Ethiopia to introduce contract farming to meet commodity demand

ETHIOPIA – The Ministry of Agriculture of Ethiopia has drafted a proclamation to introduce contract farming.

For the first time, farmers will be able to arrange contracts with buyers, determining prices and what they will produce in an agreed upon time frame.

According to a report by Addis Fortune, the new bill, which has been two years in the making, was sent to the Council of Ministers at the beginning of January 2020.

The Council forwarded it to the House of Federation for comment, since the issue directly concerns the regional states.

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Existing laws do not adequately address agricultural production contracts, according to the bill.

“Thus, it has become necessary to put a comprehensive legal framework in place that facilities transfer of technology, knowledge and skills, and market linkage between producer and contractor to improve production and productivity,” reads the bill.

The new scheme is expected to lay out a framework that allows agro-processing industries, investors, hotels, supermarkets and foreign investors to guarantee they will receive enough product to fulfill their demand.

Agricultural production contracts can be initiated through an offer by the producer or contractor; any government institution or non-governmental organisation involved in developmental activities can also initiate and facilitate such agreements.

The bill will introduce two types of contract farming agreements. The first type involves a contractor who is obligated to supply the inputs to the producers.

Under this type of contract, the contractor provides the technology, technical assistance or finance needed for production. However, the price of the inputs cannot be higher than the prevailing local market price of the product.

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Under the second type, the contractor has to supply the inputs to the producer only if there is a mutual agreement between the parties.

If the contractor does not provide the necessary inputs, then payment must be issued to the producer.

“The growth in demand for certain agricultural products was very low,” said Sani Redi, state minister for Agriculture, “and the relationship between the farmers and the rest of the value chain wasn’t strong enough to design a legal framework for contract farming.”

The contract must contain the parties’ personal information, the purpose and objective of the agreement, the size of the farm, the parties’ rights and obligations, production quality and quantity and the pricing model.

It should also include the type of technical assistance that will be provided by the contractor, provisions for intellectual property, provisions for events considered to be force majeures, issues of succession, assignment of rights, duration of the contract, dispute resolution mechanisms, and the agreed upon dates.

Force majeures include extremely high or low rainfall or temperatures, floods, fires, landslides, earthquakes, diseases, and other unfortunate events depending on the details of the agreement. In such cases, the contract determines who will be financially responsible for the loss, according to the bill.

In addition, the parties can also agree to obtain insurance coverage against such force majeures with an understanding of who pays the premium for the insurance.

The duration of the contract depends on the nature of the contract and production method; however, the Ministry of Agriculture may determine the duration with a special directive depending on the nature of the agreement.

“We expect the bill to be legislated by the end of the year,” Sani said.

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