Contract farming has a bad reputation, often being associated with the exploitation and proletarianisation of vulnerable small holders. But, as I argue in Thailand’s Political Peasants, this isn’t always the case. In this post I provide an extract from Chapter 4, describing how farmers in Ban Tiam have been able to use contract farming to help them diversify the agricultural sector while, at the same time, reducing the risk of indebtedness. (Earlier posts in this series of extracts are available here.)
In Ban Tiam, contract farming has been adopted in response to specific vulnerabilities in the local economy. It is an adaptive and, for the time being, experimental response to the hazards of independent garlic cultivation and, more fundamentally, to the relative absence of private investment in local enterprise. In specific terms, the primary attractiveness of contract farming for Ban Tiam’s dry-season cultivators lies in the fact that they do not have to pay the crop’s input costs [unlike garlic, where input costs are very high and are a major source of indebtedness]. Under the terms of the various contracts, the contracting companies provide the farmers with seedlings (or seed) and agrochemicals. The cost of these inputs is deducted from the selling price of the crop. If the crop fails, the “debt” is written off and the loss is borne by the company. One farmer summed up the widely acknowledged benefits of this arrangement: “We are growing for the companies because at least they are willing to invest the capital. We don’t have to hurt ourselves with debt. We don’t have to get stressed or tired. Investing labor is not as stressful as investing money.” Of course, crop failure is still regarded as something of a disaster, but farmers regularly state that their only loss is the time they have invested in the crop and that their debt situation is not worsened. Given that they have grown a subsistence rice crop in the wet season, they still have a very basic level of subsistence security and most have other sources of income from wage labor, government employment, and local enterprise.
In essence, the companies in Ban Tiam are offering a form of crop insurance, an institutional arrangement completely lacking for the independent cultivation of garlic. This company-provided insurance supports the diversification of the agricultural economy and encourages the adoption of new crops that may enhance productivity. In an economy in which debt arising out of crop failure is a fundamental concern, this confidence-enhancing insurance is crucially important. Of course there is some premium paid for this insurance because the input costs deducted by the companies are somewhat higher than their cost on the open market. This generates some resentment, but most farmers consider the insurance to be well worth the cost because of their overwhelming desire to avoid further indebtedness. Another aspect of the insurance arrangement is that the companies offer the prospect of price stability. Contracts with farmers typically set out a schedule of prices to be paid for the crop at the time of harvest. Some contracts will guarantee to match the market price if it is higher than the contract price at the time of purchase. There is plenty of room for companies to adjust prices on the basis of quality, but these socially embedded and usually face-to-face negotiations are generally regarded as less threatening than the anonymous and unpredictable volatility of the open market.
The fact that contracting companies pay for agricultural inputs also means that contract farming is one of the few ways in which external capital is drawn into the local production process. There is a marked lack of private capital investment in the local economy. Local agricultural activity has generated very little capital investment beyond land acquisition (by the most successful farmers) and modest investment in mechanization (such as handheld tractors). Much of the profit from the good years of garlic production was invested in private consumption, especially education, house building, and the purchase of pickup trucks and motorbikes. External investment in local enterprise has also been minimal since the decline of resource extraction and processing enterprises: logging, sawmilling, tin mining, and tobacco processing. In this economic context, contract farming represents a rare source of external capital that can enhance the productivity of Ban Tiam’s well-irrigated land and its underemployed agricultural labor. Put simply, the private capital made available through contract farming increases the productivity of land and agricultural labor. Without this injection of capital, many farmers seeking to avoid the debt risks of garlic cultivation would either have to resort to low-value soybean cultivation or attempt to secure low-paid wage labor in more agriculturally successful villages.
For these various reasons, contract farming in Ban Tiam is widely welcomed as providing a new range of low-risk agricultural alternatives and as filling an important livelihood gap opened up by the decline in garlic cultivation. This support is far from unqualified, as we will see, but it is based on a pragmatic assessment of the agricultural options currently available. One farmer neatly summed up the prevailing feeling.
“The companies have been coming for a long time, but people were not interested because people just wanted to grow garlic. People only really became interested in the past few years. The first person to grow peas for a company was the headman. The first year he grew [2.5 hectares] and made about two hundred thousand baht. The second year he could not rent so much land so grew a lot less. This year I tried out one tiny plot and I made six thousand baht from just that little bit. And if the crop fails there is no cost and no problem. New Asia Food has a quota of about [80 hectares] for the whole district. So why not grow for them? If you grow your own crops you have to go and borrow from the cooperative, and if the crop fails you are in debt and the interest just mounts up and up and up. And you get more and more into debt. But there is no problem with the company. All you lose if it fails is your labor.”
