This agreement specifies the conditions for the production and marketing of a farm’s product or products. In this case the armed agrees to produce a certain quantity of the product that meets the quality standards required by the buyer, at a specified time (Sings, 2005). The buyer then commits to purchase this quantity of the output, sometimes at a predetermined price. The buyer can also choose to support production of the product by supplying farm inputs or providing technical advice. There are different models of contract farming arrangements including the centralized, intermediary, multivariate and informal models.
A centralized model involves one processor who purchases materials from a large number of small-scale rammers, and in most cases the processor offers the farmer services such as financing the inputs, extension services and transportation. The intermediary model has similar characteristics with the centralized model but an intermediary organisms the contract on behalf of the buyer. Multivariate on the other hand comes up when sellers while informal models are oral and do not have formal written contracts (Cello et al. 2012) Contract farming has become attractive to agricultural producers and processors of agricultural products over the years, (Storms and Hoofer, 2006).
In Kenya for example, contract farming has been widely used in horticultural e. G. French beans and poultry industries. In Ghana it has been used in fruit industry for passions, pineapples and mangoes, while in Zanzibar it has been 5 used in the cotton industry (Cello et al. , 2012). This is because of the benefits both the farmers and the contracting companies derive from it and the risk sharing feature of contract farming that leads to a reduction of risk for both parties.
According to Africa Harvest (2009), sorghum is the world’s fifth most important cereal rope and a staple food to more than half a billion people in the world 60% of whom are in Africa. Sorghum’s domestication origin is in Ethiopia and the countries surrounding it between the years 4000-3000 BC (Limbo et al. , 2010). It is a crop with many uses ranging from human food, animal feed to being used to make befouls and in the brewing industry. The grain of sorghum is red or yellow and it is eaten with the hull, where most of its nutrients reside.
It is high in fiber, iron, and zinc and with fairly high proteins. Sorghum is a staple food crop for many low-income households in Kenya and has for any years been considered as Just a food crop and not a commercial crop (Muumuu et al. , 2013). In recent years, however sorghum has started being viewed more as a commercial than subsistence crop. There has been growing demand for sorghum within the brewing industry for use in beer production. The beer industry has started to play a key role in the value chain for sorghum.
This is largely due to the Babel’s increasing demand for higher quality sorghum varieties, such as gad or gating, which has opened new marketing channels for producers. In fact, many producers have been contracted to grow sorghum for FABLE directly. On average, 53 per cent of the total sorghum supply in Kenya each year is consumed as in the form of grain or flour, while 24 per cent is processed to make other commodities (e. G. Beer), 11 per cent goes to waste, 10 per cent goes to the animal feed industry and 2 per cent is used as seed for planting (FASTEST, 2012).
In Kenya sorghum production is concentrated in the south-western and south-central parts of the country. In the year 2011, Eastern, Anza, Western and Rift Valley provinces accounted for about 99 per cent of the country’s sorghum production (MN-ERA, 2012). 6 between the years 2000 and 2012 FASTEST, 2013) From fig 1 above, we can see that the highest production of sorghum was in the year 2012. The highest area under sorghum cultivation was also in the same year. Between 1990 and 2011, sorghum production has varied considerably, due to changes in yield and area harvested.
The average annual growth in production over these years has been 10 per cent. The lowest point in production was in 2008. The decline in production was due to political instability following Jenny’s 2007 elections that caused a reduction in total area of land cultivated and consequently a reduction n yield. By the year 2010, the production was recovered to previous levels and had exceeded it. The growth experienced between the years 2008 and 2010 was due to the promotion of sorghum as a drought resistant crop in the Arid and Semi-Arid Lands (Seals).
Attractive prices due to increased demand e. G. FABLE and improvements in productivity of the sorghum varieties also encouraged the farmers especially those in SAL areas to devote more parcels of land to sorghum cultivation. Contract farming between FABLE and farmers in South Anza and Track Ninth has also raised the reduction.
