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Under the Ninth Malaysia Plan (9MP), contract farming was introduced as a high-impact project under the Ministry of Agriculture and Agro-based Industry (MoA) to revitalise the agricultural sector as Malaysia’s third pillar of economic growth. The programme had the objectives of providing assured markets and of increasing producers’ incomes. Eight departments/agencies under the MoA were given the responsibility to provide assistance and facilitate farmers to ensure the success of the contract-farming programme. The objective of this study was to evaluate the contract farming programme to determine whether it had fulfilled its objectives in terms of production, number of farmers involved, and incomes of farmers. Face-to-face interviews using semi-structured questionnaires were carried out with 107 contract farmers located in the states of Kelantan, Terengganu, Selangor, Johor and Perak. This study revealed that the contract farming programme had improved the production of agricultural products and increased farmers’ average total incomes after five years. It was also found that after involvement with the contract farming programme, majority of the farmers marketed their entire produce through the Federal Agricultural Marketing Authority (FAMA).
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Bisant et al.
Journal of Agribusiness Marketing • Vol. 7 (2015): 1-15
Bisant Kaur *
Nitty Hirawaty Kamarulzaman
Nur Amalina Hamzah
Under the Ninth Malaysia Plan (9MP), contract farming was introduced
as a high-impact project under the Ministry of Agriculture and Agro-
based Industry (MoA) to revitalise the agricultural sector as Malaysia’s
third pillar of economic growth. The programme had the objectives of
providing assured markets and of increasing producers’ incomes. Eight
departments/agencies under the MoA were given the responsibility to
provide assistance and facilitate farmers to ensure the success of the
contract-farming programme. The objective of this study was to evaluate
the contract farming programme to determine whether it had fullled
its objectives in terms of production, number of farmers involved, and
incomes of farmers. Face-to-face interviews using semi-structured
questionnaires were carried out with 107 contract farmers located in
the states of Kelantan, Terengganu, Selangor, Johor and Perak. This
study revealed that the contract farming programme had improved the
production of agricultural products and increased farmers’ average total
incomes after ve years. It was also found that after involvement with
the contract farming programme, majority of the farmers marketed their
entire produce through the Federal Agricultural Marketing Authority
Keywords: Contract farming, income, farmer, high impact project, Malaysia
Contract farming has gained growing interest in many developing countries in recent years
as an institutional innovation to improve agricultural performance. Although contract
farming has existed in Malaysia as a private-sector initiative since the 1980’s, in recent
years, it has seen the involvement of the public sector in the form of planned intervention
programmes to assist rural population.
In the earlier days, contract farming was a means for multinational corporations to procure
a specic quality and quantity of produce from a dependable source to ensure reliable
deliveries of raw materials for local industries and for markets. Nestle Malaysia, for
example, sourced for raw material needs locally, if economically feasible, with the aim
*<?>Federal Agricultural Marketing Authority.
The Impact of Public-Assisted Contract Farming Programmes in Malaysia
of improving farmers’ incomes and promoting good agricultural practices (GAP) (Nestle,
2013). Nestle established a chilli contract farming scheme in the state of Kelantan in 1995.
Contract farming has also been practised in the broiler chicken industry since the 1980’s
where large companies or integrators obtained their supply of full-grown broilers from
contract farmers who operated on small to medium scale (Tan, 1989). Contract farmers
were reported to have supplied about 55% of broiler output in 2001 while the remaining
45% were supplied by independent farmers (Sulaiman, 2001). The type of contract
farming practised in this country was where the integrator provided all basic inputs (i.e.
day-old chicks, feed rations, and veterinary service) to the farmer who agreed to sell back
the fully grown broilers to the integrator at mutually agreed prices.
Government involvement in contract farming in Malaysia is a fairly recent development.
Under the Ninth Malaysia Plan (9MP), which is a comprehensive blueprint for the
country’s economic development from 2006 to 2010, the Contract Farming Programme
was introduced under the New Agriculture Programme as a high-impact project to revitalise
the agricultural sector as the country’s third pillar of economic growth (Economic Planning
Unit, 2006). The objective of this programme was to provide assured markets and increase
producers’ income, enhance fruit and vegetable production, ensure quality agricultural
production while meeting market needs, and improve technology transfer along the
entire supply chain. According to the Programme Charter, problems within the national
horticultural industry that included inconsistent and unplanned production, quality that
did not meet market needs, less than efcient and unorganised marketing, uncompetitive
farm prices, too many market intermediaries and gluts in agricultural produce, were the
driving forces that led to the implementation of contract farming under the Ministry of
Agriculture and Agro-based Industry (hereafter referred to as MoA) (Ahadiah & Shahiida,
The Contract Farming Programme involved eight departments/agencies under MoA,
namely the Federal Agricultural Marketing Authority (FAMA), Department of Agriculture,
Farmers’ Organisation Authority, Malaysian Pineapple Development Board, Malaysian
Agricultural Research and Development Institute (MARDI), AGROBANK, Ministry
of Agriculture and Food Industry State of Sabah, and Ministry of Modernisation of
Agriculture Sarawak, with the overall governing body being placed under a committee
of the MoA. This integrated approach was taken to ensure that farmers received all the
assistance they required to make a success of the contract farming programme while
FAMA was entrusted with marketing the produce.
