ABSTRACT
This research deals with understanding the nature and types of contract farming system. This research was done from the point of view of the Contract Company and studied the processes and terms involved in buying paddy from contract farmers and selling and exporting rice and seeds to both domestic and foreign markets. In 2022, the key stakeholder of Myanmar New Aye Yar Co., Ltd. responded about the current contract farming business in Nay Pyi Taw Council Area, common paddy rice varieties in both seasons, average buying amount of contract company per season and price and selling amount and types of rice varieties per season, the situation of quality check and test for paddy, general information for storage and moisture content and the opportunities and weaknesses of contract farming system which were the major problem for them. According to the results, contract farming systems were done by partnering with 163 farmers in Lewe and Dekkhina Thiri Townships. The total contracted area (ha) amounted to approximately 260.66 ha in the study areas. Hnankaukhtun and New Ayeyar-12 rice varieties were commonly cultivated during the summer, while Sinthukha and Ayeyarmin were favored during the monsoon season. The results indicated that for achieving standard quality of paddy and grains, the Contract Company's detailed quality standards targeted various factors such as moisture content, standard weight based on moisture content, rice purity, and germination tests for high-yield quality seeds. Controlling the standard quality of paddy remained as a primary objective of the contract company, aimed at producing high-quality seeds. The price of paddy also fluctuated per season, which posed as a challenge for the Contract Company, such that the contract price was lower than the market price during that season. The main opportunity lied in achieving high yields per season by utilizing good quality seeds. However, there were weaknesses, such as some contract farmers selling their paddy to other brokers in their local villages and reselling the input supplies they received from the Contract Company. Based on the result, this study reveals that the contract company should create strong trust among those who are forging the contract agreements and providing timely and reliable support and services. Third-party associations or governmental organizations will be needed to act as evidence or monitors in contracting and negotiating between farmers and the company. The company should provide incentives to attract farmers' desires to continue the contract farming system. Moreover, both farmers and the company will need to fulfill their commitments that were signed in the contracts. By doing so, the contract farming system will become a win-win situation that is beneficial for both the company and the farmers.
Keywords: Contract farming system, post-harvest process, quality, rice varieties and price
INTRODUCTION
Myanmar, one of the Asian countries, whose farmers grow rice as a major crop both economically and nutritionally. Rice is cultivated in 64% of the country’s arable land, which is more than 8 million ha and consumed by more than 70% of the population. According to the National Plan, 2020-2021, the total area of paddy was 7.18 million ha, comprising 6.09 million ha of monsoon paddy and 1.09 million ha of summer paddy. However, paddy was grown on 6.96 million hectares and the yield was 3.87 ton per ha. The total production was about 26.41 million ton and over 1.05 million ton of rice and 0.8 million ton of broken rice were exported in 2020-2021. Myanmar was the world’s seventh-largest rice-producing country in 2018 (FAOSTAT, 2020). Rice is grown during two seasons per year with the area of 5.6 million ha in monsoon and 1.2 million ha in summer season, respectively.
Contract farming has become an increasingly popular means for the supply of agricultural products in many developing countries, particularly where missing markets or imperfect markets (e.g. credit, market information, and technical production knowledge) do not permit a reliable supply of produce in terms of quantity or quality. Contract farming is a well-known mechanism to coordinate agricultural production and trade. It helps agricultural producers, processors, traders and distributers to plan and improve their production and procurement systems. For agricultural producers, contract farming can offer improved access to markets, technologies, agricultural inputs and credit facilities. It has the potential to reduce risk of fluctuating prices or natural disasters and can significantly enhance productivity. And for traders, processors and distributers of agricultural products, contract farming becomes more and more a means to secure continued supply of high-quality agricultural produce which becomes a win-win situation that is beneficial for both parties.
Usually contract arrangements define quantity and quality of product, timing of delivery and pricing modalities. It may also specify the desired processes for agricultural crop production and postharvest management. Recent transformations in food and agricultural systems make it increasingly difficult to meet consumer demands based on open-market procurement. And through increasing food safety requirements and growing competition for land and water, contract farming is further gaining importance (UNIDROIT, FAO and IFAD, 2015). As contract farming becomes more wide-spread, many farmers are now taking part in it. By taking part in contract farming, the processor or the company supply inputs, seeds, techniques or capital to the farmers, causing contract farmers to sell outputs to them.