The research problem
Studies analyzing the impact of contract farming have been undertaken in different countries and for different crops (Stiffen and Convey, 2005; Dillon et al. 2006; Porter and Howard, 1997).
These studies have found that although contract farming has its disadvantages, it has a positive effect on the incomes of small holder farmers and also increases productivity. A study has also been carried out to analyze the role of state in contract farming (Sings, 2005) and how policies made by government affect the farmer-company relationship. However, these studies have been carried out in other countries and no study has been carried out to analyze contract farming, in Kenya so far.
The analysis of the economic importance of sorghum-contract farming that is currently underway in the country has also not been documented. This is a significant knowledge gap, since understanding of its economic importance will enlighten the farmers and consequently lead to growth of the sorghum industry in Kenya. The purpose of this study is to assess the economic importance of sorghum-contract farming in Making County. The specific objectives of the study are: To assess the factors that affect farmers’ participation in contract farming. To assess the effect of contract farming on household income.
The hypothesis to be tested in this study is: 0 Engaging in contract farming does not increase household income.
Justification of the study
This study is important as it will reveal the economic importance of contract farming in general, and specifically for sorghum-contract farming in Making County. This information will be important for agricultural processing companies, agricultural producers or farmers and the government of Kenya.
The information can benefit them in the following ways:Agricultural producers or farmers will be able to understand how contract farming can benefit them and help them better their agricultural activities. The farmers, e. G. Those in Making County, will be able to make informed decisions, using this information on whether or not to participate in chromatograms farming. Agricultural processing companies on the other hand will use this information in assessing whether or not they should make contractual relations with farmers.
The government will use this information to determine whether or not they would formulate policies to promote sorghum-contract farming and contract farming in general in the country. They will also use this information to formulate policies to regulate such contractual relationships so as to ensure that both the contracting companies and the farmers are protected.
Making County was chosen as the area of study because it is one of the SAL (Arid and Semiarid Lands) regions in Kenya. According to the 2009 census, the county, which covers a land area of 8,008. Km , has a population of 884,527 people. The county has an estimated poverty level of 4%. Agriculture can be used as a method of alleviating poverty in this area since it has a large portion of uncultivated land. However, it being an SAL area, very few crops can do well in the county. Sorghum is a drought resistant crop that can thrive in this region but the crop does not thrive due to challenges in its production. These challenges are mostly constraints associated with lack of funds to acquire quality problem for these farmers and consequently increase production of the crop in the area. Therefore information on the economic importance of sorghum-contract arming in this region is important.
Organization of the report
The proposal is arranged as follows: Chapter two provides an overview of relevant literature on contract farming. Chapter three contains the methodology used in this study. Chapter four outlines the results obtained from the research; Chapter five contains the conclusion and finally Chapter six contains a list of references that I have used in this study.
LITERATURE REVIEW farming for agribusiness farmers in Mexico. The purpose of the study was to analyses the impact of contract farming on farmers and firms that engage in it. They found out that contract farming has both advantages and disadvantages to both growers and the contracting companies. However, the farmers still entered into the contracting agreements despite its disadvantages because the contracting companies offer alternative financing, technical assistance and access to market. A study of contract farming in Punjab, India was conducted by Dillon and Sings (2006). The purpose of the study was to analyses the problems, challenges and opportunities of contract farming in a micro level.
They employed the use of surveys in data collection. They found out that contract farming is more prevalent among medium size farmers than large scale farmers, and its adoption is higher in educated than in non-educated farmers. Contract farming was also found to lend stability to farmer’s income in this study through minimizing price variations. The authors of this paper recommended promotion of contract farming use in marketing of perishable agricultural products. A study on the role of state in promotion of contract farming as a means to lead to agricultural development was conducted in Thailand (Sings, 2005).