The present study was carried out with the general objective of evaluating the contract
farming programme implemented under the MoA. The specic objectives were to study
whether the programme had fullled its objectives in terms of production, number of
farmers involved, and incomes of farmers. The study was approved by the Institutional
Review Boards (IRB) whereby the researchers had to ensure that the protection of
respondent identity is taken care of as per the guidelines and code of ethics while doing
the research. The rest of this paper is organised as follows. Section 2 provides a brief
Bisant et al.
review of literature on contract farming in less developed countries to provide context
for the study. This is followed by a presentation of the methodology used for the study in
Section 3. Section 4 presents the results and discussion of the ndings. Finally, Section 5
concludes and discusses policy implications.
According to the Food and Agriculture Organisation (FAO), contract farming is an
agreement between farmers and processing and/or marketing rms for the production and
supply of agricultural products under forward agreements, frequently at predetermined
prices (Eaton & Shepherd, 2001). This arrangement usually involves the purchaser in
providing a degree of production support through, for example, the supply of inputs and
the provision of technical advice. According to Singh (2002), contracts usually involved
advance agreement between producers and purchasers on some or all of four parameters,
namely, price, quality, quantity, and time of delivery.
Contracting is basically a way of sharing risks between the producer and the contractor;
the former takes the risk of production while the latter assumes the risk of marketing
(Baumann, 2000). Each party depends on the other and contributes in some way towards
the end result: the produce that is needed by the marketing system.
In an age of market liberalisation, globalisation, and expanding agribusiness, there is a
danger that small-scale farmers will nd difculty in fully participating in the market
economy and as a result, become marginalised (Eaton & Shepherd, 2001). Many income-
generation activities for rural people have seen poor results because the necessary
backward and forward market linkages are lacking, for example, extension advisory
services, mechanisation, seeds, fertilisers, credit, and guaranteed and protable markets
for their output (Eaton & Shepherd, 2001). Against this background, contract farming lls
the gap by providing such linkages, and thus provides a channel for smaller producers to
meet market requirements.
There are many advantages of contract farming. For the contractor or buyer, there are
advantages in terms of a reliable source of supply, which meets requirements in terms of
quality, quantity, and timing. For the farmers, advantages include access to production
services and credit, technology transfer, reduction of risk and uncertainty, opportunities to
diversify into new and more lucrative crops, and guaranteed markets (Kumar & Kumar,
2008; Nagaraj, Chandrakanth, Chengappa, Roopa, & Chandakavate, 2008; Swain, 2009).
However, against these benets, there are several difculties associated with contract
farming. For the farmers, there are the risks associated with the cultivation of a new
crop, such as production problems, the possibility that the buyers may not honour their
commitments and the danger of indebtedness if problems arise. Also, some contracts are
not based on xed prices but are dependent on the market prices at the time of delivery
in which case the farmer may still be subject to price volatility. For the buyer/contractor,
problems may arise if the farmers sold their output to outsiders; if the production does not
The Impact of Public-Assisted Contract Farming Programmes in Malaysia
meet specications in terms of quantity, quality and the rigid farming calendar; and the
possibility of farmers diverting inputs supplied on credit to other purposes (Chang, Chen,
Chin, & Tseng, 2006; Freguin-Gresh, Anseeuw, & D’haese, 2012; Kalamkar, 2012;
Setboonsarng, 2008).
There are many examples of the implementation of contract farming in less developed
countries. However, these are usually carried out by the private sector, unlike the
Malaysian scenario where the government is directly involved as the contractor or buyer
of produce from the smallholder farmers. It is also uncertain whether these contract
farming programmes on the whole have beneted smallholder farmers.
