CONTRACT FARMING IN OIL PALM: THE CASE OF GHANA AND
THE PHILIPPINES
PAUL STEPHEN HUDDLESTON
BACHELOR OF SCIENCE (GEOGRAPHY), BRANDON UNIVERSITY, CANADA MASTER OF ARTS (GEOGRAPHY), UNIVERSITY OF WINDSOR, CANADA
SEPTEMBER 2006
THIS THESIS IS PRESENTED FOR THE DEGREE OF DOCTOR OF PHILOSOPHY
AT
THE UNIVERSITY OF WESTERN AUSTRALIA
SCHOOL OF EARTH AND GEOGRAPHICAL SCIENCES FACULTY OF NATURAL AND AGRICULTURAL SCIENCES
PERTH, AUSTRALIA
Declaration This thesis does not contain work that I have published, nor work under
consideration for publication. The thesis is completely the result of my own work,
and was substantially conducted during the period of candidature, unless otherwise
stated in the thesis.
Signed:
(Paul Stephen Huddleston) © Copyright P. S. Huddleston, 2006. This thesis may not be copied in whole or in part
by any process without the prior written permission of the author.
ii
Abstract
This thesis reviews the role that contract farming plays in the development process
through an examination of the oil palm industry in Ghana and in the Philippines. It
contributes to ongoing debates concerning agricultural liberalisation in developing
economies. The general view is that while the private sector can provide access to
capital, technology and markets, the transition to a market-led system will increase the
financial vulnerability of farmers, particularly smallholder farmers, through unequal
power relationships. Of particular concern is the capacity of the private sector to
alleviate poverty and promote social equity amongst small rural landholders. At the
heart of much of the debate is the issue of contract farming, which has increased rapidly
in line with structural adjustment in the agricultural sector.
One of the central difficulties in drawing any conclusion on whether contract farming
should be encouraged or discouraged, is the lack of comparability between the large
number of types of schemes, crops being contracted, the ‘actors’ involved and the socio-
economic, political and institutional environments in which contract farming schemes
are nurtured. This study has focused on the role that contract farming plays in the
pursuit of development through an analysis of the key socio-economic issues involved
with the adaptation of contract farming in the oil palm industries in the Philippines and
in Ghana. This analysis allowed for the identification of conditions under which the
impacts of contract farming schemes can either be augmented or mitigated.
The research found that cultivating oil palm has the propensity to reward outgrowers
with increasing income and a better access to knowledge, information and technology,
capital and credit, agricultural inputs, markets and other services. Contract farming in
oil palm also allows small farmers to cultivate and market this non-traditional cash crop,
leading to the creation of employment, infrastructure and growth in their local
economies. A real transfer of technology was evident and the technology was being
adapted for use by the outgrowers, and by their part time workers, in other farming
activities. There was very little evidence of systemic conflict or contractual problems
between the processor and the outgrowers, in spite of historical evidence of this in
Ghana. There was also no abuse of family labour or difficulties concerning access to
staple food crops as identified in previous research.
iii
The present research highlighted the need for contract farming schemes to be judged on
a stand-alone basis, based upon their unique effects on local rural communities.
Contract-farming schemes can be quite complicated and, therefore, it is imperative that
sponsors address potential adverse impacts on rural societies during the planning
process. In this regard, there is a need to conduct further and more detailed research
into: the income generation and income distributional effects of contract farming; food
security issues; social differentiation issues that specifically address the exclusion of
elements of rural society and the development of inequalities within the household; and,
rural employment including the possible creation of further difficulties for landless rural
citizenry.
As the experience and lessons of the past decades demonstrate, the move to a private
sector-led development of oil palm outgrower contracting schemes has provided a better
opportunity for promoting agricultural development in Ghana and the Philippines. The
two outgrower programs are presently successful and do not show signs of the major
problems identified by researchers in other areas. However, both governments need to
ensure that a comprehensive policy and regulatory framework for private sector
agricultural development is put in place. A strong private sector could provide the
vehicle for agricultural development and the reduction of poverty in the countryside,
however, both governments and the various private sector companies engaged in oil
palm production need to work in partnership with each other and the outgrower
community towards the goal of a diversified and expanded agricultural production base.
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Acknowledgements
Above all, I would like to extend my heartfelt appreciation to the GOPDC outgrowers in
Ghana and the AGUMIL Outgrowers in the Philippines who graciously gave up their time
to individually sit through the two and a half hour research interviews, providing
information and sharing their views and perceptions as contracted oil palm farmers.
Special thanks are also extended to C.K. Chang, Managing Director, and Pons Narciso,
Outgrower Division Manager, of Agumil Philippines Incorporated along with J.C.E.
Inkumsah, Managing Director, Micheal Kemeh-Mensah, Outgrower Extension Manager
and Raymond Ompong, Assistant Manager, Farmers Contracts Administration, of the
GOPDC in Ghana for their patience in not only sitting through formal processor interviews
but for their ongoing interest and cooperation in responding to the multitude of follow-up
questions. In a similar fashion, the researcher extends his appreciation to Billy Ghansah
and Kwaku Awuku, Estate Manager and Human Resources Manager at The Twifo Oil Palm
Plantations Limited, who spent an entire morning providing invaluable information on both
the Twifo Oil Palm nucleus estate as well as information on the Benso Oil Palm nucleus
estate, both of which are majority owned and operated by Unilever (Ghana). In the
Philippines, Charlie Cinco, Industrial and Community Relations Manager at the Filipinas
Palm Oil Plantations Incorporated also provided the researcher with an interesting history of
the plantation and their plans for the development of their own outgrower program in the
Caraga Region of Mindanao. Finally, special thanks are also extended to Onofre T. Grino,
President of the Menzi Agricultural Corporation for his excellent history of the Menzi Oil
Palm Plantation, the first such enterprise in the Philippines, established in 1960; Edgar T.
Bahala, Director of the Coconut Extension Training Center in Davao, Mindanao, for sharing
his extensive knowledge of the Philippines oil palm industry; Professor Rolando Dy,
Director of the School of Food and Agri-business at the University of Asia and the Pacific
in Manila, for his guidance and direction concerning the oil palm sector in the Philippines;
and, Kwasi Poku, Advisor/Coordinator of the President’s Special Initiative – Oil Palm at the
State House in Accra, Ghana, for his introduction of the researcher to the key Ghanaian
interlocutors in the oil palm industry in Ghana and his extensive knowledge of the oil palm
industry in Ghana.
I would also like to make special mention of the assistance and support of the following
individuals: In Ghana, Dr Dagmar Kunze and Chet Aeschliman from the FAO Regional
Office who provided excellent guidance and data; Archie Book, Director of the Canadian
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Development Assistance Program in Accra for providing excellent information on the
macro-economic and socio-economic situation in the country; Professor Edwin Gyasi of the
University of Ghana for his interesting insights into contract farming in the oil palm
industry in Ghana; David and Margaret Lawless in Asuom for their unrelenting support and
friendship while in the field; Annamaria Scotti and Jimmie Kastner for their logistical
support of the research; and, Helena Vandebeeck of SIAT Belgium for sharing her
historical outgrower data with the researcher. In the Philippines, I would like to offer
special thanks to Raphael Apolinario for his help and his introductions to his contacts in the
Mindanao oil palm industry and soliciting the logistical support of Congressman Plaza and
Governor Plaza in Agusan del Sur for the field research; Carmencita Cochingco, NEDA
Caraga Regional Director, for her advice and assistance in obtaining up to date socio-
economic data; Deanna Fudalan and Jessica Unson of the PPDO in Agusan del Sur for all
of their assistance and their staff for conducting of the Group ‘C’ Farmer survey in the
province; Dr. Doroteo Jaquias for his hospitality at ASSCAT and the benefit of his
knowledge acquired after spending years in the agricultural sector of Agusan del Sur;
Dayan Duhac, lecturer at ASSCAT in Bunawan for her assistance in the field work in the
Philippines; and, Joy Cabo and Maria Angelica Elises for their assistance in obtaining
reports and data in Southern Mindanao.
