Mistrust in Contract Farming

KHMER TIMES
SOK CHAN



Contract farming is not widely practiced in the Kingdom due to mistrust between the private sector and farmers and the lack of legislation to ensure farmers do not breach their agreements by selling outside the contract for higher prices.

Lim Heng, vice president of the Cambodia Chamber of Commerce, told a forum yesterday that contract farming is beneficial to farmers because it opens up otherwise unavailable markets for smallholders, provides materials, technological and financial support, and reduces farmers’ costs and the risks involved in selling their products.

However, he said, there was no legislation in the country to ensure contract enforcement and this, he added, prevented foreign investors from entering the sector.

“Contract enforcement is a major issue. Farmers may breach the contract by diverting inputs supplied on credit to other purposes or selling outside the contract for higher prices,” added Mr. Heng.

“If there is no legal protection, it will be tough for foreign investors to invest in the agriculture sector.”

Mr. Heng called on the government to enact a legislation on contract farming so that there is trust between the private sector and farmers.

Hean Vanhan, director-general of agriculture at the Ministry of Agriculture told Khmer Times that he agreed that there was a lack of trust between companies and farmers in contract farming.

However, he pointed out that contract farming should also involve the participation of local government officials and provincial agricultural officers.

“Local government officials will be able to ensure that contract farmers do not sell their products to outsiders for higher prices during the harvest season,” said Mr. Vanhan.

While contract farming is a conceptually sound institutional arrangement, lack of flexibility and coordination problems are its main liabilities, he added.

“The private sector can help reduce uncertainties through predetermined prices negotiated with farmers before the contracts are signed. However, this is seldom the case,” said Mr. Vanhan.

Song Saran, president of Amru Rice (Cambodia), told Khmer Times that there were production risks in contract farming.

“Contract farmers are often required to grow new crops or adopt unfamiliar farming techniques and these are production risks. They are also likely to face greater credit risks because of excessive advances by the companies, which are unsustainable to their operations,” said Mr. Saran.