Setboonsarng (2008) points to contract farming of organic crops as a promising option
for poor farmers in Lao PDR and Cambodia; this was linked to traditional practices and
lower health and environmental risks. Senanyake (2006) notes that contract farming has
led to the promotion of cash cropping and commercialization of agriculture in many less
developed countries, particularly in Africa and Latin America. There is also evidence
that such schemes have encouraged local processing and export of non-traditional crops
(Maxwell, 1988); introduced new crops and farming techniques; and improved farm
incomes (Glover, 1983; Goldsmith, 1985; Minot, 1986). Contract farming is said to be
benecial to smallholder farmers because it enables farmers to access ready markets,
including global markets (Gulati, Birthal, & Joshi, 2005; Key & Runsten, 1999; Warning
& Key, 2002). As such, contract farming could assist in enhancing the income of farmers
through the economies of scale enjoyed in contract farming.
Risk reduction is a major incentive for producers to enter into contract farming (Covey
& Stennis, 1985). However, the reduction in price risk is usually due to the use of a pre-
determined price rather than the market price (Martinetz, 2005).
Kumar, Devender, Chakarvarty, Chand and Dabas (2007) in a study in Haryana, India,
concluded that contract cottonseed farming had emerged as a viable alternative farming
in the post-WTO regime, but changes in the socio-economic and legal frameworks of
government policies were needed to encourage the active participation of private sector
in cottonseed business and contract farming. Miyata, Minot and Hu (2009) found that
contract farming raised incomes in China even after controlling for observable and
unobservable household characteristics.
Setboonsarng (2008) noted that with globalisation, market liberalisation, and the rapid
development of rural infrastructure, there are many new market opportunities for high-
value crops and livestock production in both developed and developing countries, resulting
in the increased popularity of contract farming to establish market linkages for the poor
in developing countries.
However, contract farming has also received criticisms. According to Singh (2002),
unequal bargaining power may lead to exploitation of farmers by large agribusiness rms
and the latter may break the contractual terms at the expense of the smallholder due to the
Bisant et al.
unequal market power. Guo, Jolly and Zhu (2005) argued that contract farming is only
benecial for large-scale farmers and may push smallholder farmers out of the market,
leading to rural inequality and entrenching poverty among the rural smallholder farmers.
In a study on South Africa, Freguin-Gresh et al. (2012) pointed out that on the one hand,
contract farming derived benets such as improved agricultural production and increased
incomes for contract farmers, enabled better access to services and resources, and created
new opportunities to participate in markets. However, on the other hand, contract farming
remained limited and mostly involved those who had already beneted from specic
development paths and public support. They concluded that contract farming by itself did
not provide an efcient means of reducing poverty, nor provide an institutional tool to
improve rural livelihoods.
Nagaraj et al. (2008) identied several constraints in the contract farming programme in
Karnataka, India, including payment delays, delays in delivery of inputs, manipulation
of grades by buyers, and high input costs. In a study on the Tumkur district of Karnataka
state, India, Kumar and Kumar (2008) noted that while there were several benets such as
increased incomes of farmers and employment generation, several major constraints were
faced by farmers and contracting agencies. While farmers mentioned basic problems like
water scarcity, erratic power supplies, lack of credit, and lower prices, contracting agencies
faced violations of contractual terms by farmers and price uctuations on international
However, there are a few cases reported in the literature where researchers have found
that contract farming has achieved improved welfare of farmers. For instance, Morrison,
Murray and Ngidang (2006) in a study on poultry contact farming in Sarawak, Malaysia,
concluded that the state-administered scheme was a success as it had assisted in raising
incomes and purchasing power as well as improved the productivity of the participants.
In a case study of Orissa, Swain (2009) concluded that the contractual arrangement had
increased the income level of farmers and the overall employment level in the rural
economy despite several problems faced by the farmers. Similarly, Simmons, Winters
and Patrick (2005) found that contract farming in Indonesia had increased farm returns for
seed corn and broilers.
To address the research objectives, the project team sought approval from the institutional
review boards before conducting face-to-face interviews with the targeted contract
farmers in the ve states, namely Kelantan, Terengganu, Selangor, Johor, and Perak. The
interviewers were selected by the project team to make sure that they did not belong
to any organisation. Before the actual data collection was conducted, a one-day training
programme was provided to the interviewers. The aim of the training programme was to
increase the knowledge of the interviewers in carrying out the interview session with the
farmers. The list of farmers practising contract farming was obtained from the FAMA
database. Face-to-face interviews were conducted over a period of ve days to collect a
total of 107 contract farming responses.
The Impact of Public-Assisted Contract Farming Programmes in Malaysia
A semi-structured questionnaire was selected as the main research instrument for this
study. The questionnaire was designed keeping in mind the objectives of this study, and
comprised four sections. Section one consisted of questions for demographic proling
of the farmer respondents. The second section consisted of questions related to the
respondents’ involvement in contract farming activities. The third section consisted of
5-point Likert scale statements, related to issues faced by respondents on production. The
5-point Likert scale ranged from 1 (strongly disagree) to 5 (strongly agree). The questions
on cost and yield performance pre- and post-contract farming programme were included
in the fourth section.
