Linking Farmers to Markets through Contract Farming

This bulletin is published by Central Institute for Economic Management (CIEM) with the support of Asian Development Bank (ADB) and the Mekong Private Sector Development Facility (MPDF). The goal of the bulletin is to provide a forum for the discussion of issues arising from the research.

Contracts are an important mechanism to coordinate production, distribution, and retail arrangements between different players in the value chain. As the agriculture sector in Viet Nam modernizes and commercializes, value chains for agricultural products will become increasingly important, and as a part of this process, contracts will also become a more important and common feature of the agriculture sector in Viet Nam.

The key feature of farming contracts is that they provide a framework for developing a relationship between farmers and processors. Contracts tend to work better where markets are stable and greater demands for quality and coordination exist in the value chain. Contract farming is a relatively new development in Viet Nam. The concept of contract farming is strongly supported by the Government. This support includes decision on contract farming which regulates the mechanisms and policies for promoting the consumption of agricultural products through signed contracts between enterprises and farmers and which promotes cooperation between the “four houses” state, farmers, research and enterprises. This support for contract farming is linked with government support for the development of “new cooperatives” to organize smallholder production. As with any relatively new organizational system, contract farming systems have been both successful and unsuccessful.

Four of the key issues will have an impact on the success of contract farming systems in Viet Nam in the future.

  • Clear and strong relationships between participants are necessary for effective contract farming.
  • Participants in the contracting system should be well organized.
  • Contract farming is not suitable for all products and situations.
  • Contracts should be made in appropriate forms.

Contract farming will inevitably play an increasing role in the agriculture sector in Viet Nam. If the benefits of this development are to be fairly and equitably distributed between participants in contract farming systems, contracts should be based on strong relationships, effective organization, and suitable contract forms.

Contract farming should be voluntary and be driven by needs rather than by the idea that contract farming is the only viable system for linking farmers and processors. The form of linkage depends on the conditions of the people and the environment and the unique situation of the area.

The bulletin is also available in Vietnamese.

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