects that he calls ‘disincentives’. For Barrett (2008), investments in productivity is sustainable only if there is a market absorbing the surplus created. Currently a market exists, but domestic rice is far from meeting consumers’ preference because of its poor quality (Fiamohe, Seck, Nakelse, & Diagne, 2013). In urban markets where an important share of rice is sold, consumers are increasingly demanding quality rice, more than ever before. Domestically produced rice fails to meet the consumer’s quality preference. Demont (2013) explains that as far as production and processing are unable to assure minimal quality standards, increase in production volume will rapidly saturate local markets and erode prices. When the price gets low, it will compromise farmers’ willingness to invest in quality improvement, and then also in productivity. In this way, the production target set by National Rice Development Strategy (NRDS) will not be achieved.
To produce high quality rice, improvements must be made in production, in variety selection, in weed and insect control, harvesting, processing (threshing, drying, storage practices, milling), and in marketing (transportation and selling) (IRRI, 1985). Futakuchi, Manful, and Sakurai (2013) demonstrate that local rice quality is affected along the entire value chain (from varieties selection, production, harvesting, milling/processing and marketing). They observe that rice farmers will be more
motivated to invest in quality if only there is a price incentive for high quality rice. In their study, Fiamohe et al., (2013) show that consumers in Togo are willing to pay a premium for domestic rice cleanness at 231.2 FCFA/Kg and whiteness at 263.5 FCFA/Kg
In recent years, development planners, researchers, as well as policy makers have considerably increased their interest in contract farming as a mechanism to govern linkages between farmers and agribusiness firms and to upgrade domestic rice quality (Colen, Demont, & Swinnen, 2013; Demont 2013; Demont & Neven, 2013; Fiamohe et al., 2013;). According to Kirsten and Sartorius (2002) producers have to shift from a philosophy of ‘here’s what we produce’ to a situation that asks ‘what do the consumers want?’ Global Rice Science Partnership (GRISP, 2010) propose that by linking production, processing, and marketing through contract, the quality requirement could be met and urban consumer preferences satisfied. For Tollens et al. (2013) institutional innovations, such as contract arrangements, are needed in order to improve quality of local rice, and this will help to make producers more responsive to consumer preferences. The economic value of rice depends on its cooking and processing quality, which can be measured in terms of water uptake ratio, grain elongation during cooking, solids in cooking water and cooking time (Oko, Ubi and Dambaba, 2012). Consumers’ choice of rice varieties are largely but the only based on grain and cooking qualities. The other important quality attribute of rice are chemical, cleanness, and physical (presence of foreign elements. This study focus on physical attribute of rice (in terms of presence or not of foreign elements)
1.1.3 Contract Farming
Contract farming is an agreement between two parties, a producer and a buyer. A buyer commits to buy the output according to a pre-agreed pricing mechanism, quality and quantity at a defined time from a producer. To assure such quality, a buyer provides farmer with input as credit and gives him production advices.
Throughout the world, contract farming is practised in various countries as a means to link smallholders to lucrative market for increased incomes (Barrett et al., 2012; Birthal, Jha, Tiongco, & Narrod, 2008; Kumar, Chand, Dabas, & Singh, 2010). It is a means to provide agro industrial firms with various quality raw materials (Saenger, Qaim, Torero, & Viceisza, 2013).
In Latin America, many agro industrial firms have contracted smallholders to cultivate cash crops, such as strawberries in central Mexico, snow peas in Guatemala, basil and tomatoes in Baja California on plots of less than one hectare (Key & Runsten, 1999). In India, contract farming has played an important role in including small scale wheat seed producers in the Agro-food marketing system for quality improvement (Kumar, Chand, Dabas, & Singh., 2010; Singh, 2002).
In Africa, the expansion of contract farming was encouraged by foreign exchange shortages and structural adjustment programs which considered it an appropriate tool that could help to achieve economic growth (Porter & Phillips-Howard, 1997). Contract farming is therefore being implemented in counties such as Nigeria, South Africa and Zimbabwe (Porter & Phillips-Howard, 1997), Ghana and Mozambique (Barrett et al., 2012) with satisfying results.
1.1.3 ESOP contract farming
Since 2004, a kind of contract farming called the Enterprise de Service et Organization de Producteurs (ESOP) contract model has been implemented in countries such as, Benin, Ethiopia, Madagascar and Togo with the support of Centre International de Developpement et de Recherche (CIDR). In Togo, ESOP contract farming largely expended in the staple food value chain (du Breuil & de Romémont, 2007). The ESOP contract farming model is an innovative mechanism to include smallholder producers in a dynamic staple food value chain and help to enhance their performance for quality improvement. The ESOP contract concept is to create Business services and Agro-food enterprise and link smallholder farmers to them in order to enhance farmers’ performance for quality upgrading and facilitate urban market access with quality product.