Contract farming has been defined as an agreement between one or more farmers and a contractor for the production and supply of agricultural products under forward agreements, frequently at predetermined prices (Eaton and Shepherd, 2001). Contract farming system is agricultural production system carried out according to a prior agreement in which the farmer commits to producing a given product in a given manner and the buyer commits to purchasing it (Minot, 2007).
According to Eaton and Shepherd (2001), contract farming can be classified in to 5 types, namely centralized model, nucleus estate model, multi-party model, informal model and intermediary model.
- The centralized model is the model in which a firm directly signs contract with farmers with tight arrangement and implements strict quality control and quantity which is determined at the beginning of production. Firms usually provide inputs, technical support to contract farmers to have high value agro-products.
- Nucleus estate model and centralized model are alike such that a company signs contract directly with farmers, support inputs, technologies and controls the quality of products in a strict manner. However, in the nucleus estate model, the firm owns the farm assets and facilities, and contracted farmers just contribute labor and some inputs to the production processes.
- The multipartite model normally involves a joint venture (between a public entity and private firm) contract with farmers. This model might have separate organizations responsible for credit provision, production, and management, processing and marketing.
- Informal model applies to individual entrepreneurs or small companies who normally make simple, oral contract with farmers on a seasonal basis, particularly for crops such as fresh fruits and vegetables. Crops usually require only a minimal amount of processing, such as sorting, grading and packaging.
- The intermediary model includes intermediaries (such as representatives of farmer’s groups/cooperatives) between a firm and farmers. This model, which can be considered as a combination of the centralized and informal models, is common practice throughout Southeast Asia. Given the indirect linkage with farmers, this model has several disadvantages mainly due to the company’s losing control over quality, quantity and price.
There can be some problems in this contract farming system. In contract farming, purchasing prices will be predetermined in the contract before the crop is grown. Market price for the crop can be higher or lower than the predetermined price during harvest time. If the market price is lower, the farmers will willingly sell the crop to the contract company. But if the market price is higher, the farmers will not want to sell the crop to the company. Therefore, in the study of contract farming system, the paper proceeds to talk about the status of contract farming system, the common rice varieties and price, the requirements of paddy quality as determined by the selected contract company and the opportunities and weaknesses of contract farming system in Nay Pyi Taw Council area.
Objectives of the study
- To observe the status of contract farming system performed by Myanmar New Aye Yar Agriculture Co., Ltd. in Nay Pyi Taw Council Area
- To identify the common rice varieties and price brought from the selected contracting company
- To illustrate the requirements of paddy quality as determined by the selected contracting company
- To examine the opportunities and weaknesses of contract farming system of the selected company
METHODOLOGY
Data collection and data analysis
The study was conducted through a key stakeholder interview by a responsible person with well-structured questionnaire in 2022. The selected rice contracting farming company was Myanmar New Aye Yar Agriculture Co., Ltd. The primary data collection included number of contract farmers, total rice acres in monsoon and summer paddy, yield per acre, selling price, buying amount per season, quality requirement, postharvest cost and process in storage, opportunities and threats of the Contract Company. Moreover, the data were analyzed through Microsoft Excel to get the results with average values by using descriptive analysis.
Background information of the selected company
Myanmar New Aye Yar Group of Company Limited was established in 1990. The company extended their investment in the agriculture sector since 2012 and then established Myanmar New Aye Yar Agriculture Co., Ltd. as a branch in 2014. This company has been investing in hybrid and high yielding rice varieties of seed production and agricultural services for farmers in order to get involved in agricultural sector development. In 2018, the company also extended their business with quality fragrance rice production and exporting projects. Through the production of quality seeds, they are paving the way in the development of food security and socio-economic sector of the country.
Contract farming is an important system in agricultural development of Myanmar farmers. Therefore, Myanmar New Aye Yar Agriculture Co., Ltd. got itself into the establishment of the contract farming system for seed and grains production. In 2014, they started contract farming system for seed production and for grains in 2015. Later in 2018, they extended grain production with quality fragrance rice and exported their rice in the international market (Myanmar New Aye Yar, 2014). Myanmar New Aye Yar Co., Ltd. started contract farming system with the following objectives:
- To improve the socio-economic life of the rural people by changing their traditional rice production to high yielding, good quality seeds and hybrid rice seed cultivation;
- To produce organic fruits and vegetables in order to meet the market demand; and
- To provide farming services to farmers in need of growing and marketing.