I would also like to express my appreciation to Dr Matthew Tonts for introducing me to one
of the most interesting and relevant research areas in modern agricultural and rural
development - contract farming. His guidance during the course of the research kept me
from wandering too far from the context of the thesis, no easy task in a research area that
contains such rich veins of potential research.
Finally, I would like to thank Veronica Huddleston for her continued encouragement and
patience with me during the long process of bringing this ‘project’ to a successful
conclusion. She not only assisted me in strategically positioning the research during its
planning and implementation stages but she also acted as a research assistant in Ghana and
as an editor of the final draft versions of the thesis. She is well deserving of a hero’s medal
for bearing with me in the long drawn out process of completing this thesis!
In conclusion, while the advice, knowledge and insights of many were sought during the
undertaking of this research and the preparation of this thesis, any errors, omissions or
untruths are the sole responsibility of the author alone.
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Table of Contents Page Thesis Declaration ………………………………………………………............................... ii Abstract ……………………………………………………………………............................. iii Acknowledgments …………………………………………………………............................ v Table of Contents …………………………………………………………............................. vii List of Tables ………………………………………………………………............................ xiii List of Figures ………………………………………………………………........................... xiv List of Plates ………………………………………………………………............................. xviii List of Boxes ………………………………………………………………............................. xix List of Appendices …………………………………………………………............................ xx List of Acronyms ………………………………………………………….............................. xxi 1.0 Introduction......................................................................................................... 1
1.1 The Contextual Framework ………………………………...................... 2
1.2 The Aim and Objectives of the Research …………………................... 5
1.2.1 Objectives of the Research ………………………….................. 7 1.3 Structure of the Thesis ……………………………………...................... 8
2.0 Contract Farming and Development ………………………………...................... 11
2.1 Introduction …………………………………………………...................... 11
2.2 The Expansion of Contract Farming ……………………….................... 11
2.3 Variations on a Theme ……………………………………...................... 14
2.4 Contract Farming and Development ……………………....................... 16
2.5 To Define or Not to Define ………………………………….................... 17
2.5.1 Integration to Coordination …………………………................. 19
2.6 Contract Typology and Formulation ……………………….................... 20
2.6.1 Contract formulation ..……………………………….................. 23
2.7 The Nature of Contract Farming ……………………………................... 24
2.8 Conclusion …………………………………………………....................... 29
3.0 Research Design and Methodology ………………………………....................... 32
3.1 Introduction …………………………………………………...................... 32
3.2 Selection of the Case Study Area ………………………….................... 32
3.2.1 Case Study Countries in Brief ………………………................ 35
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Page
3.3 Methodological Approach …………………………………...................... 39
3.3.1 Secondary Data and Documents ……………………............... 40
3.3.2 Structured and Semi-Structured Farmer Interviews ............... 42
3.3.3 Interviews with Oil Palm Company Executives ……............... 46
3.3.4 Observational Research ……………………………................. 49
3.3.5 Focus Group Discussions ………………………….................. 49
3.4 Conclusion …………………………………………………....................... 53
4.0 The Oil Palm ……………………………………………………….......................... 55
4.1 Introduction ………………………………...………………...................... 55
4.2 The Oil Palm Species ……………………………………….................... 55
4.3 The Industrial Development of the Oil Palm ………………................... 59
4.3.1 Trade in Palm Oil …………………………………..................... 60
4.3.2 The Oil Palm in Africa ……………………………..................... 64
4.3.3 The Oil Palm in Asia ……………………………….................... 65
4.3.4 The Oil Palm in the Americas ………………………................ 67
4.4 Palm Oil Processing ………………………………………....................... 69
4.4.1 Traditional Palm Oil Processing ……………………................ 70
4.4.2 Small Scale Mechanical Units ……………………................... 71
4.4.3 Medium and Large-Scale Processing ………………............... 71
4.5 The Use of Oil Palm and its Oils …………………………...................... 75
4.5.1 The Oils from the Palm ……………………………................... 75
4.5.2 By-Products from the Milling Process …………….................. 76
4.6 Conclusion …………………………………………………....................... 78
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Page 5.0 Oil Palm in the Philippines and Ghana ……………………………...................... 79
5.1 Introduction ………………………………............................................... 79
5.2 Philippines ………………………………................................................ 82
5.2.1 Menzi Agricultural Corporation …………………….................. 84
5.2.2 Kenram Industrial Development Incorporated ……................. 84
5.2.3 Filipinas Palm Oil Industries Incorporated …………............... 86
5.2.4 Agumil Philippines Incorporated ………………….................... 87
5.2.5 The Future of the Oil Palm in the Philippines …….................. 89
5.3 Ghana ………………………………....................................................... 94
5.3.1 Early History ………………………………................................ 95
5.3.2 The Ghana Oil Palm Development Corporation...................... 99
5.3.3 Benso Oil Palm Plantation (BOPP) ………………................... 108
5.3.4 Twifo Oil Palm Plantation (TOPP) …………………................. 111
5.3.5 NORPALM Ghana Ltd …………………………….................... 114
5.3.6 The Future of the Oil Palm in Ghana ………………................ 115
5.4 Conclusion ………………………………................................................ 118
6.0 The Outgrower, Production and Income …………………………........................ 120
6.1 Introduction ………………………………............................................... 120
6.2 The Outgrowers ………………………………........................................ 122
6.2.1 Age Profile of Outgrowers ………………………….................. 124
6.2.2 Years Engaged in Agriculture ………………………................ 127
6.2.3 Relationship of Age to Farm Size …………………................. 127
6.2.4 Gender of Outgrowers ………………………........................... 128
6.2.5 Education Levels of Outgrowers ……………………................ 130
6.2.6 Agricultural Training ………………………............................... 131
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Page 6.3 The Outgrowers’ Agricultural Activities …………………....................... 131
6.3.1 Land Ownership ………………………..................................... 132
6.3.2 Farm Size ………………………............................................... 135
6.3.3 Hectares of Oil Palm ……………………….............................. 136
6.3.4 Outgrower Cultivation of Other Crops …………….................. 138
6.4 Oil Palm Production ………………………............................................. 140
6.4.1 Oil Palm Yields ………………………....................................... 140
6.5 The Outgrowers’ Income ………………………..................................... 146
6.5.1 Agricultural Income as Percent of Total Income …................. 147
6.6 Summary of Key Findings ………………………................................... 151
6.6.1 Relationship to Age ………………………................................ 151
6.6.2 Outgrowers’ Exposure to Farming …………………................ 152
6.6.3 Gender and Outgrower Selection and Success …….............. 152
6.6.4 Education and Training Levels of the Outgrowers ….............. 153
6.6.5 The Impact of Land Ownership............................................... 153
6.6.6 Land Areas Devoted to Agriculture ………………................... 154
6.6.7 Oil Palm Production as Measured by Mill Deliveries .............. 155
6.6.8 Incomes of the Outgrowers ……………………….................... 156
6.7 Conclusion ………………………........................................................... 156
7.0 Decision-Making and Control Under Contract.................................................... 160
7.1 Introduction........................................................................................... 160
7.2 Outgrower Autonomy under Contract................................................... 163
7.3 Control over On-farm Production Processes and Decisions................ 167
7.3.1 Initial Perceptions on Autonomy Concerning Decision-Making....................................................................................