Throughout this study, the term ‘contract farming programme’, is synonymous to the
Contract Farming Programme conducted by MoA. Prior to the actual survey, a pilot test
was conducted with 10 farmers to validate the reliability of the questionnaire and to reduce
biasness and inconsistency in the responses. Descriptive analysis was used to get a better
understanding of socio-demographic proles of the respondents, and mean ranking to
rank major issues in production and farm yield under contract farming.
Socio-Demographic Proles of Respondents
The socio-demographic proles of the respondents are given in Table 1. The results
revealed that majority of the respondents were male (93.46%) and the remaining were
female (6.54%). The imbalanced gures in the gender of respondents who took part in this
study could be a reection of the domination by male farmers in the agricultural farming
sector. Majority of the respondents were older (> 40 years), with 31.78% belonging to the
age group of 41-50 years, 26.17% from the age group of 51-60 years, and only 9.35% from
the age group of 21-30 years old. In terms of educational level, more than half (53.27%)
of the respondents had secondary school education, 34.58% respondents received primary
school education, 8.41% had a certicate or diploma level education, and only 3.74%
respondents were degree holders. About 89.72% of the respondents were married, and
the remaining 10.28% were single. About 98.13% of the respondents were Malay, and the
remaining 1.87% were Chinese. About 85.05% of the respondents did farming full time,
while 14.95% only did farming part-time. Approximately 46.73% of the respondents were
relatively new to the agricultural sector (<10 years of experience), when compared with
3.74% of respondents with 41-50 years of experience in this sector.
Bisant et al.
Table 1: Socio-demographic Proles of Respondents
Variables Frequency
Gender Male 100 93.46
Female 7 6.54
Age (year) ≤ 20 0 0.00
21-30 10 9.35
31-40 19 17.76
41-50 34 31.78
51-60 28 26.17
> 60 16 14.95
Educational Level Primary school 37 34.58
Secondary school 57 53.27
Certicate/Diploma 9 8.41
Degree/Bachelor 43.74
Marital Status Married 96 89.72
Single 11 10.28
Race Malay 105 98.13
Chinese 2 1.87
Farmer’s Status Full time 91 85.05
Part time 16 14.95
Experience in the
Agricultural Sector (year)
≤ 10 50 46.73
11-20 26 24.30
21-30 18 16.82
31-40 9 8.41
41-50 43.74
Above 50 0 0.00
Note: n = 107
Farmers’ Perception of Involvement in Contract Farming Programme
Table 2 lists the respondents’ perception of the contract farming programme. Majority of
the respondents indicated an increase in technology utilisation from 66.36% to 75.70%
(9.34% increment) within ve years of involvement with the contract farming programme.
An increase in farmer involvement (25%) was also observed, a result of the incentive of
guaranteed market for farmers in the contract farming programme. An increasing number
The Impact of Public-Assisted Contract Farming Programmes in Malaysia
of farmers also observed an increment in effective sales and purchase agreements (37%),
affordable prices (19.63%), participation in farm training (6.55%), and consultation with
technical assistance (11.22%) after involvement in the contract farming programme. The
above results outline the advantages enjoyed by farmers towards enhanced production and
income from participation in the contract farming programme.
Table 2: Farmers’ Perception of Involvement in Contract Farming Programme
Incentive Before (%) After (%) Increment (%)
1. Technology utilisation 66.36 75.70 9.34
2. Guaranteed markets 72.00 97.00 25.00
3. An effective sales and
purchase agreement
(Forward Agreement)
42.00 79.00 37.00
4. Acceptable selling price 69.16 88.79 19.63
5. Participation in farm
63.55 70.10 6.55
6. Consultation and technical
70.09 81.31 11.22
Note: n = 107
Market Segmentation of Contract Farming
Table 3 outlines the pre- and post-contract farming programme market segmentation,
covering retailers, wholesalers, and FAMA markets. During the pre-contract farming
programme period, majority of the farmers (57 farmers) chose to market about 81-
100% of their agricultural produce to retailers because of the high market purchase price
offered. However, the post-contract farming programme period saw a decrement (-25.2%)
in farmer dealings with retailers. The wholesale markets saw an increment of 5.6%
post-contract farming programme, in farmers selling less than 20% of their produce in
wholesale markets. However, the number of farmers selling all their produce to wholesale
markets showed a decrement of 4.7% post-contract farming programme. Meanwhile,
FAMA markets saw an increment of 21.5% post-contract farming programme, with 35
farmers choosing FAMA as the market for 81-100% of their produce. From the ndings,
it was revealed that about 54.2% of the total contract farmers sold most of their produce
to FAMA and the remaining 45.8% of farmers sold their produce in the open markets or
other markets like ‘pasar tani’, ‘pasar malam’, and ‘pasar pagi’. These markets were the
alternative market for these farmers due to some reasons such as uncompetitive price by
FAMA and the farmers had just been involved in the contract farming in which they did
not have enough information yet on the benet of getting involved in the contract farming
Bisant et al.