RESULTS AND DISCUSSION
Buying amount and price of paddy of contract areas
There were seven villages contracted with Myanmar New Aye Yar Co., Ltd. in Nay Pyi Taw Council area. In 2022, Myanmar New Aye Yar Co., Ltd. conducted a contract farming system by contracting with 163 farmers from Lewe and Dekkhina Thiri Townships. According to the results, the total contract areas (ha) were about 260.66 ha in the contract areas. The names of the villages and numbers of farmers per village were described in detail in Table 1.
As shown in Table 2, two types of rice varieties were commonly found in summer, and two types in the monsoon season. In 2022, in the selected contract areas, the results found that Hnankaukhtun and New Ayeyar-12 rice varieties were the two varieties of summer paddy mainly bought from contracted farmers. These varieties were purchased within the range of 725,700 to 846,650 kg per variety, with prices ranging from US$0.18 to US$0.19 per kg.
For monsoon paddy, Sinthukha and Ayeyarmin varieties were bought in quantities ranging from 483,800 to 604,750 kg for each variety. Sinthukha was purchased at a price of US$0.18 to US$0.19 per kg, while the price of Ayeyarmin was US$0.20 to US$0.22 per kg. The results revealed that contracted farmers in the selected areas mainly grew Hnankaukhtun and New Ayeyar-12 rice varieties in the summer and Sinthukha and Ayeyarmin in the monsoon season.
The targeted quality of paddy and postharvest processes
Based on the result, the quality of paddy was important for company to maintain the quality of rice and to reduce the risk of postharvest losses. The Contract Company carefully checked before buying paddy from contracted farmers like the detailed information on input usage during cultivation time, including the roughing process. After harvesting, they evaluated the purity of rice varieties and the moisture content during the buying process. Additionally, the farm gate price for farmers received a higher price than the contract price based on the quality of paddy under the targeted quality test. It was noteworthy that the contract company didn’t pay the market price when the actual market price of paddy was significantly higher than the contracted price, even though the quality of paddy was higher than expected. In their contracts, it was included that the company gave a purchase price slightly higher than contracted price for good quality which was and addition of about US$0.02 per kg. To be able to do so, the company checked the quality during rogueing. But at the harvest time, when the market price was higher than contract price, the company had to adjust and increase the purchase price within the range of US$0.02 – US$ 0.04 per kg. At that time, they only adjust the purchase price to market price and were not add the bonus for good quality. For the contract fixed price, the surveyed company paid 10% of the price per kg in the contract which is a reasonable price for contract farmers and confirmed purchase price during them. The purchase price is fixed which cannot be negotiated with the upcoming increased price during selling time. The company paid the farmers after cutting off the value of seeds and other inputs which they provided to the farmers throughout the growing season. The benefit of contract farmers was a little lower than normal farmers based on the results of the study.
In this process, the standard weight of this contract company was set at 21 kg per basket, but for paddy with high moisture content, it was set at 23 kg per basket. At harvest time, when the moisture content is more than 14%, the company set a basket to be 23 kg. Controlling the standard paddy quality was one of the vital aims of the contract company to produce high-quality seeds. To sell as a seed in local market, a germination rate of 85% was needed. There were several postharvest processes like drying, purifying, quality checking, and packaging for the targeted markets which is ready to sell. The average cost of these processes per kg was about US$0.06. The moisture content of paddy was 14% after harvest, which was stored as paddy. The moisture content of the grain during the storage period was 12%, and paddy could be stored as seeds with moisture content between 12% and 14%. Moisture content between 8% and 9% was needed to store as rice seeds for an extended period. It could be stored using an air-tight system if the moisture content was within the range of a minimum of 4% and a maximum of 8%.
Price and rice varieties sold as grain
As described in Table (3), in the summer season, Hnankaukhtun and New Ayeyar-12 were sold about 604,750 kg per variety as grains and the rest were stored to be used as seeds in the next season. Hnankaukhtun was sold at the price of US$0.35 per kg while New Ayeyar-12 was sold for US$0.43 per kg.