Of course, this is just a snapshot from a particular period, and the future of contract farming in Ban Tiam is not certain. The relationship may shift as broader trends in the Thai and international economy alter the terms of exchange between farmer and company. Many observers have noted a process of “contract normalisation” as initially favourable contract arrangements are steadily adjusted to the benefit of contracting companies. But in Ban Tiam, where there are a number of different companies competing for high-value and high-quality output from farmers – and were contract farming is only one component in a diversified livelihood portfolio – the current outlook is favourable.
What are the corporations involved. Who are their lobbyists? What are their positions on Genetically modified Organisms? What are the seed policies of these corporations? How much transnational influence is involved? What is the position of the Transpacific Partnership TPP of contract farming? What influenced you to write this piece Andrew?
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Andrew, thank you for this work. I am grateful for it at both a descriptive and explanatory level. There is too much of Thailand that we think we know that we don’t know if we know it or not, and you consistently pick topics at a nexus of where there is lots to learn and then learn something of it, with us along for the ride. So, thank you.
May I? I have just come back from meeting with an insurance company in the U.S.. They want us — a small clinic that serves people with low incomes — to expand capacity so that they can enroll more members in their insurance plan. It’s not quite ‘plant some garlic and we might buy it from you at the then-market price’, but it’s close, and we would very much welcome the security that a contract purchasing approach might provide with them. ‘Cause when you’re small and poor, you can be seriously harmed by even small investment failures.
Are these folks — New Asia Foods and their like — asking for long term contracts? Or just one crop at a time? Perhaps the long term contracts are more objectionable? I would not want to lease my clinic capacity to anyone on an indefinite basis.
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Thank you for your insightful post Dr Andrew. It’s good to know that the contract farming could also create many positive effects on the local economy/individual farmers. From what I have heard so far in Thai media, academic circle, the story is quite the opposite.
For example in this post (http://sadathailand.org/index.php?option=com_content&view=category&layout=blog&id=23&Itemid=77), it says that the farmer has to also bear the risk of debt in the event of fish farming failure. There are also problem of unwritten contract, environmental issues and health hazard associate with this mode of production etc.
Maybe it might just be the case of variations from places to places/company to company. Some companies might offer a good deal, some might not. If this is really the case, I only hope the the market is kept opened so that those companies would compete to offer ever better/fairer contract to farmers.
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What is your response to Frithe’s comments and inquiries. Are the corporate farmers banking in Gmo Practices and are the farmlands beings exploited if these facts aren’t disclosed or explained in a manner that the villagers can understand?
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Sounds like a very good arrangement. Thanks for this bread and butter kind of a post, Andrew.
What about farming cooperatives in relation to contract farming? There’s empowerment and vertical integration involved I guess. The other crucial factors are security of land tenure, the availability of credit, seed grain, and small scale mechanisation as mentioned.
I’d love to see Burmese farmers drive around in pickup trucks, use power tools, farm equipment and machinery, set up a spin off repair and maintenance workshops, bridge the urban rural divide and keep the younger generation in the countryside, not just limited to motorbikes, trailers hooked to cannibalised Kubota water pump engines, cell phones and DVD players. Time we put the plough and harrow drawn by oxen and bullock carts into museums, fairs and festivals. Shame the ‘newly democratic’ govt seems hell bent on industrial scale farming in partnership with foreign and domestic tycoons, and has been engaged in a highland clearance and enclosure style policy driving our farmers out of their land and homes. A very skewed export oriented economy and agriculture with reliance on food imports and foreign aid – what a bright future to look forward to!
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Perhaps it’s time to translate The Windup Girl into Burmese.
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Great link. Never heard of that book. Thank you.
I am afraid, vocal Burmese crowd, as opposed to grassrot and the ones likely to read even the burmese translation Are all “got at” by this “development mantra” in a rush to lead the Asia in rice export and getting 4G’s and all that, there seems no cure.
With support and blessing from all partiers active in and for Burma, we are now in a headlong rush to be a “Windup Girl Land”.
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I would like, if I may, to add something to this discussion based on my own observations of contract farming in Northeast Thailand, specifically at the Lam Nam Oon Irrigation Project (LNOIP), under the ownership and management of the RID, in Sakon Nakhon province. There is one point in particular I should like to raise, with reference to some findings from fieldwork in and around the LNOIP. In several places in the short excerpt provided by Andrew, farmers are said to regularly stress that they believe “that their only loss is the time they have invested in the crop and that their debt situation is not worsened.” It is also described as a “low-risk agricultural alternative”. However, I wonder if the farmers might be overlooking the impacts of another “loss” and “risk”, namely to that of their health (and possibly their family’s and neighbours’ too), when they take on the contract farming “package”.