172
7.3.2 Perceived Change after being an Outgrower for Some Time........................................................................................
172
7.3.3 Perceived Benefits of Living Under Contract............................ 173
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Page 7.4 Contractual Terms and Conditions........................................................ 173
7.4.1 Outgrower Contractual Problems............................................ 173
7.5 Relationships with the Processor.......................................................... 176
7.5.1 Government versus Private Sector Contracting...................... 178
7.6 Conclusion............................................................................................. 179
8.0 Employment and Farm Labour Under Contract................................................... 182
8.1 Introduction............................................................................................. 182 8.2 Employment Creation and Development................................................ 184
8.2.1 Employment Creation and the Contract Farming...................... 184 8.2.2 Reflections on the Use of Hired Labour.................................. 186
8.2.3 Outgrower Schemes and the Family Household..................... 190
8.3 Employment Creation by the Outgrower............................................... 194
8.3.1 Farm Size and Employment...................................................... 195 8.3.2 On-Farm Activities................................................................... 198
8.3.3 Gender, Employment and Farm Size...................................... 206
8.3.4 Worker Benefits and Farmer Views on Labour.....................................................................................
208
8.3.5 Spousal and Child Employment and Family Relationships...........................................................................
212
8.3.6 Other Employment Creation from the Oil Palm....................... 216
8.4 Conclusion............................................................................................. 218
8.4.1 Employment Creation.............................................................. 218
8.4.2 Family Labour, Family Relationships and Gender Equality....................................................................................
221
8.4.3 Labour Quality, Availability and Benefits................................ 223
9.0 Outgrowers Perceptions on Technology Transfer in the Oil Palm Industry in
Ghana and the Philippines................................................................................
225
9.1 Introduction............................................................................................ 225
9.2 Contract Farming and Technology........................................................ 226
9.3 Perspectives on Technology Transfer under Contract.......................... 230
9.4 Technology Transfer and Training in the Study Areas.......................... 232
9.4.1 Business Management of an Agumil Outgrower........................ 234
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Page 9.5 Changes in the use of Technology........................................................ 234
9.6 Perceived Benefits from the Transfer of Technology............................. 239
9.7 Land Conservation and the Transfer of Technology.............................. 241
9.8 Conclusion.............................................................................................. 243
10.0 Findings and Implications................................................................................... 248
10.1 Introduction........................................................................................... 248
10.2 Potential Impacts of Contract Farming................................................. 248
10.3 Family Benefits from being an Outgrower............................................ 255
10.4 Community Benefits............................................................................. 257
10.4.1 Negative Benefits to the Community from Contract Farming...................................................................................
260
10.5 Conclusion............................................................................................ 261
11.0 Contract Farming in Oil Palm............................................................................. 265
11.1 Developmental Policy and Contract Farming...................................... 266
11.2 Developmental Context..................................................................... 269 11.2.1 Social Impacts on Development................................................ 270 11.2.2 Economy and the Environment................................................. 274 11.2.3 On the Transfer of Technology.................................................. 279 11.2.4 On Being Under Contract........................................................... 281
11.3 Conclusion.............................................................................................. 283
Bibliography...................................................................................................................... 288 Appendices...................................................................................................................... 301
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List of Tables Page Table 2.1: The Contract Farming Environment...................................................... 19 Table 3.1: Selection of Interviewees amongst GOPDC Outgrowers..................... 45 Table 3.2: Philippine Oil Palm Estates, Outgrowers and Smallholders................ 47 Table 3.3: Ghana Oil Palm Estates, Outgrowers and Smallholders...................... 48 Table 3.4: GOPDC Staff Outgrowers (September 2004)...................................... 52 Table 4.1: Ideal Composition of Oil Palm Fruit Bunch........................................... 57 Table 4.2: Palm Oil: World Supply and Distribution (‘000 MTs)............................. 62 Table 4.3: Major World Producers of Palm Oil: 1994-2003 (‘000 MTs)................. 63 Table 4.4: Oil Palm Hectarage, Production and Consumption in the Americas
(2001)...................................................................................................
68 Table 5.1: Philippine Oil Palm Estates (2003-2004).............................................. 89 Table 5.2: Land Available for Palm Oil Development in the
Philippines.............................................................................................
91 Table 5.3: Oil Palm Plantings in the Philippines (2003)......................................... 93 Table 5.4: Ghanaian Oil Palm Estates (2003)....................................................... 98 Table 5.5: GOPDC Outgrowers and Smallholders (2004).................................... 105 Table 5.6: GOPDC Annual FFB, Palm Oil and Kernel Production
(MT)......................................................................................................
109 Table 5.7: Planned Improved Oil Palm Seed Production at OPRI (2004-
2005).....................................................................................................
116 Table 6.1: Hectares Farmed by Outgrowers in Ghana and the Philippines
(2004)...................................................................................................
136 Table 6.2: Outgrower’s Oil Palm Farm Size in Ghana and the
Philippines.............................................................................................
137 Table 6.3: Outgrowers Deviating from the Mean Oil Palm Holdings...................... 138 Table 6.4: Declared Income of Interviewed Outgrowers in Ghana
(2004)....................................................................................................
149 Table 6.5: Declared Income of Interviewed Outgrowers in the Philippines
(2004)....................................................................................................
150 Table 8.1: Number of Workers Engaged by Activity in Ghana and the
Philippines.............................................................................................
200 Table 9.1: Outgrower’s Sources of Funds, Services and Supplies Before and
After Contract........................................................................................
237
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List of Figures Page Figure 1.1: Inter-Disciplinary Positioning of Contract Farming................................ 5 Figure 1.2: Thesis Structure.................................................................................... 9 Figure 3.1: Province of Agusan del Sur, Philippines............................................... 34 Figure 3.2: Ghana, West Africa............................................................................... 35 Figure 3.3: Administrative Regions of the Philippines............................................. 37 Figure 3.4: Mindanao and the Province of Agusan del Sur..................................... 39 Figure 3.5: Farmer Surveys Undertaken in the Philippines..................................... 43 Figure 4.1: Dura, Pisifera and Tenera Fruitlets....................................................... 56 Figure 4.2: World Production, Export and Consumption of Palm Oil (1964-
2004).....................................................................................................
64 Figure 4.3: Major Americas Oil Palm Producers: Land Area (2001)....................... 68 Figure 4.4: Crude Oil Palm Processing on an Industrial Estate.............................. 73 Figure 4.5: The Uses of the Palm Oil and Palm Kernel Oil..................................... 75 Figure 4.6: Uses of the Oil Palm Tree..................................................................... 77 Figure 5.1: Administrative Regions and Provinces of Mindanao,
Philippines.............................................................................................
85 Figure 5.2: Province of Agusan del Sur, Mindanao................................................. 87 Figure 5.3: Administrative Regions of the Philippines............................................. 92 Figure 5.4: Oil Palm Estates in Ghana.................................................................... 98 Figure 5.5: GOPDC Nucleus-Estate, Kwaebibirem, Eastern Region,
Ghana...................................................................................................
100 Figure 5.6: GOPDC Outgrower Districts................................................................. 107 Figure 5.7: GOPDC Outgrower’s Hectares by District (2004)................................. 108 Figure 5.8: GOPDC Outgrower’s Contracts by District (2004)................................ 108 Figure 6.1: Age of Outgrowers in Ghana and in the Philippines by
Numbers...............................................................................................
126 Figure 6.2: Age Distribution Curves: Outgrowers in Ghana and in the Philippines
Percentages..........................................................................................
