Ethiopia: Contract farming helps wheat farmers get better prices and guaranteed markets

| June 7, 2021

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When contract farming was first explained to Ethiopian wheat farmer, Buta Feyisa, he was unsure. But his son convinced him that he would benefit from a marketing system that promises farmers better prices. Mr. Feyisa agreed and signed a contract with a flour factory that guarantees to pay him the going market price. After contracted farmers supply their wheat—which is stored by the factory—the factory pays them anytime they request funds. In October 2020, Mr. Feyisa supplied 78.9 tonnes of wheat under contract to Sodre Flour Factory. Like other farmers, Mr. Feyisa can visit the flour company at any time and receive the market price that day.

It was early one morning in October 2020 and the sun was shining brightly over Buta Feyisa’s compound. Behind the compound lay Mr. Feyisa’s 20-hectare wheat farm and barns for cows, donkeys, and sheep. The 47-year-old farmer walked out of his copper-sheeted house and saw a team of people walking towards him.

He recalls: “The team came from the zone agriculture bureau, wheat flour factories, and non-governmental organizations to teach and convince me to join contract farming with the wheat flour factory in our area.”

Mr. Feyisa is from Eteya town, Guchi Habe kebele, in the Oromia Region of Ethiopia. He says that at first, he thought contract farming was risky. Because he wasn’t sure he understood what it meant, he asked the team to come back after he thought it over.

The team explained to Mr. Feyisa that contract farming enables wheat farmers to find a market before they start production and that they sign an agreement with the factory to supply a certain amount of wheat. In return, the factory stores and transports the wheat, and purchases it.

After farmers supply the wheat, the factory pays them whenever they request money.  

A week later, Mr. Feyisa had not decided whether or not to engage in contract farming. Finally, his 24-year-old son convinced him.

He explains: “My son told me that I should try modern ways of marketing wheat so that I can compare the prices rather than continuing to suffer with low prices from the old traditional marketing system.” In the traditional system, vendors and brokers receive more money than the farmers who invest their energy and money on the farm.

After being convinced by his son, in October 2020, Mr. Feyisa supplied 78.9 tonnes of wheat under contract to Sodre Flour Factory.

Like other farmers, Mr. Feyisa can visit the flour company at any time and receive the market price for that day. Thus, farmers tend to visit the company when they think the market price is good.

For example, in May 2021, Mr. Feyisa requested that the factory pay him 2,200 Ethiopian birr ($51.46 US) per 100 kilograms of wheat. The company immediately paid him through his bank account.

He explains: “I have now realized that contract farming is the best way to sell my wheat … I don’t worry about price fluctuations because I sell from my stock which is already in the factory. I make sure I sell when the price on the market is good.”

Mr. Feyisa adds, “The other advantage is that I do not do any physical money transactions because all payments are made through my bank account.”

Solomon Teka is the manager at Sodre Flour Factory. He says: “Building trust is a crucial thing to manage when working with farmers on contract farming. In some cases, we hold more than six meetings to convince the farmers to join contract farming.”

He remembers one occasion when a farmer had a big quarrel with his wife when the factory arrived at the farm to collect the wheat. He says: “The wife thought that her husband was taking the wheat to sell somewhere she didn’t know. But we convinced her that when any payment is made, she would know. Since that time, she is the one who is promoting contract farming in her area.”

Mr. Teka says that the factory is now working with more than 1,000 farmers. He adds: “Under contract farming, we supervise the farms to trace and check whether the farmers are following good agricultural practices for producing quality wheat. We also help them by transporting their produce to the factory. Sometimes we lend them money for fertilizer and other farm inputs.” 

Sheko Sharte is the agriculture and natural resources officer in Arsi Zone. He says that building trust is a long process in contract farming since the concept is new to many Ethiopia.

Mr. Sharte says, “In Arsi, more than 20,000 farmers who grow wheat are trying contract farming with five flour processing factories.”

He says buyers are providing various kinds of support to help farmers produce high quality wheat, including credit, fertilizers, and tractors.

Having experienced the benefits of contract farming, Mr. Feyisa is now encouraging other wheat farmers to follow in his footsteps. He says, “The good thing is that many wheat farmers in my village who previously disliked contract farming are now interested based on my experience.”

This resource was supported with the aid of a grant from The Deutsche Gesellschaftfür Internationale Zusammenarbeit GmbH (GIZ) implementing the Green Innovation Centre project.

Photo: A farmer holds wheat in his hands in Ethiopia, 2014. Credit: Simon Scott