By: Shira Petrack

Estimated reading time: 3 minutes

The international business community can invest in small-holder farmers to develop agriculture on the continent, increase profits for both sides, and move Africa towards food sovereignty and economic prosperity. 

Today, most Africans participating in the labor market work on small farms of two hectares or less, producing foodstuff for subsistence and local farming. Despite the continent’s agricultural potential, however, productivity is low, many farmers are struggling, and food insecurity is rising.The farms’ small size and low productivity keep the profit margins extremely low, limiting farmers from acquiring mechanized tools or quality inputs that could increase their yield. Small-holder farmers also often lack adequate storage solutions for their crops, which forces them to sell their harvest to the nearest available trader at a low price.

Why Invest in Small-Holder Farmers

Contract farming is an “institutional arrangement under which an agribusiness firm contracts the production of agricultural commodities out to farmers.” These firms often provide inputs, equipment, and technical advice during the crop’s lifecycle to ensure they receive the best quality products, improving the farmers’ overall yield. Contract farming also saves the farmer the trouble of storing, processing, or transporting the crops to market, and guarantees the farm a minimum income for the harvest in the face of fluctuating commodity prices. 

The business consultancy Bain & Company has found that buyers that “invest in enhancing small-holder farmer livelihoods and disrupt traditional, transaction-oriented sales channels, such as traders,” have the potential to transform food systems in Africa. Buyers who treat small-holder farmers as partners rather than as commodity suppliers can raise income for small-holder farmers while benefiting from better quality and higher yielding harvests. 

Contract Farming Across the Continent 

For contract farming to truly benefit both the farmers and the buyers, the parties should outline the terms and conditions of their agreement clearly, including the price paid to the farmer, the quantity and quality of produce demanded by the buyer, and the date the farmer will deliver to the buyer. When done right, contract farming can form the basis for mutually beneficial relationships between small-holder farmers and established agribusinesses.

Various studies in Senegal, Uganda, Madagascar, and South Africa have found that contract farmers’ income is higher than their non-contract counterparts. In Ghana, contract farming has been linked to higher crop yields and better gross margins for participating farmers. A similar study in Benin found that contract farming contributes to higher rice output and increased income for small-holder farmers. In Kenya, farmers struggling with climate change have turned to contract farming through the East Africa Potato Consortium to obtain more resilient seeds and benefit from a guaranteed buyer for their crop at a guaranteed price. 

The Dangote Group, one of Africa’s largest conglomerates, has recently embarked on a multi-billion rice processing plant in Nigeria’s Jigawa State to produce 16% of Nigeria’s rice by 2023. The company has contracted with tens of thousands of farmers in Jigawa State, and it plans on expanding its out-grower scheme to fourteen states across Nigeria. The program provides farmers with inputs, equipment, technical assistance, extension services, and land preparation services to empower the growers to get the most out of their land, create job opportunities in rural areas, and increase take-home income for small-holder farmers. 

Private Sector Investment Will Establish Food Sovereignty 

The Dangote project is notable because its contract farming scheme is focused on food for local consumption rather than for export. Currently, contract farming schemes for locally consumed food production are almost nonexistent, even though spot markets that coordinate the supply and demand of low-value staples are highly inefficient. 

Africa’s population will double in the next thirty years, and urban areas will absorb two-thirds of the increase. Local agricultural exchange markets will need to become more efficient to feed the growing urban population. Companies that invest in local farmers to meet the increasing demand for food can improve the agricultural supply chain while enjoying a relatively low-competition business environment.