126 Figure 6.3: Number of Years in Agriculture for Farmers in Ghana and in the
Philippines.............................................................................................
128 Figure 6.4: Total Farm Size by Age of Outgrowers in Ghana and in the
Philippines.............................................................................................
128 Figure 6.5: Gender of Respondent Farmers in Ghana and in the
Philippines.............................................................................................
129
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Page Figure 6.6: Education Levels Attained by Respondent Farmers in Ghana and in
the Philippines...................................................................................... 130
Figure 6.7: Agricultural Training Received by Outgrowers in Ghana and in the
Philippines.............................................................................................
131 Figure 6.8: Land Tenure of Respondent Farmers in Ghana and in the
Philippines.............................................................................................
132 Figure 6.9: Total Hectares of Crops Farmed by Outgrowers in Ghana and in the
Philippines.............................................................................................
136 Figure 6.10: Hectares of Oil Palm Grown by Outgrowers in Ghana and in the
Philippines.............................................................................................
137 Figure 6.11: Total Hectares of Other Crops Grown by Outgrowers in Ghana and in
the Philippines.......................................................................................
139 Figure 6.12: Factors Affecting Projected vs. Actual Palm Oil Yields......................... 141 Figure 6.13: Oil Palm Production (204) in Metric Tons from Outgrowers in Ghana
and in the Philippines............................................................................
142 Figure 6.14: Oil Palm Production (2004) by Outgrowers in Ghana and in the
Philippines (MT/HA)..............................................................................
144 Figure 6.15: Outgrower Yields (MT/HA) in Ghana (2004)......................................... 145 Figure 6.16: Outgrower Yields (MT/HA) in the Philippines (2004)............................ 146 Figure 6.17: Ghanaian Outgrower Income Sources (2004)...................................... 148 Figure 6.18: Filipino Outgrower Income Sources (2004).......................................... 151 Figure 7.1: Contract Farming: A Conceptual Framework....................................... 162 Figure 7.2: Decision-Making by GOPDC Outgrowers: Before Contract.................. 169 Figure 7.3: Decision-Making by GOPDC Outgrowers: Under Contract.................. 169 Figure 7.4: Decision-Making by Agumil Outgrowers: Before Contract.................... 171 Figure 7.5: Decision-Making by Agumil Outgrowers: Under Contract..................... 171 Figure 7.6: Do you think that your decision-making power has changed since
you became an outgrower?..................................................................
172 Figure 7.7: As an outgrower, have you gained or lost decision-making power or
has it remained the same?....................................................................
173 Figure 7.8: How do you feel that you have benefited from being an
outgrower?............................................................................................
174 Figure 7.9: Do you have any problems with your outgrower contract?................... 174 Figure 7.10: What problems are you having with your outgrower contract?............. 175 Figure 7.11: Outgrowers Relationship with the Processor in Ghana and in the
Philippines.............................................................................................
177 Figure 7.12: How would you rate your relationship with the privately owned
GOPDC compared to the previously Government-owned GOPDC?....
178
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Page Figure 8.1: Frequencies –Oil Palm Size and Employment of Workers in Ghana
and in the Philippines............................................................................
196 Figure 8.2: Oil Palm Size in Hectares by Part-Time Employment by Study
Area......................................................................................................
197 Figure 8.3: Percentage of Part-Time Workers Employed by Oil Palm Farms in
Ghana and in the Philippines................................................................
197 Figure 8.4: Number of Ghanaians Employed per Oil Palm Farm............................ 198 Figure 8.5: Number of Filipinos Employed per Oil Palm Farm................................ 198 Figure 8.6: Required Spacing for the Planting of Oil Palm Seedlings..................... 201 Figure 8.7: Number of Workers Hired to Undertake Oil Palm Farming Activities in
Ghana and in the Philippines................................................................
203 Figure 8.8: Percentage of Male and Female Workers Employed by Farm Size in
the Study Areas....................................................................................
206 Figure 8.9: Percentage of Female Workers by Farm Size in Ghana and in the
Philippines.............................................................................................
207 Figure 8.10: Number of Part-Time Workers by Gender and by Oil Palm Farm Size
in Ghana and in the Philippines............................................................
208 Figure 8.11: Percentage of Farmers Who Provide Benefits to their Farm Workers
in Ghana and in the Philippines............................................................
209 Figure 8.12: Farmer’s Views on the Availability of Labour in Ghana and in the
Philippines.............................................................................................
209 Figure 8.13: Farmers’ Views on the Quality of Labour in Ghana and in the
Philippines.............................................................................................
210 Figure 8.14: Farmers’ Perceptions on the Cost of Labour in Ghana and in the
Philippines.............................................................................................
211 Figure 8.15: Farmers Whose Spouses Also Work on the Farm in Ghana and in
the Philippines.......................................................................................
212 Figure 8.16: Working Hours of Farmer’s Spouses in Ghana and in the
Philippines.............................................................................................
213 Figure 8.17: Activities Undertaken by Spouses in Ghana and in the Philippines...... 214 Figure 8.18: Farmers Who Indicated that their Children Work on the Farm in
Ghana and in the Philippines................................................................
215 Figure 8.19: Spousal Decision Making and Family Disputes in Ghana and in the
Philippines.............................................................................................
215 Figure 8.20: Awareness of Other Uses of the Oil Palm Tree in Ghana and in the
Philippines.............................................................................................
216 Figure 8.21: Products Identified by Farmers as being Produced from the Oil
Palm......................................................................................................
217 Figure 9.1: Outgrower Use of Technology after Entering Contract Farming
Scheme.................................................................................................
237 Figure 9.2: Reported Benefits from Technology Transfer under
Contract...............................................................................................
239
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Page Figure 9.3: Outgrower perceptions on whether they have benefited overall and if
their farming has improved under contract...........................................
240 Figure 9.4: Has your agriculture improved from being under contract?.................. 241 Figure 9.5: Processor Concerns for Their Outgrower’s Agricultural
Lands....................................................................................................
242 Figure 9.6: Does the processor provide you with land care training and, if so,
what is it?..............................................................................................
243 Figure 10.1: Contract Farming Issues Under Debate............................................... 249 Figure 10.2: Philippines: Family Benefits Under Contract......................................... 256 Figure 10.3: Ghana: Benefits to Family Under Contract........................................... 257 Figure 10.4: Philippines: Benefits to Community Under Contract............................. 259 Figure 10.5: Ghana: Benefits to the Community Under Contract.............................. 260 Figure 10.6: Negative Impacts of Contract Farming................................................. 261
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List of Plates Page Plate 4.1: Tenera (Upper) and Dura (Lower) Fruitlets........................................... 56 Plate 4.2: Mature Oil Palms at GOPDC................................................................ 58 Plate 4.3: Fresh Fruit Bunch (FFB).......................................................................... 58 Plate 4.4: Manual vs. Mechanical Harvesting of Mature Trees................................ 66 Plate 4.5: Newly Planted (left) and Four Year Old Plantations................................ 69 Plate 4.6: Traditional Processing of Oil Palm in Ghana........................................... 70 Plate 4.7: 45 MT/Hour Oil Palm GOPDC Mill at Kwae, Ghana................................ 72 Plate 4.8: Plantation Milling Processes.................................................................... 74 Plate 5.1: 60 MT/Hour Mill at GOPDC, Ghana......................................................... 103 Plate 5.2: Expanded and Irrigated Nursery at GOPDC, Ghana............................... 103 Plate 5.3: GOPDC Estate at Okumaning, Ghana.................................................... 104 Plate 8.1: Bullock Cart Used for Hauling FFB to the Roadside in Agusan del
Sur........................................................................................................
