DISCUSSION PAPER SERIES NO. 2007-24
Contract growing has been defined as an agreement between farmers and processing and/or marketing firms under forward agreements, usually at predetermined prices for the production and supply of agricultural products (Eaton and Shepherd 2001). As such, it offers a solution to a number of production and marketing problems that lead to low farm productivity and profitability. These problems plague the agricultural sector and contribute to the high poverty incidence in the rural sector particularly in many areas in Mindanao. On the other hand, Mindanao, being groomed as the countrys food basket, shows an example on how contract growing can address various marketing and production problems in the farm sector. This is demonstrated in industries that serve as the lifeblood of Mindanaos economy for many years such as banana and pineapple. Production of these commodities including asparagus, corn, and poultry was pioneered mainly by multinationals and large agribusiness firms in the island-region. While the market and technological factors largely affect the viability of the contract growing scheme of a particular commodity, there are other factors that are equally important in determining its performance. These include the infrastructure conditions, peace and order, credit accessibility, and government policies that affect the industry as a whole such as the implementation of the Comprehensive Agrarian Reform Program (CARP) and trade liberalization policies. Thus, aside from the economic and technological conditions, the policy environment affecting both demand supply conditions plays an important role in examining the impact of contract growing scheme in Mindanaos agricultural development. While contract growing scheme offers a way to enhance competitiveness of Mindanaos agricultural sector by increasing production efficiency, accelerating technology transfer, improving quality, and linking small farms to large markets, there are a number of fundamental issues that arise from this scheme. These are the issues of equity and sustainability. This study aims to understand the nature of contract farming in Mindanao, identify problem areas and opportunities and analyze its implications to Mindanaos agricultural sector particularly in terms of efficiency, equity and sustainability. Agricultural contracts in banana and pineapple were analyzed using the principal-agent framework. The structure conduct performance (SCP) model was used to incorporate the analysis of external factors affecting the contract or the project such as demand and supply conditions as well as government policies. Primary data were gathered through structured interviews with key informants such as farmers or growers, contractors and relevant government agencies, and nongovernment organizations. These primary data focused mainly on the contracts of bananas and pineapple. Secondary data were also generated primarily through literature reviews. In addition, information on external conditions affecting the performance of agricultural contracts such as government policies and socio-economic factors were gathered.