Similarly for monsoon paddy, Ayeyarmin and Sinthukha were sold about 483,800 kg per each variety at a price of US$0.35 per kg. The main buyers in the selected contract areas were merchants and local producers. This contract company also directly exported to the foreign market. The major foreign markets were Pakistan, Bangladesh and China.
Opportunities and weaknesses of contract farming system
Contract farming system had the strength of availability of required amount of desire variety as the company gave farmers seeds, inputs and fertilizers and machinery services. Provided that the input and support for contract farmers, the opportunity for contract company is receiving of the good quality of paddy and high yield which is being able to do more contracting jobs with foreign companies by ensuring the required amount of rice varieties they want.
On the other side, even though contract farmers received inputs and machinery services, there were some weaknesses where some of the contract farmers sold their paddies with other brokers in their local village without meeting members of the Contract Company and some did not use all the inputs provided by the company as they tried to resell the inputs to earn extra money due to extremely high input prices in the market which directly impacted to reduce yield without using the targeted amount of inputs and fertilizers as the contract company recommended rate. Paddy price also fluctuated per season which was also facing a challenge for the Contract Company such as the contract price was lower than the market price at that season. In 2022, the contract price was lower than the market price at the harvest time. This led to losses in the company as the farmers tried to secretly sell some amounts of paddy to external buyers.
This fact was one of the main points to reduce farmers’ willingness to continue contract farming system which could continue to happen more and more, the company would be threatened by the loss of farmers’ trust. Therefore, this was the reason why both company and farmers should follow clearly the rules and regulations mentioned in the contracts. Farmers should try to get high yield and profit with contract farming system to meet the quality signed with the company.
CONCLUSION AND RECOMMENDATION
The type of contract farming in the overall Myanmar in intermediary model which is also common in other South-East Asia countries. The contract farming system is a method wherein companies and farmers establish agreements and contracts before cultivation. In 2022, Myanmar New Aye Yar Co., Ltd. implemented a contract farming system by partnering with 163 farmers across seven selected villages in Lewe and Dekkhina Thiri Townships. According to the findings, the total contracted area (ha) amounted to approximately 260.66 ha in the study areas. Hnankaukhtun and New Ayeyar-12 rice varieties were commonly cultivated during the summer, while Sinthukha and Ayeyarmin were favored during the monsoon season. Consequently, these rice varieties were predominantly supplied by the Contract Company. Ayeyarmin rice variety found a higher price compared to other rice varieties. The quantity of paddy harvested during the summer season exceeded that of the monsoon season, with the standard and purity of summer paddy generally superior to that of monsoon paddy. Ensuring the quality of paddy was vital for the company to maintain the rice's quality and mitigate postharvest losses.
The results indicated that the Contract Company precisely inspects paddy quality before purchasing from the contracted farmers, thereby reducing postharvest losses. Several postharvest processes, including drying, purifying, quality checking, and packaging, were conducted to prepare the paddy for sale in targeted markets, with an average cost of approximately US$0.06 per kg. For achieving standard quality of paddy and grains, the Contract Company's detailed quality standards targeted various factors such as moisture content, standard weight based on moisture content, rice purity, and germination tests for high-yield quality seeds. Controlling the standard quality of paddy remained a primary objective of the Contract Company, aimed at producing high-quality seeds. Paddy price was also fluctuated per season which was also a challenge for the Contracted Company.
Therefore, this was the reason why both company and farmers should follow clearly the rules and regulations outlined in the contracts. Based on the result, the study reveals that representatives of the contract company should create trust in which the contract agreements should provide timely and reliable support and services, without delaying machine services, and terms between contract farmers and the company could be negotiated well. The company should also allow farmers to negotiate contracted prices at harvest time if the market price is higher than the contracted price. Third-party associations or governmental organizations will be needed to act as evidence or monitor in contracting and negotiating between farmers and the company. The company should provide incentives to attract farmers' willingness to continue the contract farming system. Moreover, both farmers and the company will need to fulfill their commitments signed in the contracts. By doing so, the contract farming system will have win-win situations that would be beneficial to both the company and the farmer.
REFERENCES
Central Statistical Organization (CSO). 2023. Myanmar Agricultural Statistics, 2013-2014 to 2021-2022. Ministry of Planning and Finance, Nay Pyi Taw, Myanmar.
Eaton, C., and A. Shepherd. (2001). Contract Farming: Partnerships for Growth. FAO Agricultural Services Bulletin 145. Food and Agriculture Organization of the United Nations. Rome.