199 Plate 8.2: Circle or Ring Weeding in Kwaebibirem, Eastern Region........................ 202 Plate 8.3: Pruning Oil Palm in Kwaebibirem............................................................ 203 Plate 8.4: Harvester with Basket for Carrying FFB.................................................. 205 Plate 8.5: Women Collecting Loose Fruitlets, Kwaebibirem.................................... 205 Plate 8.6: ‘Weaving’ Wall Mats in Bunawan............................................................. 218 Plate 8.7: Making Fishing Baskets in Rosario.......................................................... 218
- xviii -
List of Text Boxes Page Box 5.1: Farm Credit for Palm Oil Production in the Philippines …………...................... 88
Box 9.1: Outgrower Training in Farm Record Keeping Pays Off …………..................... 235
Box 10.1: The Road to Being A Well Respected Community Member ……….................. 256
Box 10.2: Oil Palm Contractors Channel Investments into the Community ….................. 258
Box 10.3: Broadening the Future Horizons of an Outgrower’s Family ……….................. 258
- xix -
List of Appendices Page Appendix I: Field Questionnaires ……………………………………….................... 302 Appendix II: Filipino Group ‘C’ Farmer Survey Results ……………........................ 321 Appendix III: West African Oil Palm Production Systems ……………….................. 329 Appendix IV: Production Data on Oil Palm in the Americas …………...................... 333 Appendix V: Geographic Setting of the Research Areas ……………….................. 335 Appendix VI: Oil Palm Regulatory Environment ………………………...................... 347
- xx -
List of Acronyms and Abbreviations ADB Asian Development Bank
AfDB African Development Bank
AGUMIL Agumil Philippines Incorporated
API Agusan Plantations Incorporated
ASSCAT Agusan del Sur School of Agricultural Technology
BO Beneficial Owner
BOPP Benso Oil Palm Plantations Incorporated
CARP Comprehensive Agrarian Reform Program (Philippines)
CCPDC Cotabato Peace and Development Council
CDC Commonwealth Development Corporation
CEO Chief Executive Officer
CPO Crude Palm Oil
DAC Development Aid Committee (OECD)
DTI Department of Trade and Industry (Philippines)
FAO Food and Agricultural Organisation (UN)
FAS Foreign Agricultural Service (US Department of Agric.)
FFB Fresh Fruit Bunch
FPPI Filipinas Palm Oil Plantation Industries Incorporated
GDP Gross Domestic Product
GOPDA Ghana Oil Palm Development Authority
GOPDC Ghana Oil Palm Development Corporation
HA Hectare
IDA International Development Association (World Bank Group)
IFC International Finance Corporation
IIED International Institute for Environment and Development
IMF International Monetary Fund
ISSER Institute of Social, Statistical and Economic Research (Ghana)
KENRAM Kenram Industrial Development Corporation
MDC Mindanao Development Corporation (Philippines)
MT Metric Ton
NC National Corporations
NDC National Development Corporation (Philippines)
NEDA National Economic Development Authority (Philippines)
NORPALM Norwegian Palm Estates Incorporated
NOPP National Oil Palm Plantations
OECD Organisation of Economic Cooperation and Development
OG Outgrower
OPRI Oil Palm Research Institute (Ghana)
PICRI Philippine Industrial Crop Research Institute
PKO Palm Kernel Oil
PNSO Philippine National Statistical Office
- xxi -
PPDO Provincial Planning and Development Office
PSI-OP President’s Special Initiative – Oil Palm (Ghana)
QUEDANCOR The Quedan and Rural Credit Guarantee Corporation
SAA Sub-Saharan Africa
SH Smallholder
SOPP State Oil Palm Plantations
TCP Technical Cooperation Program (FAO)
TNC Trans-National Corporation
TOPP Twifo Oil Palm Plantations Incorporated
UNDP United Nations Development Program
UPLB University of the Philippines – Los Baños
WB World Bank
- xxii -
1.0 INTRODUCTION
Evidence of the existence of contract farming goes well into the past, where it has been
practiced literally for centuries as a means of organising commercial agricultural
production. On a more contemporary basis, contract farming has existed and been
practiced in Canada and the United States since the late 1800s and in Europe and Japan
since the early 1900s (Watts, 1994a). By 1947, one quarter of agricultural food and
fibres (one third of its monetary value) in the United States was being produced under
contract and, in Japan, one-half of all rice produced by 1958 was done under contract
(Little and Watts, 1994a:27). Over the last two decades, however, the rapid expansion
of contract farming has been unparalleled, as agriculture has responded to changing
market demands by both consumers and the industrial sector in developed and
developing countries alike (see, for example, Eaton and Shepherd, 2001; Black et al.,
2000; Little, 2000; Kirsten and Sartorius, 2002; Tonts et al., 2003).
Contract farming has spread rapidly in developing countries since the 1980s,
particularly in relation to agricultural products that are considered ‘non-traditional’
(Echánove and Steffen, 2005). This increased popularity of contract farming has
resulted, at least in part, from the International Monetary Fund's structural adjustment
programs aimed at instilling greater financial responsibility and austerity in developing
countries. In support of these restructuring programs, the World Bank has promoted
contract farming as a means of increasing exports through the creation of partnerships
between private capital and smallholders, in order to transfer technology, credit and
private sector business acumen to smallholder farmers. Notwithstanding the efforts of
the International Monetary Fund and the World Bank to privatise agriculture, most
outgrower schemes continue to have some state participation (See, for example,
Dapaah, 1995; Dorward et al., 1998; Baumann, 2000; Kirsten and Sartorius, 2002).
This rapid expansion in contract farming has resulted in the production of a
considerable body of literature that examines the extension of corporate agribusiness
into more traditional agrarian systems.1 Much of it has centred on the broad socio-
economic and natural resource impacts of contract farming schemes in developing
1 This is particularly true in Africa where the private sector’s sole ownership of such schemes is rare. Little and Watts (1988) reviewed 67 contract farming schemes for their 1988 study of contract farming in Africa and found that 70 per cent had either full or joint state ownership.
- 1 -
economies (Little and Watts, 1994a; Benziger, 1996; Schejtman, 1996; Dorward et al.,
1998; Baumann, 2000; Kirsten and Sartorius, 2002; Balisacan, 2003). The focus of the
present research involves investigations into the implications of oil palm contract
farming on the economic and social wellbeing of Ghanaian and Filipino farmers, their
families, their rural communities, local social dynamics, rural development, and the
broader patterns of industrial change.
1.1 The Contextual Framework In both Ghana and the Philippines, the introduction of plantation farming and the
subsequent introduction of contract farming in the form of outgrower schemes dates
back to the early 1970s (Addo, 2000; Callano, 2004). At that time, consistent with the
views of many governments in developing countries, the solution to rural
underdevelopment was seen to lie in the promotion of agrarian investments suited to
local environmental conditions and that could provide import substitution and,
potentially, generate foreign exchange earnings through the export of surplus
production. In some cases, this involved the establishment of state or parastatal firms
that would underpin agricultural development. The outcome of this development
strategy was the formation of a number of large plantation estates with ancillary
processing facilities, many of which had a high level of government ownership and
control. At the same time, tenant farmer arrangements and outgrower programs began
to accompany these nucleus estates with their processing facilities, particularly in Ghana
(Daddieh, 1994:21).
The state-driven approach to agricultural development came under increasing pressure
from the mid 1980s as rising debt, low commodity prices and a series of global
economic recessions undermined its efficacy. The state-driven approach often had
negligible impacts on socio-economic wellbeing, and even contributed to the loss of
productive traditional cultural and agrarian systems (Dorward et al., 1998). This was
certainly the case in Ghana where there was also the additional problems associated
with the appropriation of land for these development schemes, an action that frequently
lead to social and political unrest (Daddieh, 1994). In the Philippines, the land reform
program, launched in the mid 1980s in response to rural poverty and rural unrest,
disrupted the viability of plantation estates established in the 1960s and 1970s.
