Contract farming Contract farming in Ethiopia in Ethiopiain Concept and practice ISBN 978-94-91629-07-5 Holtland, G. (ed.). 2017. Contract farming in Ethiopia: Concept and practice. Arnhem, The Netherlands: AgriProFocus. editing Ruth Davies graphic design Het Lab, ontwerp + advies print De Groot - grootsgedrukt.nl Contract farming in Ethiopia Concept and practice Edited by Gerrit Holtland Photo on cover Fair & Sustainable Ethiopia Green beans, Meki Batu Union, case 6; is an Ethiopian consultancy photo Gerrit Holtland PLC responsible for the secretariat of AgriProFocus in Ethiopia. Fair & This publication is a joint production of Sustainable Ethiopia offers different value chain AgriProFocus and its partners, who are and business development services, mostly in mentioned below in chronological order of their the agricultural sector. Its team includes inter­ involvement in the learning track on contract national and Ethiopian professionals and a pool farming. of associated consultants. Its mission is to be an attractive national partner in development AgriProFocus is an interna­ cooperation based on its professionalism and tional network with Dutch international network. roots that promotes agri­ See http://www.fs­ethiopia.com/ entrepreneurship in emerg­ ing markets. The network is active in 13 LANDac, the Netherlands countries in Africa and South East Asia and links Academy on Land Govern­ 22,000 agribusiness professionals worldwide. ance for Equitable and Network members involved in this publication Sustainable Development, is a partnership are Agriterra, Fair & Sustainable, Heineken, between Dutch organizations working on land ICCO, KIT, SNV and Wageningen UR. governance. LANDac is one of the IS­Acade­ See http://www.agriprofocus.com/ethiopia mies, a series of programs sponsored by the Ministry of Foreign Affairs to improve and The International Centre of strengthen linkages between academia and Advanced Mediterranean development practitioners in the field of inter­ Agronomic Studies – Institute national cooperation. of Bari (CIHEAM Bari), See http://www.landgovernance.org together with the Ethiopian Ministry of Agri­ Contract farming in Ethiopia Contract culture, implemented SupHort (October 2011 Cooperatives for Change II – June 2015), a development programme for programme (C4C), imple­ the horticultural sector. SupHort significant­ mented jointly by Agriterra ly changed the attitudes of thousands of small­ and SNV, aims to better the scale horticultural farmers by increasing farm­ business performance of 16 ers’ knowledge about horticulture, upgrading unions and 150 producers’ their small­scale irrigation schemes, and en­ cooperatives by improving hancing their linkages to inputs and products the quality and quantity of products, establish­ markets. See http://www.iamb.it/ ing sustainable markets and increasing income for their members. The project follows a value ICCO Cooperation is the chain development approach and aims to interchurch organization for benefit 210,000 people by 2016. See development cooperation. https://agriterra.org/c4c­project­ethiopia/ Supported by the Embassy of the Kingdom of the Netherlands, ICCO Ethiopia manages the The Ethiopia Netherlands Food Security and Rural Entrepreneurship Trade for Agricultural (FSRE) Innovation Fund. AgriProFocus Ethiopia Growth (ENTAG) project is organised the learning activities for the FSRE part of the Bilateral Ethio­ Innovation Fund, which included learning on pian–Netherlands Effort for Food, Income contract farming. ICCO and the FSRE Innovation and Trade (BENEFIT) program implemented Fund contributed to the cost of this publication. by Wageningen UR. ENTAG aims to strength­ See http://www.icco­cooperation.org/en/ en the Ethiopian private sector by, among countries/ethiopia other things, supporting business models that are inclusive of smallholder farmers. See http://entag.org Foreword In agricultural development, Ethiopia and the Netherlands are strategic partners. The government of Ethiopia pursues its growth strategy by emphasizing agricultural transformation. The Embassy of the Kingdom of the Netherlands (EKN) is supporting Ethiopian ambitions for food security and agricultural growth. This cooperation aims for an intensification of production and processing, which are necessary to feed the growing population and for export earnings. AgriProFocus Ethiopia is part of an international network with Dutch roots. AgriProFocus promotes the network approach as a growth diamond of collaboration between farmer entrepreneurs, companies, governments, knowledge institutions, consultancies, finan­ cial institutions and NGOs in the agrifood sector. We offer our members and partners linking, learning and leadership services through business events, learning