Conclusion: Lessons Learned

This section summarizes lessons drawn from the authors' reviews as they relate to this paper. The conclusions are subject to the different results of various case studies, which are influenced by specific environments. However, general directions one may consider when implementing CF in particular settings can reasonably be stated as follows:

1. At the initial stage of contract farming, it is necessary that both contractors and growers have a clear understanding of the concept and roles they play in an agreement. Rigid contracts are untenable, as farmers do not fully understand concepts, standards of quality, or loss due to late or untimely delivery.
2. The rigidity of contract terms, which is for fairness to both parties, does not apply to all types of commodities; it depends on local settings. Policies should be directed towards encouraging competition among firms for growers.
3. Farmers need time to adapt to technology and new habits. Contract crops usually require precise working schedules and intensive management. Farmers may not obtain desirable returns in the first year. Yield and quality risk may discourage farmers' continuation of contracts. Contract agreements designed to spread risks among parties have been appreciated, as in the case of frozen vegetable crops. Minimum returns with intensive and close supervision by firms to avoid crop failure can be incentives.
4. The public sector has a role to play in technological and institutional development. Government should plan incentives they can manage. Universities, with the support of firms and local officials, can provide regular training in the early stages.
5. Although agribusiness took the lead in contract farming, government policies have provided a favorable environment for domestic and foreign investment through taxation, financing, and the 4-sector plan. For example, the success of tomato contracts in less developed areas (Northeast) was due to irrigation and infrastructure improvement, understanding by farmers, efficient coordination, transparency and timely supervision.
6. For annual crops, contract farming in more developed areas (North) appears to be effective for linking smallholders to the market. Farmer selection is unrelated to land size. Tenant farmers have an equal chance to join the project.
7. With rising land prices and a competitive global market, firms need to minimize costs for given quality. Competition has led to competitive prices for potatoes, soybean and eggplant. There is a need for government biotechnology research into quality, efficiency improvement, and cost reduction. Domestic firms should also conduct adaptive research for specific localities.
8. Farmers need information on risk management so they can allocate risk between contract and non-contract cultivation. Innovation (e.g., cold storage for seed) allows farmers to cultivate outside the contract even for the same firms and gain high prices for early harvest. In this case, contracts are no longer the best choice for potato growers at some sites.
9. Commitment from local officials is a key element of success in the early stages of contract farming. There should be a non-financial incentive system to encourage officials' involvement.
10. Contract farming can be promising for agro-industry development. The quality of farm produce can be rapidly improved through contract farming to meet global market standards. This will require thorough effort from local agencies. It is also important to control exploitation of farmers by private firms.
11. Price stabilization can help alleviate income risk; however, firms' quasi-monopolistic power could dampen productivity. This role could be better if firms apply more competitive pricing.
12. Thailand's experience reveals that contract farming has been a successful means for the poor farmer majority to participate in the market. There is the potential for increasing farmers' economic capacity by contracting in an open market.
13. Contract farming is a commercial activity, and none of the reviewed literature indicates growers' welfare or health issues. Therefore arrangements need to consider liability and health aspects for participating farmers.

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