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ANALYSIS OF CONTRACTUAL AGREEMENT BETWEEN SORGHUM PRODUCERS AND INDUSTRIAL BUYERS IN KADUNASTATE

 

 

 

 Format: MS Word   Chapters: 1-5

 Pages: 79+   Attributes: Downloadable - Instantly in MS WORD

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 May 18, 2022 |  07:41 pm |  145




Project topics and material on ANALYSIS OF CONTRACTUAL AGREEMENT BETWEEN SORGHUM PRODUCERS AND INDUSTRIAL BUYERS IN KADUNASTATE

CHAPTER ONE
INTRODUCTION


1.1   Background to the Study 
With fast pace of technology innovation and product differentiation, contract farming has become indispensable element of modern agriculture (Xiaoxue, Ling, Zibberman, 2003). Contract farming can be defined as an agricultural production system carried out according to an agreement between a buyer and farmers, which establishes conditions for the production and marketing of farm product or products (FAO, 2012). In an age of market liberalization, globalization and expanding agribusiness, there is a danger that small-scale farmers will find difficulty in fully participating in the market economy. In many countries, such farmers could become marginalized as larger farms become increasingly necessary for a profitable operation (FAO, 2001). 
 
Contract farming can also be defined as an agricultural production carried out according to a prior agreement in which the farmer commits to producing a given product in a given manner and the buyer commits to purchasing it (Nicholas, 2011).  Under this system, the corporations, instead of owning land and farming directly, recruits local peasant farmers and sign contracts committing them to use approved farming techniques to produce stipulated quantities of products to be delivered on approved dates to the companies as sole buyers (FAO, 2012). The company often also agrees to support the farmer through means such as, supplying inputs, assisting with land preparation, providing production advice and transporting produce to its premises. To understand the rationale for contract farming, it is useful to view it as one form of vertical coordination, in between spot markets (in which supply and demand are coordinated through prices alone) and vertical integration (in which supply and demand are coordinated by having one firm carry out multiple stages in the market channel). 
 
Contract farming in developing countries is associated with high-value crops, often destined for export, that perish easily or require careful husbandry and might not be suitable for plantations, (Watts 1994; Prowse 2012). 
 
 Nigeria is the second largest producer of sorghum in the world after USA with an annual production in excess of 8 million metric tons. Sorghum ranks among the top three important grains in the country while its industrial demand is increasing particularly in the food, beverage, and livestock feed industries (USAID, 2009). The leaves and grains are also used for livestock feeds and the stalks for thatching houses and making fences (NAERLS, 1997). However since most of the sorghum grain produced in Nigeria is for direct human consumption, it is the largest producer of food sorghum in the world. Millions of rural poor in the dry Savannas of Nigeria consume sorghum in their daily diets as staple food. In addition to this popularity of sorghum use in traditional dishes prepared in the home, it also used for industrial sorghum products. Sorghum is processed into malt for malted drinks and foods, high quality flours, and as a raw material for the poultry and fish feed industry. The country produced 8.5 million tonnes in 2008, 9.3 million tons in 2009 and by 2010 it approached 10.0 million tonnes (Table 1) with a projection of being the largest sorghum grain producer in the world (FAOSTAT, 2011). The sorghum contribution to national GDP is about half that of maize (0.09%) i.e. around 0.05%. It is more a food crop than a cash crop and should contribute about 30% to farmers‟ income. On the other hand, it contributes about 70% to food and nutritional security of the farmers‟ households in the Sudan savannah of the country. 
 
 
Nigeria‟s share of all cereal crops has significantly increased. For example, sorghum‟s share of area planted has increased from 42 to 57% of the total West Africa 
(WASAT) cereal area planted. Pearl millet‟s share has increased from 23 to 37%, rice area has increased from 46 to 60%, and the maize area has more than doubled, from 32% to 67% of WASAT cereal area planted. Sorghum had greater untapped potentials than any other crop. It is even postulated that if the twentieth century was the century of wheat, rice and maize, then the twenty-first century could become the century of sorghum. (FAO 2012) 
 
Sorghum is drought-tolerant and resistant to water-logging and grows in various soil conditions (Dillon et al., 2007). These characteristics contribute toward it being the staple crop of Africa‟s most food-insecure people, who live in the desert-margin, semiarid tropics. Because of its similarity to maize (hard and floury endosperm and large fat-rich germ), sorghum can be processed using technologies of dry and wet milling applied to maize (Taylor, 2003). In Nigeria sorghum are stored as unthreshed heads in a solid walled container called a Rhumbu. For short-term storage, bundles of sorghum and millet heads are arranged in layers in the Rhumbu. For long-term storage of three to six years, the heads are laid out individually rather than in bundles. Some farmers spread the leaves of Gwanderdaji (Anonasenegalensis) on the bottom of the Rumbu and between each layer of grain. When a Rumbu is full, the mouth is sealed with clay. Modern storage is done in bags or silos like maize are stored. 
 
1.2 Problem Statement 
Sorghum constitutes the main food grain for over 750 million people who live in the semi- arid tropics of Africa, Asia, and Latin America (Food Security Department, 2004). According to the United States Agency for International Development (2008), sorghum is the fifth important cereal crop in the world after wheat, rice, maize and barley. Nigeria is the second largest producer of sorghum in the world with an annual production in excess of 8 million metric tons with most of the production taking place in northern part of the country. North-west zone is the highest sorghum producer in Nigeria (NAERLS and NAPS, 2010). Being poor in resources, most of sorghum farmers have only minimum access to production inputs and improved credit facilities for their purchase (NAERLS and NAPS, 2010). 
 
It has been widely argued that agriculture is undergoing a process of vertical integration with allied industries to which contract farming is most acceptable (Kaouthal, et al;1997). As a continually evolving process, contract farming has taken many dimensions and has become the most popular form of integration in Sorghum production (FAO, 2011). 
 
As with any contract, there are a number of risks associated with contract farming which include farmers selling to a buyer other than the one with whom they hold a contract (known as side selling, extra-contractual marketing), or using inputs supplied by the company for purposes other than intended. On the other hand, a company sometimes fails to buy products at the agreed prices or in the agreed quantities, or arbitrarily downgrades produce quality (Jupiter, 2012). 
 
The existence of an adequate framework for the successful implementation and longterm sustainability of contract farming is very vital in contract farming (ICRISAT, 2010). It is also important to protect them from risks that may occur during contractual execution, such as abuse of power by the stronger bargaining party or breach of contract. Strengthening farmer organizations to improve their contract negotiating skills 


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