Table 3: Market Segmentation Pre- and Post-Contract Farming Programme
Retailer Wholesaler FAMA
Before After Increment/
Before After Increment/
Before After Increment/
20% 26 44 16.8 89 95 5.6 79 46 -30.8
21-40% 3 3 0 6 7 0.93 4 3 -0.93
41-60% 11 20 8.4 3 2 -0.93 8 16 7.5
61-80% 10 10 0 1 0 -0.93 6 7 0.93
81-100% 57 30 -25.2 8 3-4.7 12 35 21.5
Note: n = 107
Issues Related to Production Costs and Yields in Contract Farming
Table 4 highlights the responses of farmer respondents to issues faced in costs of production
and yield. The responses to the 5-point Likert scale statements were analysed using mean
ranking method to obtain the mean score and standard deviation for each statement. Nine
statements were identied for production cost issues, and eleven statements for issues
in yields. The production issues of ‘increase in fertiliser price’, ‘increase in pesticide
price’ and ‘increase in seed price’ were identied as the main issues, with mean scores
of 4.30, 4.14 and 3.70 respectively. Most of the farmers faced cost problems particularly
an increase in input prices which subsequently increased the total production costs of the
farms. The statement of ‘increase of land rental price’, had the lowest mean score (2.48),
indicating it to be a minor production cost issue for these respondents. The overall mean
score for the statements related to costs of production was 3.28, which indicated that the
farmers moderately agreed on costs of production being the main element to consider in
contract farming.
‘Unpredictable weather’ was the major issue identied to farm yield, with the highest mean
score of 4.14. Malaysia, being a tropical country has always experienced unpredictable
weather especially during the monsoon and drought seasons, thereby affecting agricultural
production and yield. This condition also hindered the easy production planning by farmers,
which directly affects the farm yields and their income. The statement of ‘dependence
on single market’ was identied as the lowest issue (mean score of 2.54) to farm yield,
experienced by the farmers. This result could thus be interpreted that farmers used multiple
marketing platforms for their produce, probably side-selling in local markets. The overall
mean score for issues in contract farming was 3.36, which indicated that most of the
farmers were in agreement on the issues in contract farming that might reduce their farm
The Impact of Public-Assisted Contract Farming Programmes in Malaysia
Table 4: Issues Related to Production Costs and Yields in Contract Farming
Statement 1 2 3 4 5 Mean* Standard
Production Costs
1. Increase in fertiliser price 0.7 6.5 1.4 44.2 47.1 4.30 0.851
2. Increase in pesticide price 0.7 11.6 2.2 44.2 41.3 4.14 0.976
3. Increase in seed price 5.1 13.8 3.6 61.6 15.9 3.70 1.058
4. Uncontrolled pest and
disease attack 4.3 23.2 6.5 55.8 10.1 3.44 1.088
5. Lack of technology
exposure 22.5 17.4 2.2 49.3 8.7 3.04 1.387
6. Lack of agricultural
information 25.4 13.8 0.7 54.3 5.8 3.01 1.393
7. Lack of skills 25.4 22.5 2.2 47.1 2.9 2.80 1.341
8. Lack of local labour 22.5 36.2 2.9 30.4 8.0 2.65 1.333
9. Increase of land rental
price 28.3 35.5 0.7 31.2 4.3 2.48 1.308
Overall Mean 3.28 0.802
1. Unpredictable weather 2.2 3.6 4.3 58.0 31.9 4.14 0.830
2. Improper fertilisation
method 20.3 5.1 1.4 50.7 22.5 3.50 1.426
3. Uncertain purchase price 13.8 13.8 6.5 49.3 16.7 3.41 1.300
4. Do not practice crop
scheduling 21.0 5.1 25.3 33.4 15.2 3.42 1.387
5. Inconsistent supply and
quality 21.7 4.3 1.4 60.1 12.3 3.37 1.373
6. Incomplete budget
preparation 19.6 7.2 1.4 60.9 10.9 3.36 1.334
7. Uncompetitive production
cost 21.0 5.1 1.4 63.8 8.7 3.34 1.332
8. Lack of understanding
about crop rotation 21.7 9.4 0.7 50.7 17.4 3.33 1.441
9. No SOP for planting 19.6 9.4 30.0 30.9 10.1 3.33 1.341
10. Unsuitability of the land 21.0 15.2 3.6 44.9 15.2 3.18 1.426
11. Dependence on single
market 37.7 18.8 1.4 36.2 5.8 2.54 1.446
Overall Mean 3.36 1.06
*Note: n = 107; 1=Strongly Disagree, 2=Disagree, 3=Neutral, 4=Agree, 5=Strongly Agree
Bisant et al.
