Thesis (MBA) -- Stellenbosch University, 2011. / Extensive literature exists on the challenges that hinder the growth and development of small-scale farmers in agriculture. These small-scale farmers’ challenges can be broadly classified into financial, technical and market challenges. Despite the awareness and the debate that favours progressing small-scale farmers from subsistence agriculture to commercial agriculture, financiers consider this group of farmers as of high risk and low returns. The emergence of contract farming as a mechanism to integrate small-scale farmers with agribusiness firms, agro-industrial companies, supermarket chains, and processors of agricultural produce has rescued the small-scale farmers from going into oblivion. Contract farming promises benefits for both the farmers and the contract sponsors. In the face of the benefits that contract farming hold, the concept has been critiqued as being an exploitative mechanism that contract sponsors use on the growers. This research evaluates the contract farming arrangement between Gledhow Sugar Company and Mansomini Farmers’ Cooperative. The study assesses how the scheme plays a part in the provision of access to finance, technical support and a guaranteed market access for the small sugarcane farmers. It explores how Gledhow Sugar Company’s structures manage to reduce the associated risk in providing finance to the small-scale farmers. The analysis of findings from the interviews confirms that the structure provides the small-scale sugarcane farmers with finance, technical support and a guaranteed market. However, for Gledhow Sugar Company to continuously achieve its aim and simultaneously develop the farmers there is a need for Gledhow Sugar Company to provide the farmers with more clarity on their role in the arrangement and to make the farmers embrace the long-term vision of the contractual arrangement.

MSCAGR (Agricutural Economics) / Department of Agricultural Economics and Agribusiness / See the attached abstract below

Thesis (MDF)--University of Stellenbosch, 2010. / The constraints that impede the growth of smallholder farmers have been attributed to lack of access to markets and technical expertise. This has led to mainstream banks classifying smallholder farmers as high risk and therefore unwilling to finance smallholder farmers. Contract farming has developed as a model that may be able to link smallholder farmers with agribusinesses who have the expertise and have built marketing channels that can be utilised by the smallholder farmers. Despite its potential to bring smallholder farmers into the mainstream agriculture industry, literature on contract farming has indicated that contract farming can be skewed in favour of the agribusiness due to their superior bargaining power and information asymmetry in favour of the agribusiness. This study examines the Industrial Development Corporation (IDC)’s Kat River Development Scheme to finance nine farmers through a contract farming arrangement with Riverside (Pty) Ltd. More particularly, the study examines how this financing model contributes to improved access to finance, markets and technical expertise for the farmers. It also examines how the arrangement contributes to reducing the risk of financing smallholder farmers for IDC. The empirical analysis indicates that, despite the fact that the farmers are able to obtain access to finance, market and technical expertise, the ability for the scheme to meet its objectives in the long term is dependent on improving transparency between the agribusiness and the farmers, providing appropriate incentives for the farmers to apply the required effort and the farmers buying into the long term strategic aim (or “big picture”) of the scheme.