FAOSTAT. (2020). World Census of Agriculture, FAO. https://www.fao.org/faostat/en/#data. Retrieved 2023-03-20.
Minot, N. (2007). Contract farming in developing countries: patterns, impact, and policy implications https://ecommons.cornell.edu/items/731c5f62-b8b4-457b-9495-5c6636cb8a55
MOALI. 2021. Myanmar Agriculture in Brief. Department of Planning. Ministry of Agriculture, Livestock and Irrigation, Myanmar.
Myanmar New Aye Yar Co. Ltd. (2014). https://myanmarnewayeyar.com Retrieved 2023-03-20
UNIDROIT, FAO and IFAD. (2015). Legal Guide on Contract Farming, https://www.fao.org/policy-support/tools-and-publications/resources-details/en/c/422959/.
Is Contract Farming System Win-Win Beneficial for Both Company and Farmers? A Case Study in Nay Pyi Taw Council Area
ABSTRACT
This research deals with understanding the nature and types of contract farming system. This research was done from the point of view of the Contract Company and studied the processes and terms involved in buying paddy from contract farmers and selling and exporting rice and seeds to both domestic and foreign markets. In 2022, the key stakeholder of Myanmar New Aye Yar Co., Ltd. responded about the current contract farming business in Nay Pyi Taw Council Area, common paddy rice varieties in both seasons, average buying amount of contract company per season and price and selling amount and types of rice varieties per season, the situation of quality check and test for paddy, general information for storage and moisture content and the opportunities and weaknesses of contract farming system which were the major problem for them. According to the results, contract farming systems were done by partnering with 163 farmers in Lewe and Dekkhina Thiri Townships. The total contracted area (ha) amounted to approximately 260.66 ha in the study areas. Hnankaukhtun and New Ayeyar-12 rice varieties were commonly cultivated during the summer, while Sinthukha and Ayeyarmin were favored during the monsoon season. The results indicated that for achieving standard quality of paddy and grains, the Contract Company's detailed quality standards targeted various factors such as moisture content, standard weight based on moisture content, rice purity, and germination tests for high-yield quality seeds. Controlling the standard quality of paddy remained as a primary objective of the contract company, aimed at producing high-quality seeds. The price of paddy also fluctuated per season, which posed as a challenge for the Contract Company, such that the contract price was lower than the market price during that season. The main opportunity lied in achieving high yields per season by utilizing good quality seeds. However, there were weaknesses, such as some contract farmers selling their paddy to other brokers in their local villages and reselling the input supplies they received from the Contract Company. Based on the result, this study reveals that the contract company should create strong trust among those who are forging the contract agreements and providing timely and reliable support and services. Third-party associations or governmental organizations will be needed to act as evidence or monitors in contracting and negotiating between farmers and the company. The company should provide incentives to attract farmers' desires to continue the contract farming system. Moreover, both farmers and the company will need to fulfill their commitments that were signed in the contracts. By doing so, the contract farming system will become a win-win situation that is beneficial for both the company and the farmers.
Keywords: Contract farming system, post-harvest process, quality, rice varieties and price
INTRODUCTION
Myanmar, one of the Asian countries, whose farmers grow rice as a major crop both economically and nutritionally. Rice is cultivated in 64% of the country’s arable land, which is more than 8 million ha and consumed by more than 70% of the population. According to the National Plan, 2020-2021, the total area of paddy was 7.18 million ha, comprising 6.09 million ha of monsoon paddy and 1.09 million ha of summer paddy. However, paddy was grown on 6.96 million hectares and the yield was 3.87 ton per ha. The total production was about 26.41 million ton and over 1.05 million ton of rice and 0.8 million ton of broken rice were exported in 2020-2021. Myanmar was the world’s seventh-largest rice-producing country in 2018 (FAOSTAT, 2020). Rice is grown during two seasons per year with the area of 5.6 million ha in monsoon and 1.2 million ha in summer season, respectively.