The ESOP Contract model is based on two pillars. First, it seeks to organize smallholder farmers to become a viable economic actor. Second, it promotes market oriented private enterprises that could provide viable services to smallholder farmers, and for these enterprises to supply competitive products to market for urban consumer.
In Togo, the ESOP Contract model is promoted by a nongovernment organization (NGO) called Entrepise Territoire et Developpement (ETD). The ESOP contract scheme covers a broad range of value chains in Togo. In 2015, nine different value chain (grain rice, seed rice, soya, seed maize, cassava, peanut, honey, meat and provender) were covered, and 35 small and medium agro-food enterprises were created (ETD, 2015, 2017). Twenty of these small and medium agro-food enterprises are working in soya bean, seed maize, cassava, peanut, honey, meat, and other provender
value chains. The last fifteen of these small and medium agro-food enterprises are working in rice milling, packaging and marketing.
The ESOP rice contract scheme is emerging as a promising way to provide farmers with quality input, credit, extension services as well as sufficient knowledge for rice quality improvement and facilitate farmers’ access to niche markets for higher revenue (Bellemare, 2012; ETD, 2014; Oya, 2012; Setboonsarng, Leung, & Stefan, 2008). From 2004 to 2015, about 15 ESOP rice contract schemes have been promoted, and more than a thousand farmers are working now under ESOP rice contract scheme in Togo. These enterprises are expected to champion a viable quality base for a rice value chain and reduce the share of domestic rice that passes through small millers who are unable to sort quality rice (ETD, 2017).
1.2 Problem Statement
The rewards for being in a contract scheme could be substantial for small farmers who have the ability to be a part of it, but there are serious concerns about their ability to stay in the scheme for a long term (Kherallah & Kirsten, 2002). Evidence from empirical studies shows that most of contract schemes eventually collapse when contracts are designed without consideration to farmer motivation and preference (Eaton & Shepherd, 2001, 2001; Will, 2013). This is especially true when it comes to contract farming of staple foods such as cereals (Colen et al., 2013; Minot, 2007; Kirsten & Sartorius, 2002; Miyata, Minot, & Hu 2009 ; Swinnen, Vandeplas, & Maertens, 2010). The ease with which cereals can be stored and sold create opportunistic behaviour (side-selling) among farmers and this leads the contract schemes to collapse (Colen et al., 2013; Kirsten & Sartorius, 2002) . There are cases where contract farming lead farmers to incur debt Eaton and Shepherd, (2001). A
report from ETD (2014) shows that ESOP programme managers have reported losses due to farmers’ violation of the contract by side-selling their crop. Farmers also report losses because the ESOP administrators did not share the cost of failed crops or did not buy the produce at the right time after harvest (Kluvi, 2013).
There are also controversial results on impact of contract farming on farmers’ performance (Kherallah & Kirsten, 2002). In Benin, Velde and Maertens (2014) reported a positive impact of contract farming on selected farm performance indicators and income. Similarly Honfoga, Rodrigue, Anselme, and Anick (2016) found a positive impact of contract scheme on farmers’ well-being. In Cambodia, Cai, Ung, Setboonsarng, and Leung (2008) encouraged farmers to move out of the contract because they can earn more revenue by staying outside the contract scheme.
In Togo, farmers’ motivation and the impact of the ESOP contract arrangement on farmers’ performance has not been assessed. The constraints that farmers face in the contract scheme are not documented. Well informed researchers show that having information on farmers’ motivation for contract farming could serve as starting point for broadening existing ones (Eaton & Shepherd, 2001; Will, 2013). Many researches have been done on contract farming around the world. Yet, Eaton and Shepherd, (2001) acknowledge that the advantages, disadvantages and problems arising from contract farming can vary according to each country’s physical, social and market environments or conditions. Hence there is the need to investigate the issues case by case. Assessing rice farmers’ motivation, performance and constraints under ESOP Rice contract, farming for rice quality upgrading in Togo is a critical issue.
Research questions
The key research question: what are farmers’ motivation, performance and constraints as they farm rice for the domestic market under the ESOP rice contract and how do they react to rice quality upgrading? The specific research questions are:
- Why do smallholder rice farmers work under ESOP rice contract farming in Togo?
- How does participating in ESOP rice contract farming enhance smallholder farmers’ performance?
- What constraints do smallholder rice farmers face under ESOP Rice contract farming?
1.3. Objectives of the Study
The main objective of this study is to assess the effect of ESOP rice contract farming on the quality of rice produced in Togo. The specific objectives of this study are to:
- Assess smallholder rice farmers’ motivation for contracting with
- Determine the impact of ESOP contract farming on performance of smallholder rice
- Assess constraints smallholder rice farmers face in working under ESOP rice contract
Hypothesis
The main hypotheses: Contract farming enhances rice smallholder farmers’ performances for paddy rice quality upgrading:
m1.allSholder rice farmers are motivated to engage in contract arrangement with ESOP because of the incentive in ESOP contract terms, input output market condition in the country and the direct benefit such as higher price and training.