Differences in Farmers’ Total Income
Figure 1 shows the results of 107 respondent incomes from production of major and
secondary crops pre- and post-contract farming programme. The results indicated that for
pre-contract farming programme, the average total income of farmers for ve years from
period of 2008 to 2012 was only RM 4,728,150. However, after ve years post-contract
farming programme, the farmers’ average total income increased to RM 7,136,200. This
was a 33.74% increment in the farmers’ total income. This result indicated that with greater
involvement in the contract farming programme, the farmers increased their livelihood
from being a low level earner to a medium level earner. This indirectly shows that the
contract farming programme has achieved its objective of increasing farmers’ income
within a couple of years of their involvement.
n =107
Figure 1: Total Income Pre- and Post-Contract Farming Programme
Farmers’ Opinions of Contract Farming Programme
Table 5 presents the farmers’ opinions on the contract farming programme. As seen from
Table 5, majority of the farmers (59.8%) felt that the contract farming programme was
good and gave them condence. Contract farming provided many benets to the farmers
such as increased incomes, guaranteed markets, and improved production. About 35.5% of
the farmers indicated they felt good and condent about contract farming, while 24.3% of
farmers indicated satisfaction, and 9.4% suggested that the oor price should be increased.
Farming Post-Contract
Income (RM)
The Impact of Public-Assisted Contract Farming Programmes in Malaysia
Table 5: Farmers’ Opinions on Contract Farming Programme
Items Frequency (n) Percentage (%)
Satised 26 24.3
Good and condent 38 35.5
Very good and condent 64 59.8
Floor price should be increased 10 9.4
Note: n = 107
Contract farming has potentially provided for farmers and producers, aside from guaranteed
markets, the access to inputs, loans and credit, extension and technical advice, updated
technology, and management systems. This study was initiated to measure the success and
target achievement of the Contract Farming Programme developed by MoA, Malaysia.
The results of this study suggest that farmers are aware of the signicance of the contract
farming programme and benets obtained from participation in the programme. There is
enough evidence to support that farmers got involved in the contract farming programme
for utilisation of modern technology, guaranteed market, effectiveness in sales and purchase
agreement, acceptable selling price, and the consulting and technical assistance from other
departments or agencies. The study also revealed that farmers’ income increased after their
involvement in the contract farming programme. It was also observed that post-contract
farming programme, majority of the farmers marketed their entire produce through FAMA.
This showed that FAMA has become an important mechanism or platform to help small-
and medium-scale farmers to improve their marketing strategy and sell their produce.
Majority of the farmers were satised by this programme, and condent about its results.
The other departments and agencies involved in this programme could multiply the above
results by increasing and improving the training programmes, courses, and campaigns to
encourage more farmers to get involved in contract farming, to improve their yields and
increase their income. Besides, the government could undertake and promote the contract
farming programme by developing necessary policies and regulations to enable increased
participation of farmers under the contract farming programme, for socio-economic
development in this sector.
Bisant et al.
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... The firms may break the contractual terms at the expense of the farmers and push the small farmers out of the market, creating more poverty among rural small farmers (Kaur 2015). In this case, the imbalance of power between the two sides led to the agreement not benefiti some other problems in the contract farming, including payment delays, manipulation of grades of produced commodities by buyers, high input cost, production failures, price fluctuations, and so on (Nagaraj Daryanto, 2007). ...
... In addition, the productivity and efficiency oducing good farming practices through an improvement on farm management practices including the provision of inputs, transportation, extension services, and technological support. e contractual terms at the expense of the farmers and push the small farmers out of the market, creating more poverty among rural small farmers (Kaur et al, 2015). In this case, the imbalance of power between the two sides led to the agreement not benefiting the farmers.There are in the contract farming, including manipulation of grades of produced commodities by buyers, high input cost, production failures, price fluctuations, and so on (Nagaraj et al, 2008 and The absence of small farmer participation in the contract establishment makes the situation worsened. ...