Furthermore, there was an mounting concern that many of these development schemes
- 2 -
were inefficient, unaccountable and a poor use of scarce state resources (White and
Bhatia, 1998). In response to these problems, an increasing focus began to be placed on
market-led solutions, and in promoting the role of the private sector in the pursuit of
agricultural development. In simple terms, state intervention was eschewed in favour of
a broadly neo-liberal development agenda (Dorward et al., 1998). This transition is
particularly important in understanding the changing structure of agriculture and rural
socio-economic systems in developing countries.2
The outcome of this transformation was the privatisation of many state-owned or
parastatal agricultural development schemes, particularly the large plantation estates.
Such divestitures often resulted in an increasing level of ownership by large trans-
national corporations. The general view is that these firms could provide farmers with
access to capital, technology, markets and price stability that might otherwise not be
available to them. It is argued that the combination of these factors would result in an
increase in the farmers’ ability to innovate and diversify. There are, however, those
who argued that the transition to a market-led system would increase the financial
vulnerability of farmers, particularly smallholder farmers, through unequal power
relationships with contract farming sponsors (Clapp, 1994). In addition, these same
scholars are extremely dubious about the capacity of the private sector to alleviate
poverty and promote social equity amongst small rural landholders (Little and Watts,
1994a).
The literature has also placed considerable focus on the possible coercive characteristics
of contracting arrangements, particularly those that entail the increased dependence of
farmers on the scheme’s sponsors, the loss of control over decision-making on their
farms, the threat of price manipulation, and the possible environmental consequences
(Glover and Kusterer, 1990b; Clapp, 1994; Little and Watts, 1994a; Porter and Phillips-
Howard, 1997a; Collins and Wingard, 2000). In terms of the wider process of rural
development, it has been suggested that contract farming can undermine the prosperity
of local and regional economies and contribute further to the problems of social inequity
and poverty (Watts, 1994a; Little, 1994b; Porter and Phillips-Howard, 1995; Singh,
2000a; Raynolds, 2002). However, Hubbard (1995) suggests that scholars did agree
2 See Goldsmith, 1985; Williams and Karen, 1985; Arnold, 1998; Govereh et al., 1999; Kanji and Barrientos, 2002; Simmons, 2002; Balisacan, 2003; Bebbington, 2003; Chatterjee, 2003; Gwynne, 2003; Patrick, 2004; World Bank, 2004b.
- 3 -
that the state’s provision of agricultural services was economically unviable and that the
impacts of ‘government failure’ is a major problem.
In the midst of this debate, it is worthwhile to bear in mind the proposition of Little and
Watts (1994c:5) that, “The heterogeneity of contract production – a diversity embracing
crops, actors, production relations and institutional links – strongly suggests that any
effort to outline a general ‘theory’ of contracting would be foolhardy and ultimately
unproductive.” Research on contract farming schemes covers a range of disciplinary
perspectives that in turn have focused on a wide variety of concepts, resulting in an
equally wide assortment of theories, tainted by the extremes of ideology (De Treville,
1986; Little and Watts, 1994a; Cook and Chaddad, 2000; Hayami, 2000; Singh, 2000a;
Eaton and Shepherd, 2001; Narayanan and Gulati, 2002; Simmons, 2002). A
significant amount of the research on contract farming to date has been carried out with
little or no cross-referencing in terms of both methodology and experience resulting in
definitional variations that make the comparison of research findings difficult to
perform (Baumann, 2000:8). Variations in the focus of the research can be found in the
nature and purpose of specific outgrower contract, in the motivations of the actors
involved, in the research methodology utilised, in the specifics of and differences in
regional and national priorities, and in the uniqueness of each contracted crop. Little
and Watts (1994c:9) commenting more than a decade ago, indicated that the literature
on contract farming was restrictive and that detailed studies on specific contract farming
ventures, such as this study, were extremely rare. The majority of the studies
undertaken on contract farming in the developing economies have been long on theory
but lacking in empirical evidence (Baumann, 2000). This oversight remains a problem,
although in recent years more studies of an empirical nature have emerged.
It is not the purpose of this thesis to review every aspect of all of the disciplinary
relationships in contract farming, but it is useful to understand contract farming within
the broader context found in this literature. Figure 1.1 displays the relationships
between these disciplines and contract farming but it is not meant to represent every
aspect of potential research into contract farming. Contract farming is also associated
with broader research studies on globalisation per se, commodity chain focused research
and detailed research into the on-farm management and commercialisation.
- 4 -
Figure 1.1 Inter-Disciplinary Positioning of Contract Farming
Rural
Geography
Development Economics
Agricultural
Science
Rural
Sociology
Agricultural
Business
Contract Farming
While there certainly may be serious limitations to a market liberalisation strategy, it is
clear that there remains a strong commitment to this approach on the part of most
development agencies and governments. Over the past decade, privatisation and the
establishment of contract farming systems have proceeded at a rapid pace. In the case
of Ghana, this is particularly evident in the oil palm industry, which has experienced the
privatisation of the state-owned or parastatal plantations established in the 1970s,
together with the rapid expansion of new contract farming schemes (White and Bhatia,
1998). This has had significant implications not only for the nature of the oil palm
industry in the country, but also for local farming systems and rural development. In
the Philippines, contract farming has been embraced as a strategy to increase
agricultural production and rural development in the post land reform period as
evidenced by the expansion and establishment of new oil palm contract farming
schemes.
1.2 The Aim and Objectives of the Research
The research undertaken as part of this study has involved the production of oil palm in
the Philippines and in Ghana, produced under the aegis of a nucleus estate – outgrower
- 5 -
system of contract farming.3 The two case studies, both undertaken in 2004/5, were
distinctly different in that the one in the Philippines involved a relatively new outgrower
scheme of less than five years, while the Ghanaian outgrower scheme dates back to
1975 under government management (1975-1995) and more recently under the
ownership of foreign private sector interests (1995-present).
The primary aim of the research was to ascertain the role that contract farming plays in
the pursuit of development, defined in terms of both economic and social factors, and
the extent to which it can enhance development in this respect. Towards this end, an
analysis of the key socio-economic issues involved in the adaptation of contract farming
in the oil palm industries in the Philippines and in Ghana was undertaken. The
economic factors include farmer income levels and the distribution of income beyond
the outgrowers and the processors, including the economic welfare of both farm
workers and farm service centres. The social factors include those that impinge upon
the farmer’s rights in terms of decision-making, impacts upon the family and family
welfare and the validity of the contract farming scheme’s sponsor to transfer technology
along with technical and managerial processes. The two schemes are judged on their
ability to succeed in an economically, socially and environmentally sustainable manner
and, in a manner, which enhances the general welfare of the farm family and the
farming community, in general.
The secondary aim of the study is to identify conditions under which positive or
negative impacts of the two-contract farming schemes can either be augmented or
mitigated. Central to the research in this area is the identification of any constraints that
have resulted during or after the implementation of the outgrower scheme(s) as viewed
from the vantage point of available literature written about this type of farming system.
Evolving from the study are important technical, operational and economic issues that
determine the sustainability of the outgrower systems in Ghana and in the Philippines,
and what Glover and Kusterer (Glover and Kusterer, 1990b:304) termed as “the
distribution of benefits” between the participants of contract farming systems and the
wider community.
