Egypt: Smallholder contract farming for high-value and ... - IFAD

Introduction and study objective
This report explores the potential for involving smallholders in the production of non-traditional
high-value horticultural crops for export within the thematic context of contract farming. It is based
on the visit of the study team to Upper Egypt and Lower Egypt, which included meetings with
farmers, farmer associations, exporters, processors, Ministry of Agriculture and Land Reclamation
extension personnel, and researchers. 1 The team also met with wholesalers and retailers of inputs, as
well as traders, wholesalers, purveyors and retailers of horticultural produce. Meetings were likewise
held with the World Bank, the German Agency for Technical Cooperation, the Horticultural Export
Improvement Association, the Egyptian Spices and Herbs Export Development Association, the
Union of Producers and Exporters of Horticultural Crops, the Egyptian Centre of Organic Agriculture
and officials at the Ministry of Agriculture and Land Reclamation.
Study rationale
Contract farming has become an increasingly popular means for the supply of agricultural products
in many developing countries, particularly where missing markets or imperfect markets (e.g. credit,
market information, technical production knowledge) do not permit a reliable supply of produce
in quantity or quality.
The requirement of standard compliance, particularly for exports to Europe, has also played a
role in the expansion of contract farming and will continue to do so. Many European importers
have begun to exclude smallholders who supply exporters independently because of the logistical
difficulty in administering GlobalGAP auditing among thousands of small producers who are
geographically dispersed over large areas. However, if the smallholders are vertically integrated with
exporters, many supermarkets will accept the participation of the smallholders. Experience in
Kenya shows that smallholders will be accepted if they are organized into farmer associations that
function as individual production units and that are GlobalGAP certified.
Contract farming is an organizational arrangement that allows exporters and processors to
participate in and exert some contractual control over the production process without owning or
operating farms. Cultivation is carried out by individual independent growers who enter into
contracts with buyers or by farmer associations that enter into joint and mutual liability contracts
with exporters. Following Minot (1986), classification contracts may be divided into three
categories, which are not mutually exclusive:
• market-specification;
• resource providing; and
• production management.
Market specification contracts are pre-harvest agreements that bind the buyer and grower to a
particular set of conditions governing the sale of the crop. These conditions often specify price,
quality and timing. Resource-providing contracts oblige the buyer to supply crop inputs, extension
1/ The study team consisted of Mr Jens E. Kristensen, Consultant, IFAD (agribusiness and marketing); Mr Said Hussein,
Coordinator for IFAD’s Upper Egypt Rural Development Project; and Dr Mohamed El-Eraky, IFAD Field Presence Officer.
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