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This study is a post-positivist paradigm phenomenologyc conducted to provide an overview on how contract farming dairy cooperative is developed and what issues and challenges partnership. This study also aimed to analyse the transaction cost arise in the contract. Face-to-face interviews using semi structured-questionnares were carried out contract dairy farmers located in the districts of Malang, Batu and Pasuruan in East Java Province. Result of the study shows that the practice of contract farming raised the transactioncost in the dairy cattle business resulting an increase in to practice of contract farming has improved the production skills of farmers, provided access to credit and guarantee market for their milks. In addition, of dairy farmers can be further improved by introducing good farming practices through an improvement on farm management practices including the provision of inputs, transportation, extension services, and technological support.
... Increasingly, it has been noted that contract farming plays an important role in various developing nations towards community socio-economic and human development. It has been noted that contract farming is not a new phenomenon but a farming practice which has been around for centuries as pointed out by Phong Tuan (2012), Kassim (2015) and Kaur et al. (2015). The practice developed into a widespread development practice in ancient Greece where a proportion of crops were used in the settlement of debts and rents whereas in China, various forms of sharecropping were used during the first century (Jacobson, 2010). ...
... Also, poultry input markets such as breeding stock DOCs (Day-old chicks), vaccines and feed are exposed to various price volatilities, revealing the need for contract farming to safeguard farmers' investments (Aning 2006;Etuah et al. 2013). In broiler contract farming, primarily, the farmer agrees to sell back full-grown broilers to the integrator at mutually acceptable rates (Kaur et al. 2015). Contract farming in the poultry industry helps producers gain market access and integrates into the livestock sector's growth and development (Catelo and Costales 2008). ...
This study examines the determinants of participation in broiler contract farming and its impact. The Probit and the Doubly Robust Augmented Inverse-Probability Weighting (AIPW) models were used in analysing the objectives. The findings revealed that education, experience, regular income, extension service and perceived low market risk in contracting and contractors’ trustworthiness significantly influenced broiler contract farming participation, but payment terms negatively affected broiler contract participation. The findings also indicated that contract farming participation positively impacts total sales, farm capacity and total expenditure of farmers. The UNITY Model A of contract farming is recommended to boost the broiler industry in Ghana. The study further recommends future research into the survival rate of contract participants in broiler production.
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This study explored the implementation of the integrated production system program established by PT. HM Sampoerna Tbk Indonesia, a leading Indonesian tobacco company, and examined its potential and constraints. The program was intended to develop cooperation between the company and its tobacco suppliers to get a sustainable supply of tobacco from farmers with quantity, quality and price set according to the company’s standards. This study employed an interpretive research design, following a post-positivist paradigm. The data were collected by means of in-depth interviews, observation and document study and were analyzed using the key tenet of Martin Heidegger’s interpretive phenomenology. The interpretive process was achieved through hermeneutic circle to understand how individuals involved in the program interpreted the program including their own experiences as well as their interactions with other parties. The results of the study indicated that the created contract farming partnership was capable of providing the company with a sustainable supply of tobacco and increasing its production volume. Nevertheless, it was unable to improve the quality of the farmers’ lives as it was chiefly intended to meet the company’s commercial needs. The results from the study have direct relevance to policy makers in Indonesia, especially those that have been implemented contract farming and to agribusiness companies seeking contractual relationships for commodity production.
p> English Malaysian Government applies policy on non-rice price stabilization through farmers’ product purchase, incentives for farmers, and retail price control. This paper aims (i) to review Malaysia’s policy on food production; (ii) to assess price control and farmers’ protection policy; and (iii) to learn a lesson from Malaysia’s success in stabilizing strategic goods prices. Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC) controls strategic goods price established by Malaysian Government. Federal Agricultural Marketing Agency (FAMA) controls domestic supply of agricultural products such that the prices are feasible to farmers but affordable to consumers. Ministry of Agriculture Indonesia could learn from success of this neighboring country in protecting farmers for producing agricultural products in order to maintain domestic supply and to stabilize food price. Indonesian Pemerintah Malaysia melakukan stabilisasi harga pangan nonberas melalui jaminan pembelian hasil panen petani, insentif kepada petani, dan pengendalian harga eceran. Tulisan ini bertujuan untuk (i) melakukan tinjauan kebijakan Pemerintah Malaysia dalam produksi pangan; (ii) mempelajari kebijakan pengendalian harga pangan strategis dan perlindungan bagi petani; dan (iii) mengambil manfaat dari keberhasilan Malaysia dalam mengendalikan harga produk strategis. Kementerian Dalam Negeri, Koperasi, dan Kepenggunaan (KPDNKK) Malaysia mengendalikan harga eceran kebutuhan pokok yang sudah ditentukan oleh Pemerintah Malaysia. Federal Agricultural Marketing Agency (FAMA) mengendalikan pasokan produk pertanian ke pasar domestik dengan menjaga harga dasar yang menguntungkan bagi petani tetapi masih terjangkau bagi konsumen. Kementerian Pertanian Indonesia bisa belajar dari pengalaman negara jiran tersebut untuk membantu petani agar tetap bergairah menghasilkan produk pertanian sehingga pasokan dan harga pangan relatif stabil.</p
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Rising per capita income, urbanization and globalization are changing the consumption basket in the developing countries towards high-value commodities (like fruits and vegetables, milk, meat, poultry, fish, etc.). This paper explores how smallholders can benefit from the emerging opportunities from a silent demand-driven changes in high-value agriculture in India. The study examines the institutional mechanisms adopted by different firms to integrate small producers of milk, broilers and vegetables in supply chain and their effects on producers' transaction costs and farm profitability. The study finds that the innovative institutional arrangements in the form of contract farming have considerably reduced transaction costs and improved market efficiency to benefit the smallholders. The study does not find any bias against smallholders in contract farming. Also, the study does not find that the relevant firms have exploited their monopsonistic position by paying lower prices to farmers. On the contrary, contract producers were found enjoying benefits of assured procurement of their produce and higher prices. The study lists policy hurdles in scaling up the innovative models of vertical coordination in high-value food commodities.