activities and an online platform with 22,000 professionals worldwide. Contract farming arrangements are important in linking commercial and development objectives. The inclusion of small­scale farmers in market­oriented value chains is expected to both augment the volume for the market and boost farmer income. This double impact is exactly the reason why governments and development organisations have supported contract farming arrangements in Ethiopia. As mentioned in this publication, contract farming initiatives have contributed to a new and much needed dynamic in the agricultural sector in Ethiopia. At the same time, this book shows that contract farming is not a simple one­size­fits­all solution. The analysis of the cases show the diversity in design, in implementation and in terms of results for the contract partners. A key factor of success is the role of the Contract farming in Ethiopia Contract interface between farmers and firm. III We thank all the authors for their contribution to this publication. Enjoy reading! Sander Mager Annet Witteveen Managing Director Country coordinator AgriProFocus Netherlands AgriProFocus Ethiopia Acknowledgements This book is not the result of a rigid scientific exercise. We did not start with a research hypothesis and did not conduct a randomized trial with control groups. Instead, a group of agricultural professionals started by sharing observations and questions from their practice. These were written down in t descriptions. An iterative process followed: the descriptions contributed to the analytical framework, which was in turn used to collect additional data and further enrich the stories. Eventually, the decision was taken to share our analysis, conclusions and recommenda­ tions with a wider audience through this booklet. The focus is on what actually happens in a selection of contract farming schemes in Ethiopia and the reflections that arise from this. This has led in turn to the development of conclusions and recommendations that could be applied more widely. Credit for inspiring this learning track and this publication goes to Lamberto Lamberti from CIHEAM Bari / SupHort. In due course, professionals from five other organisations joined the learning track. We would like to thank all the authors who contributed: Sorsa Debela Gelalcha, Terfesa Dandena, Aklilu Amsalu, Getachew Mekonnin, Tarekegn Garomsa, Feshadu Adugna Tufa, Lamberto Lamberti and Tiglu Tesfaye. Their details are given in the last section of the book. Considerable time passed between the write­up in 2015/2016 and publication in 2017. We would like to thank Victor van der Linden (Fair & Sustainable Ethiopia) for his effort in getting the draft ready for publication. Our thanks also go out to our John Belt and Egbert Hoving (feedback and proofreading); to Annemarie Kortleve and Gizaw Legesse (photos, bios); and to Ruth Davies (editing) and Brendan Timmers (design and printing). Contract farming in Ethiopia Contract IV In a true network approach, the publication has been made possible through financial contributions from SupHort (CIHEAM+MoANR), FSRE Fund (ICCO), LandAc, C4C (SNV+Agriterra) and ENTAG (Wageningen UR). Gerrit Holtland and Wim Goris Abbreviations AMF Assela Malt Factory ATA Agricultural Transformation Agency C4C Cooperatives for Change, a programme implemented by SNV and Agriterra CCF Cumulative Cash Flow CFC Common Fund for Commodities CIHEAM Bari International Centre of Advanced Mediterranean Agronomic Studies – Institute of Bari CPA Cooperative Promotion Agency CSA Central Statistical Agency DGIS Directorate General for Development Cooperation ECX Ethiopia Commodity Exchange ESC Ethiopian Sugar Corporation ESM Economic Simulation Model ETB Ethiopian Birr EUCORD European Cooperative for Rural Development FC Facilitator for Change FDOV Facility for Sustainable Entrepreneurship and Food Security FSRE Food Security and Rural Entrepreneurship GoE Government of Ethiopia ha Hectare ICCO Interchurch Organization For Development Cooperation KIT Royal Tropical Institute MFI Microfinance Institution MoANR Ministry of Agriculture and Natural Resources MoU Memorandum of Understanding Contract farming in Ethiopia Contract NGO Non­Government Organization OIC Oromia Insurance Company V OIP Outgrowers Incubator Project PSI Private Sector Investment (programme of the Dutch government) qt Quintal; 100 kg or 0.1 ton SACCO Savings And Credit Cooperative SupHort Supporting Horticulture Development in Ethiopia, project implemented by CIHEAM Bari and MoA of Ethiopia (2011–2015) TOC The Organic Cooperation ton A ton is a metric ton: 1000 kg, 10 quintals USD United States dollar Wageningen UR Wageningen University & Research Content Foreword III Acknowledgements IV Abbreviations V 1. Introduction 1 2. Theoretical