It was found that although the state intervened in contract situations, contract farming was widespread. It also found that policies made by state should focus on contract farming, so that they can be more effective. Muumuu et al. , (2013), conducted a study on the factors affecting sorghum production and use in Eastern Kenya. The purpose of this study was to find out the socio-economic factors that affect sorghum production in the area, the sorghum farming systems used by the farmers and the different ways farmers in the region used sorghum.
They found out that farmers in the region used orgasm mostly for subsistence use and they acquired the planting seeds from informal systems. Production of sorghum in the area was found to be low due to constraints associated with lack of funds to purchase materials like fertilizer and pesticides and use of low quality seeds that are susceptible to pests and diseases.
Data collection and sampling procedure The targeted population in this study is the sorghum farmers in Making County. Making County was selected because sorghum-contract farming is currently ongoing in the area. A sample of thirty one respondents was selected. This sample as selected in accordance to the rule of large numbers (Central Limit Theorem), which states that a sample that is greater than or equal to thirty is a large and sufficient number to make precise estimates to the various properties of the population. The sample was selected through random sampling from two sub counties of the larger Making County, Wet and Kibitz. A structured questionnaire was used to collect the data. It was administered through face to face interviews of the respondents. The structured questionnaire was preferred as it made data collection easier and faster.
Face to face interviews on the rebel and nonverbal sues. It also allowed for clarification incase the farmer did not understand the questionnaire and to better understand the farmers responds. The data collected from the farmers included both demographic and socio-economic information. The demographic factors included: age, gender, occupation and education level, while the socio- economic factors included: farm size, income per year, involvement in contract farming and involvement in farmers groups. Access to government extension services was also one of the socio-economic factors included in the questionnaire.
Ordinary Least Squares method was used in determining the factors that influence farmers’ involvement in contract farming. This model is used in estimating the unknown parameters in a linear regression model. Linear regression is a statistical method of estimating the relationship among variables. 12 The model equation is as follows: y : is the dependent variable a : is the y-intercept is the unknown parameter that will be estimated is the independent variable that affects the dependent variable I : is the standard error SPAS 16. 0 was used for data entry and analysis. Descriptive data will also be obtained. This data is useful in analyzing the farmers’ characteristics quantitatively using percentages. This will help in analyzing the impact of contract farming on farmers’ income.
Variables included in regression the model
Factors expected to affect farmers’ participation in contract farming Variable Description Age of the respondent in years Sex of the respondent Expected effect Age В± Gender В± Education Size of the farm owned by the respondent. В± Group membership Whether the respondent is a member of a farmers’ group. + Gobo extension Whether the respondent has received government extension ring that planting season.
The age of the respondent is an important factor to consider because it determines the risk behavior of the individual. Older farmers are more likely to participate in contract farming than younger farmers. This is because they are more risk averse and would prefer the security that is offered by contract farming, as opposed to younger farmers who are risk takers. However, age might also reduce the likelihood of participation since older farmers are sometimes resistant to new technology. The sex of the farmer also affects their participation in contract farming.
Men are greater risk takers than women and are thus predicted to be less likely to participate in contract farming. However, men are also more receptive of modern farming practices and this might increase their likelihood of their engagement in contract farming. Education level of the respondent may either positively or negatively affect their participation in contract farming. More educated individuals (tertiary education and above) are likely to have more access to information on modern agricultural practices like contract farming. This would most likely lead to most of them participating in interact farming.
However, more educated individuals also have more access to information on available markets and this may reduce their likelihood to participate in contract farming. Farmers with large farms and plantations are predicted to be more likely to engage in contract farming than farmers with small plantations. This is because they produce large amounts and would want to have an assured market. On the other hand, these large-scale farmers may be discouraged from contract farming since they have better bargaining power in the market. Farmers who are members off group are predicted o be more likely to engage in contract farming. This is because they have better access to information on modern agricultural practices. Therefore, group membership is predicted to positively influence participation in contract farming.