Written by Mekong Institute

Recent research on the controversial topic of contract farming indicate that contract farming may be considered as an effective risk management system for smallholder farmers, enhancing their accessibility to farm inputs, ensuring the more stable prices for produce, and ultimately generating higher incomes to contract farmers. Similarly, even with very few studies of contract farming being carried out in Cambodia, the result show that contract farmers can generate higher incomes when bounding in the contract. However, the numbers of rice contract farmers have increasingly exited from the contract in the last five years.   

If contract farming agreement generates higher incomes to contract farmers, why do they exit from the contract? This study aims to assess whether contract farming improve smallholder farmers’ incomes and the challenges these farmers face. The study puts forth a set of recommendations on how to improve the rice contract farming model in Cambodia.

The study combines both quantitative and qualitative data sources and includes a comprehensive literature review and information obtained from interviews with concerned individuals through one-on-one sessions, focus group discussions and household surveys.

Results of the contract farming studies in Southeast Asia showed that it is not a group or individual, the oral or written contract per se which structure the outcome, but rather how it is practiced in a given context. In Cambodia, the rice contract farming arrangement has been operated through both verbal and written agreements with NGOs and private companies, respectively.

There was significant different in the mean of gross incomes between rice contract and non-contract farmers. Rice contract farmers have exited from the contract on the one hand regarding two main factors that include the payment which is not according to the predetermine schedule and the using of quality control against farmers. On the other hand, the rice contract farmers have exited from the contract, perhaps, because of no significant difference between engaging and not engaging in the contract. The exiting contract arrangements need to be improved and adherence to the contract guidelines from parties involve need to be enhanced. The study recommended the arrangement of contract farming should involve three parties that include the contractor, smallholder farmers, and local authority.

The contract farming arrangement should be simple and easy to understand, the contract should encourage mutual trust and respect from both parties, the contract should be flexible and negotiable, the contract should clearly state the responsibilities of both parties, and the payment should be made to farmers when the produce is delivered/received.