Contract farming has become an increasingly popular means for the supply of agricultural products in many developing countries, particularly where missing markets or imperfect markets (e.g. credit, market information, and technical production knowledge) do not permit a reliable supply of produce in terms of quantity or quality. Contract farming is a well-known mechanism to coordinate agricultural production and trade. It helps agricultural producers, processors, traders and distributers to plan and improve their production and procurement systems. For agricultural producers, contract farming can offer improved access to markets, technologies, agricultural inputs and credit facilities. It has the potential to reduce risk of fluctuating prices or natural disasters and can significantly enhance productivity. And for traders, processors and distributers of agricultural products, contract farming becomes more and more a means to secure continued supply of high-quality agricultural produce which becomes a win-win situation that is beneficial for both parties.
Usually contract arrangements define quantity and quality of product, timing of delivery and pricing modalities. It may also specify the desired processes for agricultural crop production and postharvest management. Recent transformations in food and agricultural systems make it increasingly difficult to meet consumer demands based on open-market procurement. And through increasing food safety requirements and growing competition for land and water, contract farming is further gaining importance (UNIDROIT, FAO and IFAD, 2015). As contract farming becomes more wide-spread, many farmers are now taking part in it. By taking part in contract farming, the processor or the company supply inputs, seeds, techniques or capital to the farmers, causing contract farmers to sell outputs to them.
Contract farming has been defined as an agreement between one or more farmers and a contractor for the production and supply of agricultural products under forward agreements, frequently at predetermined prices (Eaton and Shepherd, 2001). Contract farming system is agricultural production system carried out according to a prior agreement in which the farmer commits to producing a given product in a given manner and the buyer commits to purchasing it (Minot, 2007).
According to Eaton and Shepherd (2001), contract farming can be classified in to 5 types, namely centralized model, nucleus estate model, multi-party model, informal model and intermediary model.
There can be some problems in this contract farming system. In contract farming, purchasing prices will be predetermined in the contract before the crop is grown. Market price for the crop can be higher or lower than the predetermined price during harvest time. If the market price is lower, the farmers will willingly sell the crop to the contract company. But if the market price is higher, the farmers will not want to sell the crop to the company. Therefore, in the study of contract farming system, the paper proceeds to talk about the status of contract farming system, the common rice varieties and price, the requirements of paddy quality as determined by the selected contract company and the opportunities and weaknesses of contract farming system in Nay Pyi Taw Council area.
Objectives of the study
METHODOLOGY
Data collection and data analysis
The study was conducted through a key stakeholder interview by a responsible person with well-structured questionnaire in 2022. The selected rice contracting farming company was Myanmar New Aye Yar Agriculture Co., Ltd. The primary data collection included number of contract farmers, total rice acres in monsoon and summer paddy, yield per acre, selling price, buying amount per season, quality requirement, postharvest cost and process in storage, opportunities and threats of the Contract Company. Moreover, the data were analyzed through Microsoft Excel to get the results with average values by using descriptive analysis.
Background information of the selected company
Myanmar New Aye Yar Group of Company Limited was established in 1990. The company extended their investment in the agriculture sector since 2012 and then established Myanmar New Aye Yar Agriculture Co., Ltd. as a branch in 2014. This company has been investing in hybrid and high yielding rice varieties of seed production and agricultural services for farmers in order to get involved in agricultural sector development. In 2018, the company also extended their business with quality fragrance rice production and exporting projects. Through the production of quality seeds, they are paving the way in the development of food security and socio-economic sector of the country.
Contract farming is an important system in agricultural development of Myanmar farmers. Therefore, Myanmar New Aye Yar Agriculture Co., Ltd. got itself into the establishment of the contract farming system for seed and grains production. In 2014, they started contract farming system for seed production and for grains in 2015. Later in 2018, they extended grain production with quality fragrance rice and exported their rice in the international market (Myanmar New Aye Yar, 2014). Myanmar New Aye Yar Co., Ltd. started contract farming system with the following objectives:
RESULTS AND DISCUSSION
Buying amount and price of paddy of contract areas
There were seven villages contracted with Myanmar New Aye Yar Co., Ltd. in Nay Pyi Taw Council area. In 2022, Myanmar New Aye Yar Co., Ltd. conducted a contract farming system by contracting with 163 farmers from Lewe and Dekkhina Thiri Townships. According to the results, the total contract areas (ha) were about 260.66 ha in the contract areas. The names of the villages and numbers of farmers per village were described in detail in Table 1.
