Egypt: Smallholder contract farming for high-value and organic agricultural exports

Abstract

Background: The total population of Egypt has grown rapidly over the last 25 years, to more than 70 million, but the annual rate of population growth has slowed to a moderate 2.1 per cent. As a result of structural reforms in the 1990s, the Egyptian economy experienced a period of sustained growth between 1994 and 2006, with a short spell of recession in 2003; however, this was reversed after the arrival of the new reformist government in the summer of 2004. The economy has improved considerably since. Trade in high-value products, such as fruits and vegetables, is increasingly displacing exports of traditional commodities. Thus, during the 1990s, the aggregate value of world trade in traditional agricultural commodities declined, while the value of trade in high-value exports grew by around 6.8 per cent annually (approximately 4.8 per cent growth in volume and 2 per cent growth in unit prices). The trends for Egypt were similar. Export volumes and values were falling in traditional crops, and unit prices were stagnating. Meanwhile, the annual export value of high-value products was increasing by 6.6 per cent (a 5.5 per cent increase in volume and a 1.1 per cent increase in unit prices). The predominately large Egyptian commercial farmers have benefited from the development in exports of high-value products. There is a growing consensus that, if smallholders become involved in the production of high-value crops for export, this would be the most effective way of stimulating the rural non-agricultural economy towards positive growth. This study therefore explores the potential of involving smallholders in the production of non-traditional high-value horticultural crops for export, within the thematic context of contract farming, with the aim of improving the return to smallholders on production for the domestic market.

Conclusion:

Contract farming: Although contract farming is still in its infancy, the value chain analysis shows that it has merits in addressing several issues related to the missing or imperfect markets facing smallholders. It is also clearly essential that smallholders organize themselves into farmer associations as a prerequisite for entering into contract farming because farmer associations are more likely than individual smallholders working alone to obtain a beneficial arrangement. The advantages of membership in a farmer association that enters into contracts with exporters include the following: Market information. The contractual arrangement provides the smallholder with information about the best type of crop to grow, the best variety, the quantity and the production method. Equally important, it provides a minimum price prior to planting and, in some instances, a minimum price with in-built upwards adjustment in case the market price rises. Because of the economy of scale, the farmer association can afford to hire qualified professionals to assist in checking if the price offered by an exporter is reasonable, thereby providing the farmer association with a bargaining tool. Standard compliance and the market. The export market increasingly requires compliance with international standards. European supermarkets have established strict auditing requirements to meet these standards. This is reducing the opportunity for smallholders to participate in traditional or non-traditional export markets because of the logistical problems of dealing with many farmers. However, contract farming provides the necessary scale to help overcome the logistical problems, enabling smallholders to participate in the export market. Advisory services, technical information, upgrading and competitiveness. The Government provides few extension services to the horticulture sector; this imperfect situation has been overcome through contact farming because farmer associations can afford to hire the necessary technical advisory services recommended by exporters given that the cost is shared among members. Credit. The members of CDAs and farmer associations can obtain microcredit from the Social Fund for Development via their own organizations. However, for loan sizes over EGP 5,000, the members must provide collateral, which is often not possible because the title deeds are unavailable or because the members are tenant farmers. Commercial banks working with SEDO accept forward contracts from farmer associations as collateral if these are backed by several and joint liability among the members and exporters agree to pay the accounts of the farmer associations directly. Input supply. The contracted smallholder benefits from the direct links between exporters and wholesalers of inputs, equipment and machinery that facilitate procurement at less cost. The scale of operations of farmer associations also makes it possible for the farmer associations to buy directly from wholesalers at less cost. Over time, it will be possible to link farmer associations horizontally, thereby increasing the bargaining power of smallholders.

Crops: It is clear that the production of organic horticultural produce provides the best return to the individual smallholder. However, the smallholders who may be assisted are not so numerous as the producers for the export and domestic value chains. It is therefore important that interventions supporting the horticulture sector adopt a balanced approach that encompasses organic crops, conventional export crops and crops for the domestic value chain.