Iran’s Contract Farming Requires Institutionalization through Cooperation with National Agricultural Unions

The fluctuation of the crop and agricultural inputs price, increasing the market margins accompanied along with rising operation price and transaction costs have proved inefficiency of the current pricing and distribution systems. Meanwhile, these weak points indicate that the balance of the agricultural supply chains is not achieved only by state interventions; rather it needs the participatory mechanism organized by the collaboration different organizations, including of the natural and legal entities.

According To Iran News,

These organizations through contracting not only supply the agricultural inputs but also manage the market risks. In the developed countries, the involving institutes in the agricultural chains save the integrity and sustainability of the chain through three strategies participation in the risks, direct accepting of the risk or transferring of the risks. The agricultural inputs have been supplied by agricultural and rural unions or corporations, consequently, the challenges due to the quality, transaction costs as well as transportation costs will be removed and the income of the involving components of the agricultural chains will increase.

The traditional farming contracts in Iran are not formal and binding, they lack legal transparency therefore, and it has led to challenges in the agricultural supply chain. Iran’s farming system needs different contracts including consortiums, joint ventures, barters, installment and, etc.

Lacking the national documents of fundraising, guarantee, and insurance for the agricultural systems, contract farming has not been developed yet in Iran. However, Iran could enjoy the experiences of the contract farming such as sugar and cotton industry, poultry value chain, oilseed farming and integrated management of the raw milk. After updating and improving; these patterns should be implemented through pilot plans in the agricultural hubs.

The global experiences indicate granting technical and credit facilities and subsidies to the national agricultural unions will facilitate the development of the integrated agricultural chains.

Surveying the USA experience indicates that about 57% of the crop value in 2017 has been produced through contract farming and it is anticipated this figure will rise more than 68%, by 2020.

Small scale farmers lack bargaining power and the monitoring of the implementation of the contract contents are weak, accordingly, the agricultural cooperatives and unions should represent farmers. They ought to play the role of strong reference points and link governments and farmers.

The field studies witness that in many cases, the contractors do not pay the farmers or delay in payments. The numerous occurrences of such phenomenon provide strong evidence that contract farming could be developed only through the cooperation of the national agricultural unions.

The government should develop infrastructural facilities for these national unions including modern wharfs and warehouses, cold storages, transportation systems, selling centers for agricultural inputs and crops,  however,  deleting the technical aids from the CORC’s budget has challenged this.

Furthermore, the government should prioritize the national unions in granting incentives to boost agricultural production, albeit; the government has neglected the significance of the matter, by now. The banking systems neither give preference to these unions in granting credit nor support them in payment of the debts.

The strange notion is that many of these unions have been forced to compensate the states’ debts, while they suffering the lack of state supporting; meanwhile the government has deprived them from many earning activities including the mechanism of rural flour distribution.

The inefficient structure accompanied by accumulated of the loss and unproductive assets have turned the national rural unions to one of the largest debtors of the banking system during the last two decades.

Nevertheless, meeting today’s agricultural needs requires adopting new approaches toward national agricultural unions by applying new doctrines, policy makings, and strategies.

Undoubtfully, the agricultural policymakers to strengthen the linkage between farmers and upstream and downstream industries should prioritize the national agricultural unions as the preferred leaders to implement contract farming.

by: H.Shirzad[i]

[i] Agriculture-Jihad Deputy Minister and CEO of  the Central organization for Rural Cooperation of Iran (CORC)