As shown in Table 2, two types of rice varieties were commonly found in summer, and two types in the monsoon season. In 2022, in the selected contract areas, the results found that Hnankaukhtun and New Ayeyar-12 rice varieties were the two varieties of summer paddy mainly bought from contracted farmers. These varieties were purchased within the range of 725,700 to 846,650 kg per variety, with prices ranging from US$0.18 to US$0.19 per kg.
For monsoon paddy, Sinthukha and Ayeyarmin varieties were bought in quantities ranging from 483,800 to 604,750 kg for each variety. Sinthukha was purchased at a price of US$0.18 to US$0.19 per kg, while the price of Ayeyarmin was US$0.20 to US$0.22 per kg. The results revealed that contracted farmers in the selected areas mainly grew Hnankaukhtun and New Ayeyar-12 rice varieties in the summer and Sinthukha and Ayeyarmin in the monsoon season.
The targeted quality of paddy and postharvest processes
Based on the result, the quality of paddy was important for company to maintain the quality of rice and to reduce the risk of postharvest losses. The Contract Company carefully checked before buying paddy from contracted farmers like the detailed information on input usage during cultivation time, including the roughing process. After harvesting, they evaluated the purity of rice varieties and the moisture content during the buying process. Additionally, the farm gate price for farmers received a higher price than the contract price based on the quality of paddy under the targeted quality test. It was noteworthy that the contract company didn’t pay the market price when the actual market price of paddy was significantly higher than the contracted price, even though the quality of paddy was higher than expected. In their contracts, it was included that the company gave a purchase price slightly higher than contracted price for good quality which was and addition of about US$0.02 per kg. To be able to do so, the company checked the quality during rogueing. But at the harvest time, when the market price was higher than contract price, the company had to adjust and increase the purchase price within the range of US$0.02 – US$ 0.04 per kg. At that time, they only adjust the purchase price to market price and were not add the bonus for good quality. For the contract fixed price, the surveyed company paid 10% of the price per kg in the contract which is a reasonable price for contract farmers and confirmed purchase price during them. The purchase price is fixed which cannot be negotiated with the upcoming increased price during selling time. The company paid the farmers after cutting off the value of seeds and other inputs which they provided to the farmers throughout the growing season. The benefit of contract farmers was a little lower than normal farmers based on the results of the study.
In this process, the standard weight of this contract company was set at 21 kg per basket, but for paddy with high moisture content, it was set at 23 kg per basket. At harvest time, when the moisture content is more than 14%, the company set a basket to be 23 kg. Controlling the standard paddy quality was one of the vital aims of the contract company to produce high-quality seeds. To sell as a seed in local market, a germination rate of 85% was needed. There were several postharvest processes like drying, purifying, quality checking, and packaging for the targeted markets which is ready to sell. The average cost of these processes per kg was about US$0.06. The moisture content of paddy was 14% after harvest, which was stored as paddy. The moisture content of the grain during the storage period was 12%, and paddy could be stored as seeds with moisture content between 12% and 14%. Moisture content between 8% and 9% was needed to store as rice seeds for an extended period. It could be stored using an air-tight system if the moisture content was within the range of a minimum of 4% and a maximum of 8%.
Price and rice varieties sold as grain
As described in Table (3), in the summer season, Hnankaukhtun and New Ayeyar-12 were sold about 604,750 kg per variety as grains and the rest were stored to be used as seeds in the next season. Hnankaukhtun was sold at the price of US$0.35 per kg while New Ayeyar-12 was sold for US$0.43 per kg.
Similarly for monsoon paddy, Ayeyarmin and Sinthukha were sold about 483,800 kg per each variety at a price of US$0.35 per kg. The main buyers in the selected contract areas were merchants and local producers. This contract company also directly exported to the foreign market. The major foreign markets were Pakistan, Bangladesh and China.
Opportunities and weaknesses of contract farming system
Contract farming system had the strength of availability of required amount of desire variety as the company gave farmers seeds, inputs and fertilizers and machinery services. Provided that the input and support for contract farmers, the opportunity for contract company is receiving of the good quality of paddy and high yield which is being able to do more contracting jobs with foreign companies by ensuring the required amount of rice varieties they want.
