The new draft proclamation of the Agricultural Production Contract makes suppliers and brokers irrelevant. Buying agricultural products from producers and farmers without sharing the cost of agricultural inputs is prohibited under the new legislation.
The proclamation, which was passed by the Council of Ministers last week, has been in the pipeline for five years. Partly, the bill took a longer period because the House of Federation (HoF) had to review it from the perspective of its impacts on regional states. The Council also amended the Seed Proclamation, which has been in place since 2013.
Ethiopia had no out-growers contract legal framework before. As a result, buyers have been sourcing agricultural products from farmers and producers without signing binding contracts.
“Middlemen, brokers, and intermediary suppliers who have no contribution to the farming process have been collecting harvests from farmers. Then they resell it at highly inflated prices. There are also layers of brokers, who have been inflating prices without adding any value. Now, the biggest aim of this proclamation is to cut out such middlemen,” said Dereje Degife, director of Investment and Market Development at the Ministry of Agriculture, which drafted the bill and finalized the directive that enables the implementation of the draft proclamation.
The bill enables only contractors and farmers, according to Dereje. It also allows industries, agri-processors, exporters, hotels, and any other licensed business to enter into contracts with farmers and out-grow crops, plants, animals, fish, forest products, and other agricultural products.
Contractors provide inputs, and finally deduct it from the final payment to the farmer. Small-scale farmers can be represented in contracts through licensed intermediaries or cooperatives. But the contractor has to deposit the agreed amount in a local bank account opened in the name of the farmer.
Contracting parties may obtain third-party incentives such as insurance, broad market linkage, capital, tax holidays or relief, farm machinery support, and other benefits. The specifics will be determined by the Ministry’s directive.
“This means banks, NGOs, funders, and other third-party entities can provide guarantees on the contracts. They provide loans or funds for the contractors, which are payable once the harvest is delivered,” explained Dereje.
There are also causal scenarios which constitute force majeure under which the contract might be nullified. These scenarios include serious illness of the producer; extreme high or low rainfall; floods; extreme low or high temperatures; or pest outbreaks, among others.
Contributed by Selamawit Mengesha and Ashenafi Endale