3 The outgrower scheme in the Philippines managed by Agumil Inc. is located in the Province of Agusan del Sur, Mindanao while the Ghana Oil Palm Development Corporation (GOPDC) located at Kade, Kwaebibirem District, Eastern Region manages the outgrower scheme in Ghana.
- 6 -
1.2.1 OBJECTIVES OF THE RESEARCH Following an examination and analysis of contract farming models and experiences
found in the literature, this research utilised two separate case studies on two continents
to address the question of whether contract farming is an appropriate vehicle for rural
development. The variables that will be considered include labour utilisation;
technology adaptation and transfer; contract specific training including land care
training; decision-making at the farm level; market access; capital sourcing and use;
income generation and distribution; and the socio-economic characteristics of the
farmers involved in the research, amongst others.
Specifically, the following were the objectives established for the research:
• Contribute to the current theoretical debate on contract farming and agricultural restructuring in areas related to human geography, rural development economics and other social sciences;
• Review the historical development of the growth of the oil palm as a contacted industrial crop in both the Philippines and in Ghana;
• Within the context of the oil palm industry’s contract farming schemes in Ghana and the Philippines and based upon primary interviews and secondary data:
o Present, discuss and analyse the farmer’s socio-economic
characteristics as contract farmers along with his/her production and income changes since entering into contract;
o Provide insights on the perceptions and viewpoints of contracted farmers on changes that have taken place in their control over decision-making on their own farms and relate impacts, if any, that entering into contract has had on their independence in terms of decision-making;
o Present evidence on the utilisation of family labour in oil palm cultivation, and the creation of employment in ancillary industries spun off from the oil palm industry; and,
o Provide an analysis of the transfer of technology and managerial processes to farmers under contract including specific training that they have or have not received in land care and general environmental protection.
• Determine/Assess the contribution of contract farming to the socio-
economic livelihood of individuals farming under contract and to the overall rural socio-economic development of the communities within which they live. This will be undertaken through an assessment of the views of the farmers and the processors on what they see as the benefits of the contract farming schemes.
- 7 -
- 8 -
1.3 Structure of the Thesis
The thesis consists of eleven chapters that fall within three thematic areas: (i) the
context of the research, (ii) the research itself and the findings, implications and (iii)
directions for future research. Figure 1.2 outlines the general structure of the thesis. A
brief outline of what each chapter will discuss is outlined below.
Chapter 2: Given the mixed experiences of contract farming within both developed and
developing countries, this chapter will synthesise the latest research and body of
knowledge available in the literature and other sources (internet, newspapers, etc.). This
will be undertaken with the view of identifying the areas of debate involved in contract
farming literature and the identification of issues that the present research will address.
Chapter 3: This chapter will present the reader with the research design and
methodology that was utilised both in the development of the research project and in the
selection of the two case study areas. The principal techniques used in this research
project have included a combination of methods consistent with other social and
economic change studies on contract farming in both developed and developing
countries. This chapter will also present the methodology used in the collection and
analysis of the data from the two areas. Finally, a brief presentation on the geographic
settings (site and situation) of the two study areas will be made.
Chapter 4: In this chapter, a presentation will be made on the common contracted crop,
oil palm, which was the focus of the research in both case study areas. It will be
presented in a manner that allows it to be seen as a possible ‘tool’ for rural and general
economic development.
Chapter 5: This chapter will specifically look at the development and future prospects
of contract farming in the oil palm industry in the Philippines and in Ghana. The
development of the nucleus oil palm estates will be reviewed from a historical
viewpoint with the objective of understanding the changes in the political and
developmental environment that led to the extension of the cultivation of the oil palm
into farmers’ fields under contract.
ResearchContext
Analysis ofResearchFindings
Conclusion
Chapter 1: Introduction
Figure 1.2 Thesis Structure
Chapter 1: Introduction
Chapter 2: The Nature of
Contract Farming
Chapter 2: The Nature of
Contract Farming
Chapter 3: Research
Design and Methodology
Chapter 4: The Oil Palm
Chapter 5:Oil Palm in the Philippines and
Ghana
Chapter 6: Outgrowers'
Production and Income
Chapter 7: Decision-
Making and Control
Chapter 8: Employment
and Farm Labour
Chapter 9: Technology Transfer,
Adaptation and Training
Chapter 10: Findings and Implications
Chapter 11: Conclusions
- 9 -
Chapters 6 to 9: These four chapters will present an analysis of the data collected
during the course of the fieldwork in Ghana and in the Philippines. These chapters will
deal specifically with issues that were raised in the literature and that were the focus of
significant attention by the proponents and opponents of contract farming. These issues
include outgrower production and incomes, farmer decision-making and control,
employment generation and job creation and the transfer of technology.
Chapter 10: This chapter will present a summary of findings from the research into the
oil palm outgrower schemes in the two study areas. This will allow for a cross-
fertilisation of experiences from the two countries and allow conclusions to be drawn
and tendered for examination. The resultant theoretical framework will contribute to
informed decision-making, generally shedding light on key questions raised by
proponents and detractors of contract farming schemes. It will also present what the
interviewed outgrowers perceived as the major benefits of living under contract to
themselves, their families, and their community, as well as the perceived negative
features of this farming system.
Chapter 11: This chapter will present the conclusions of the research as measured
against the research aims and objectives and the broader context of the literature on
contract farming.
- 10 -
2.0 CONTRACT FARMING AND DEVELOPMENT 2.1 Introduction
Echánove and Steffen (2005:167) describe contract farming as a “… constellation of
institutional and productive relationships and one of the main strategies for the
industrialisation and restructuring of agriculture.” In this regard, corporate involvement
in farming has become an important issue not only in terms of the maintenance of the
family farm system and the survival of rural communities, but also in terms of socio-
economic and natural resource impacts (Burch et al., 1999). From the literature, it
would appear that while the incidence of both corporate and contract farming are on the
increase, there has been limited research undertaken on the economic and social impacts
of either type of business structure on rural communities (Black et al., 2000; Tonts et
al., 2003). In this respect, very little is known about the impacts of contract farming on
such fundamental socio-economic variables as local economic activity, employment
patterns, service and infrastructure use and maintenance, household decision making,
investment patterns and a number of other variables (Tonts et al., 2003).
This chapter will review this body of literature on contract farming with a specific focus
on its role in rural socio-economic development. It will explore the dynamic nature of
agribusiness, in general, as it reinvented itself from a system predisposed towards
vertical integration to a system of coordination. This review will attempt to define
contract farming in the various manifestations it assumes in the global marketplace. As
part of this review, contracts will be dissected in terms of their purpose, duration and
extent. Finally, the role contract farming plays in general socio-economic development,
specifically, in developing economies, will be explored through a review of the
literature from a global perspective and, possibly more relevantly, from a regional
perspective.
2.2 The Expansion of Contract Farming While the incursion of external business forces into agriculture has been expanding
rapidly in recent years, one must put it into a historical and global context where
contract farming has been practiced literally for centuries. Eaton and Shepherd (Eaton
11
and Shepherd, 2001:1), in their Food and Agricultural Organisation (FAO) paper -
Contract Farming: Partnerships for Growth, indicated that, “The contracting of crops
has existed from time immemorial. In ancient Greece the practice was widespread...”
On a more contemporary basis, while contract farming has existed in United States and
Canada since the late 1800s, the practice expanded rapidly there and in Europe
following WWII (Kirsten and Sartorius, 2002).