On the other side, even though contract farmers received inputs and machinery services, there were some weaknesses where some of the contract farmers sold their paddies with other brokers in their local village without meeting members of the Contract Company and some did not use all the inputs provided by the company as they tried to resell the inputs to earn extra money due to extremely high input prices in the market which directly impacted to reduce yield without using the targeted amount of inputs and fertilizers as the contract company recommended rate. Paddy price also fluctuated per season which was also facing a challenge for the Contract Company such as the contract price was lower than the market price at that season. In 2022, the contract price was lower than the market price at the harvest time. This led to losses in the company as the farmers tried to secretly sell some amounts of paddy to external buyers.
This fact was one of the main points to reduce farmers’ willingness to continue contract farming system which could continue to happen more and more, the company would be threatened by the loss of farmers’ trust. Therefore, this was the reason why both company and farmers should follow clearly the rules and regulations mentioned in the contracts. Farmers should try to get high yield and profit with contract farming system to meet the quality signed with the company.
CONCLUSION AND RECOMMENDATION
The type of contract farming in the overall Myanmar in intermediary model which is also common in other South-East Asia countries. The contract farming system is a method wherein companies and farmers establish agreements and contracts before cultivation. In 2022, Myanmar New Aye Yar Co., Ltd. implemented a contract farming system by partnering with 163 farmers across seven selected villages in Lewe and Dekkhina Thiri Townships. According to the findings, the total contracted area (ha) amounted to approximately 260.66 ha in the study areas. Hnankaukhtun and New Ayeyar-12 rice varieties were commonly cultivated during the summer, while Sinthukha and Ayeyarmin were favored during the monsoon season. Consequently, these rice varieties were predominantly supplied by the Contract Company. Ayeyarmin rice variety found a higher price compared to other rice varieties. The quantity of paddy harvested during the summer season exceeded that of the monsoon season, with the standard and purity of summer paddy generally superior to that of monsoon paddy. Ensuring the quality of paddy was vital for the company to maintain the rice's quality and mitigate postharvest losses.
The results indicated that the Contract Company precisely inspects paddy quality before purchasing from the contracted farmers, thereby reducing postharvest losses. Several postharvest processes, including drying, purifying, quality checking, and packaging, were conducted to prepare the paddy for sale in targeted markets, with an average cost of approximately US$0.06 per kg. For achieving standard quality of paddy and grains, the Contract Company's detailed quality standards targeted various factors such as moisture content, standard weight based on moisture content, rice purity, and germination tests for high-yield quality seeds. Controlling the standard quality of paddy remained a primary objective of the Contract Company, aimed at producing high-quality seeds. Paddy price was also fluctuated per season which was also a challenge for the Contracted Company.
Therefore, this was the reason why both company and farmers should follow clearly the rules and regulations outlined in the contracts. Based on the result, the study reveals that representatives of the contract company should create trust in which the contract agreements should provide timely and reliable support and services, without delaying machine services, and terms between contract farmers and the company could be negotiated well. The company should also allow farmers to negotiate contracted prices at harvest time if the market price is higher than the contracted price. Third-party associations or governmental organizations will be needed to act as evidence or monitor in contracting and negotiating between farmers and the company. The company should provide incentives to attract farmers' willingness to continue the contract farming system. Moreover, both farmers and the company will need to fulfill their commitments signed in the contracts. By doing so, the contract farming system will have win-win situations that would be beneficial to both the company and the farmer.
REFERENCES
Central Statistical Organization (CSO). 2023. Myanmar Agricultural Statistics, 2013-2014 to 2021-2022. Ministry of Planning and Finance, Nay Pyi Taw, Myanmar.
Eaton, C., and A. Shepherd. (2001). Contract Farming: Partnerships for Growth. FAO Agricultural Services Bulletin 145. Food and Agriculture Organization of the United Nations. Rome.
FAOSTAT. (2020). World Census of Agriculture, FAO. https://www.fao.org/faostat/en/#data. Retrieved 2023-03-20.
Minot, N. (2007). Contract farming in developing countries: patterns, impact, and policy implications https://ecommons.cornell.edu/items/731c5f62-b8b4-457b-9495-5c6636cb8a55
MOALI. 2021. Myanmar Agriculture in Brief. Department of Planning. Ministry of Agriculture, Livestock and Irrigation, Myanmar.
Myanmar New Aye Yar Co. Ltd. (2014). https://myanmarnewayeyar.com Retrieved 2023-03-20
UNIDROIT, FAO and IFAD. (2015). Legal Guide on Contract Farming, https://www.fao.org/policy-support/tools-and-publications/resources-details/en/c/422959/.