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Contract farming in China has grown rapidly over the past 10 years. This paper examines the evolution of contract farming, and explores the incentives to engage in contract farming, preferred contract forms and contract performance from the perspective of both Chinese farmers and contracting firms. Firm and household perspectives on contracting are assessed using data obtained from village and firm level surveys. Preliminary results from the village survey suggest that most farmers have a favorable view toward contract production. However, contract farming tends to bypass smaller producers. Farmers identify price stability and market access as the key advantages to contracts while firms consider improved product quality ensured through contracts as the critical incentive to exercise contracts. Contracting firms favor direct contracts with larger farms. Contracts with farmer-owned cooperatives and middlemen were also used. The result also indicates that, in general, contract performance is less than desired and is dependent on contract design and specifications. Econometric models are used to examine those factors that encourage farmers and firms to engage in contract farming. Characteristics of agents, product or enterprise type and government support significantly influence farmers' and firms' choice of contracts. Classification codes:
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There is considerable interest today in getting the private sector more involved in rural development. One potential means is the “core-satellite” model, where corporate food processors link up with small farmers through production contracts, exchanging agricultural inputs and services for assured deliveries of produce. Despite some attractive features, however, the model is feasible only when specific economic, technical, and social conditions prevail, conditions including active government support.
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This paper is an empirical analysis of the impact of a contract-farming program in Senegal. We examine the access of poorer community members to contracts and the effect of the program on the income of participants. The program performs very well on both counts: participants and nonparticipants are indistinguishable by wealth measures and farmers increase their income substantially by participating in the program. We attribute the former to the program's mobilization of local information through its use of village intermediaries, permitting the substitution of social collateral for physical collateral and making the program more accessible to the poor.
Very little attempt has so far been made to consider the basic economic theories relevant to contract farming and out grower schemes that could provide an insight into the controversies surrounding such programmes. This paper aims at reviewing a few neo classical micro economic theories relevant to contract farming while the views of various schools of thought are also being briefly discussed. These theories might be helpful in analysing the impact of these schemes on farmers, contracting firms and host governments.
Studies have consistently shown that in the relatively unregulated environments of the global economic periphery contract farming has led to highly regressive socioeconomic outcomes. Contract farming is not inherently regressive for the small farm sector however. In the state of Sarawak, Malaysia, contract farming is used as part of an affirmative action programme that trains indigenous smallholders in commercial poultry production. The public sector quasi-market constructed by state purchasers and subsidiary suppliers is one that recognizes the smallholders’ limited access to collateral and technical skills and their need to supplement rather than totally replace the incomes already derived from diverse agricultural and off-farm sources. The state-administered contract scheme is part of a broader national goal to eradicate poverty, raise rural incomes and ultimately, develop indigenous entrepreneurship. In the shorter and medium term, as the paper shows, the small-scale public contract scheme, which itself operates within the protected domestic poultry sector in Sarawak, is more likely to support disadvantaged ‘bumiputra minorities’ than produce a pool of competitive entrepreneurs.
This paper examines the rationale, practice, and problems of contract farming in vegetable crops in the agriculturally developed Indian Punjab which has faced the problem of sustainability of growth since the early 1980s. It is found that agribusiness firms deal with relatively large producers and their contracts, which are biased against the farmer, perpetuate the existing problems of the farm sector such as high chemical input intensity, and social differentiation. Contracting has however, led to higher farm incomes and more employment for labor. There seems to be an inherent contradiction in the objectives of the contracting parties and those of the local economy.