- ESOP contract farming improves smallholder rice farmers’ performance in term of yield, revenue, net benefit, and paddy
- ESOP Contract farmers face some constraints in their relationship with ESOP, these constraints are related to equitable distribution of incentives in the contract terms, the payment mode, lack of solidarity within the Farmer Based Organizations, and lack of cash and
1.4 Relevance of the Study
Contract farming, is a rural development tool (Barrett et al., 2012; Porter & Phillips- Howard, 1997; Will, 2013). It is mostly used to enhance farmers’ performance for agriculture quality improvement in developing countries (Will, 2013). The growing number of ESOP rice contract farming schemes in Togo aim to upgrade the local rice quality and to facilitate smallholder farmers’ access to niche market and to build quality based value chains (ETD, 2013). To upgrade the local rice quality, ESOP contract model organizes farmers into a farmer base organization, provides them with quality input (seed rice, facilitate their access to fertilizer) and gives them advice on rice production). Finally, ESOP buys the output (paddy) from the contracted farmers, mills and brands the rice as “Riz Delice”. There is an on-going debate about how to restructure contract schemes to upgrade staple food quality and to provide viable opportunities in the niche market for small-scale farmers (ETD, 2017). In Togo, there is a paucity of studies that provide a clear understanding of farmer motivation to engage in contract farming of staple foods, the impact of such contract scheme on
farmers’ performance, and the constraints that they face (du Breuil & de Romémont, 2007).This study fills that gap by assessing farmers’ motivation, performance and constraints under ESOP contract farming. The study is also relevant in that it contributes to knowledge on the ESOP contract restructuration debate.
Understanding farmers’ motivation is important because it helps agribusiness firms to increase farmers’ participation in the contract scheme, reduce contract exit and enhance farmers’ performance for quality improvement (Abebe, Bijman, Kemp, Omta, & Tsegaye, 2013; Masakure & Henson, 2005; Will, 2013). This study is relevant because it will contributed to understanding that incentive element in the ESOP contract terms that were behind their motivation to work under ESOP contract farming scheme. To -upgrade the ESOP contract scheme, special attention should be focussed on these identified elements in the contract terms to reduce contract exit.
The benefits that farmers draw from contract farming could be a motivating force for NGOs and policymakers that care for farmers’ income and poverty reduction to strengthen the ongoing contract scheme (Will, 2013). The study shows that the overall impact of ESOP contract farming on farmers performance is positive (increase in yield by 14%, increase in revenue by 32% and improvement in rice quality upgrade from poor to premium quality). These findings constitute a huge contribution to knowledge. Promotion of the ongoing contract scheme will have a positive effect not only on domestic rice quality improvement but also on farmers’ income. The increase in income will contribute to reduce rural poverty.
Better information on farmer’s constraints can be used by agribusiness firms and policy makers to enhance the sustainability of the contract scheme and reduced contract exit or break and to build a strong and sustainable quality rice value chain
(Barrett et al., 2012; Minot, 2011; Oya, 2012; Porter & Phillips-Howard, 1997). The identified constraints faced by farmers in the ESOP contract scheme are the price formula used by ESOP, no respect of the agreed payment mode by ESOP and lack of solidarity within Farmer Based Organization. It will be very useful for ESOP, ETD and policymakers to enable the institutional and financial environment to improve contract scheme. If these constraints are not well addressed, the ESOP rice contract scheme will gradually be disrupted.
The study’s originality as well as its value makes it highly relevant. Most contract farming studies has focussed on non-traditional cash crops (Barrett et al., 2012; Henson, Jaffee, Cranfield, Blandon, & Siegel, 2008; Porter & Phillips-Howard, 1997; Tonts, 2007). This study, however, investigates the staple food quality improvement by means of a contract scheme. The study sets the base on how contract farming contributes to upgrading rice quality by reducing foreign matter in paddy rice. It also underlines the constraints that farmers face in their relationship with the contractor (ESOP). All the issues are addressed in order to avoid the ESOP contract scheme being disrupted.
1.5 Organization of the Thesis Report
This report is organized into five chapters. Apart from the first chapter, the second chapter presents a review of relevant literature. Farmers’ motivation for engaging in contract farming, the impact of contract farming on smallholder farmer performance as well as constraints that farmers face in working under contract farming are discussed. The chapter also reviews the methodological approach used in similar empirical studies. The third chapter describes the methodology of the study. The results and
discussion are presented in chapter four. Finally, chapter five provides a summary of the study, the conclusion and recommendations for stakeholder actors.
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