Now, I don’t know the details of what comes with the Ban Tiam farmer’s contract deal, but at LNOIP, they are expected to not only follow the recommendations for pest control provided by the contract company reps, but also usually buy their products too (no matter how toxic) and have the costs deducted from their overall income at the time of sale, along with fertilizer, hormones, plastic, cash for paying labour, buying pumps and other advanced items. At LNOIP, the farmers since the mid-1980s, have mostly been growing intensive vegetables for sale fresh and for seed to a dozen or so companies. The model was originally set up by a USAID project and has waxed and waned over the years since, although it is officially thought of as a highly successful project by USAID, the Thai govt and a handful of consultants who worked on it. The situation gathered from the field in 2009-10 would suggest otherwise on a number of counts, although I will deal with just one aspect here, namely the public health issue.
Below I provide an excerpt from a draft of my unpublished thesis:
“There was another, perhaps more persuasive reason, why people were unwilling to adopt or continue with the intensive contract farming model beyond financial risk and off-farm options alone. From interviews with numerous villagers, the principal reason given for ceasing dry season intensive cropping was due to environmental and public health concerns, as a result of pesticide use. Indeed, Dolinsky (1995:61) in her report had flagged this issue as one of potential future concern under “Lesson 10: Incorporate preventative measures to protect the populace from the hazards of pesticide sprays”, and thought failure to adequately address this issue by the state authorities and private sector, “could grow to undermine the project over the medium-term” but seemed to assume it would somehow be addressed by a vague rhetorical commitment to IPM by relevant government agencies and agribusiness. It seemed this had become a self-fulfilling prophecy, as numerous respondents I spoke with in Ban Non Rua and neighbouring villages told me they or family members had taken blood tests and were told that they had “high” or “dangerous” levels of pesticides in their bloodstream and were concerned about practicing contract farming.
Curious about this finding, I approached the local (sub-district) and provincial public health authorities for more information and the data tended to confirm the villagers’ fears were well founded. Data provided by the Tambon Naa Hua Bor Health Centre collected in 2009 from conducting Cholinesterase blood tests on a general population sample of 301 villagers in 10 out of 19 villages in the Sub-District, suggested that 6.6 % had “normal” levels, 38.9 % had “safe” levels; 45.5 % had “at risk” levels; and 9.0 % of the population had “dangerous” levels of pesticide in their bloodstream. Similar Cholinesterase tests conducted in 2004 by the Sakhon Nakhon Provincial Public Health Office on 137 villagers directly involved in contract farming in Ban Non Rua (Moo 3) indicated that 10.9 % had “normal” levels; 13.1 % had “safe” levels; 23.4 % had “at risk” levels; and 52.6 % had “dangerous” levels of pesticide in their bloodstream (Bupsiri, 2005). Farmers who persisted with contract farming were taking protective measures, but these were mostly at a level well short of the manufacturers’ recommendations, from my limited assessment and the chronic environmental impacts of pesticide use were an issue of repeated concern by local observers I met.”
So to summarise, that’s over half of contract farmers and about one tenth of the general adult population having “dangerous” levels of pesticides in their bloodstream. Seems like quite a high-risk livelihood to me, with externalities. My sense was that contract farmers themselves were rather blase to the risks posed by regular handling and use of pesticides, despite the wider concerns in the community that it was detrimental to their health and that of the wider environment. Like chain smokers who see all the shocking pictures of cancerous lungs and warning labels on the packet, but still carry on smoking regardless, hoping this is not the year they get struck down with cancer or some other smoking-related illness, contract-farming pesticide sprayers too pray they will avoid being laid ill from year to year. Thus, I would suggest that contract farmers are one category of persons who are wont to overlook the “hidden costs” and risks of their chosen livelihood. And I would seriously question the “favourable outlook” prognosis, at least on the basis of what I saw with the LNOIP case and villagers who I interviewed, many of whom had decided to stop contract farming after being ripped off one time too many. The environmental costs of contract farming in Thailand haven’t even been started to be evaluated seriously, but they will also be ticking away quietly, adding up a bill to be paid by future generations. Of course, contract farming does not necessarily have to involve the use of pesticides, but I have yet to come across a model where pesticides and chemical fertiliser are not an integral part of the deal.
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Thank you, David.
I wondered if there was a catch somewhere, and I’m not surprised to learn that they try to rope these growers into their net so they have a captive market for their wares, pesticides, chemical fertilizers and the lot.
USAID of course arguably does more for US corporations such as the agribusiness than for the locals in the developing countries. There’s the example of food aid putting local farmers out of business and the populace becoming reliant on outside help before aid translates into trade. It’s a good ploy.
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