Glover and Kusterer (1990b:6), in their book, Small Farmers, Big Business gave the
example of the banana industry “… where the three firms that dominate international
trade in bananas have purchased about one third of their supplies from associate
producers (contract farmers) … for nearly one hundred years ….” From the 1950s,
Mexico supplied the American market with fruits and vegetables under contract and by
the late 20th century, contract farming had become widespread and an integral part of
the agricultural industry in Western Europe, the United States and Japan (see Watts,
1994a; Rehber, 1998; Kirsten and Sartorius, 2002; Echánove and Steffen, 2005). For
example, by 1980 in the United States, one quarter of all farm output by volume (one-
third by value) was produced under some form of contract and twenty five per cent of
all rice produced in Japan was done so under contract (Asano-Tamanoi, 1988; Watts,
1994a:27, 73).
In the years following the political independence of developing nations, starting in the
1950s, contract farming began to emerge as colonial period plantations became
increasingly subject to nationalistic pressures resulting in frequent expropriation,
nationalisation or enforced private-public partnerships. This post-independence period
also saw the establishment of state sponsored agricultural settlement schemes, often
undertaken in cooperation with donors such as the International Finance Corporation
(IFC) or the Commonwealth Development Corporation (CDC) (Baumann, 2000). The
state’s land expropriation and enforced private-public partnerships formed the basis of
these newly established agricultural settlement schemes. In subsequent years, the state
ownership of many of these schemes fell into disrepute when they frequently proved to
be economically neither efficient nor affordable. The International Monetary Fund
(IMF) and the World Bank (WB), in conjunction with bilateral donors, increasingly
began to call for the economic restructuring of developing nations’ economies that
included the privatisation of government owned assets such as plantations. Ghana’s
- 12 -
economic restructuring that commenced in the early 1990s did not escape this remedial
strategy.4
What has become clear, however, is that the last two decades have brought about a
significant restructuring of agriculture in developed and developing countries alike (see
Glover, 1990a; Little and Watts, 1994a; Morvaridi, 1995; White, 1997; Grossman,
1998; Lawrence, 1999; Magdoff et al., 2000; Raynolds, 2000; Warning and Hoo, 2000;
Singh, 2000a; Dolan and Sutherland, 2001a; Raynolds, 2002). The most notable feature
of this diversity, certainly since 1980, has been the growth and spread of contract
farming on global proportions (Little and Watts, 1994c:4). The increasing importance
of contractual relations between growers and firms5 now defines the means by which
these groups are organisationally linked. The growth in the use of the ‘contract’ as a
common farm management tool has resulted in a plethora of literature from a great
number of academic disciplines.
In developing countries, specifically, contract farming has spread rapidly since the
1980s, particularly in relation to agricultural products that are considered ‘non-
traditional’ (Echánove and Steffen, 2005). Little and Watts (1994a) trace the upsurge in
the popularity of contract farming in the 1980s and 1990s to the International Monetary
Fund's efforts to instil financial austerity and increase declining exports. As part of these
restructuring programs, the WB has promoted contract farming as a means of creating
partnerships between private capital and smallholders, in order to transfer technology,
credit and private sector business acumen to these farmers. Notwithstanding the efforts
of the IMF and the WB, most outgrower schemes continue to have some state
participation (Baumann, 2000).6
4 Ghana divested itself of 80% of one of the country’s largest plantations in 1995. The Ghana Oil Palm Development Corporation (GOPDC), now 80% owned by private investment, consists of a 4,750-hectare nucleus estate and 1200 hectares of smallholder oil palms and a further 12,800 hectares of outgrower holdings service it. Four other oil palm plantations were also disposed of between 1995 and 1998, including one of the three largest in Ghana, the Twifo Oil Palm Plantations (TOPP) with its 4,250-hectare nucleus estate, 2,832-hectare smallholder producers and its 1,016 hectares of outgrower producers. The government, who owned 40% of the shares of the last of the big three oil palm plantations - the Benso Oil Palm Plantation (BOPP), tendered their holdings in a public offering on June 17, 2004 (Wentworth, 2001). 5 The term ‘firm’ for the purposes of the present discussion is broadly defined to include exporters, processors, and retail outlets, amongst others. 6 This is particularly true in Africa where the private sector sole ownership of such schemes is rare. Little and Watts (1988) reviewed 67 contract farming schemes for their 1988 study of contract farming in Africa and found that 70% had either full or joint state ownership.
- 13 -
2.3 Variations on a Theme
Research on contract farming, as a tool for development, covers a range of disciplinary
perspectives, including geography, economics, sociology, agronomy, and history,
amongst others. With the rapid growth and incidence of contract farming over the last
20 years, particularly in developing economies, the production of literature on contract
farming has also grown. Ascertaining common threads in this literature, however, is a
challenging task. As Little (1994b:216) quite aptly indicated, “… few topics in
agricultural development … invoke as much controversy as contract farming.”
Much of the earlier literature was highly polarised and represented differing yet absolute
verdicts on contract farming. These polarised positions have been described as
emanating from either the food first school or the business first school (Little and Watts,
1994a; Baumann, 2000; Magdoff et al., 2000; Vellema, 2002). The food first theorists
see contract farming as an exploitive extension of international capital, while the
business first school sees contract farming as an opportunity for the transfer of
technology to smallholders and the means by which they can enter the market with
minimal risk (Glover and Kusterer, 1990b; Little, 1994b). Baumann (2000:9), portrays
the business first group as a group that ignores grower socio-economic welfare or the
realities of the socio-political relationships between growers and processors, while he
sees the food first group as having a more emotional response based on “secondary,
journalistic and anecdotal sources of information and lacks a comparative methodology
to lend perspective and rigour.”
There has been, however, a growing body of literature that is more centrist in its
assessment of the issues involved in contract farming and, to a certain degree, which has
been able to objectively present and discuss the pros and cons of this farm management
system from a developmental perspective. For example, while the central thesis of
Little and Watts (1994a:217) in their book, Living Under Contract: Contract Farming
and Agrarian Transformation in Sub-Saharan Africa, is that contract farming is
essentially exploitive, they do concede that “… the diversity of contract farming is so
great that it is better to focus on the motives and power relationships of the contracting
parties than on the generic institution”. Furthermore, Little (1994b:218) in a later
chapter in the same book indicated that:
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This position avoids both blanket condemnation of contract farming and reliance upon a purely Western, agribusiness interpretation of the institution. It also draws attention to the content of the contracting relationship rather than its structure and focuses on how power is shared, if at all, between “the firm” and the growers.
Furthermore, a significant amount of the research on contract farming to date has been
carried out with little or no cross-referencing in terms of both methodology and
experience (Baumann, 2000:8). The research on contract farming has been devised and
carried out within a multitude of discrete disciplinary perspectives, often tainted by the
extremes of ideology. Definitional variations have made the comparison of research
difficult to perform. Variations in the focus of the research can be found in the nature
and purpose of specific outgrower contracts; in the individual motivations of the parties
involved in the contract; in the research methodology utilised; in the specifics of and
differences in regional and national priorities; and, finally, in the uniqueness of each
crop being used as a focus for the individual research. Minot (1986:22) pointed out that
the literature itself was too diverse, being based on project evaluations, agribusiness
case studies, applied marketing research and/or dependency school critiques of
agribusiness operations in developing countries. Minot (1986) indicated that there were
two principal problems with the review of such diverse literature. First, that it was
difficult to undertake any comparative analysis as most of the literature was based upon
the analysis of different aspects of the issues involved in contract farming. Some
authors viewed contract farming through the eyes of the processor firms, some on the
socio-cultural impact at the farm level and others on the implications for public policy.
Minot (2986:22) argued that these studies were highly selective and limited in extent
allowing for the introduction of bias into the sample. In summation, Minot (1986:68)
suggested that, “Drawing conclusions from this literature is risky, but some patterns are
consistent enough to justify generalisation.” To a certain degree, this situation has not
changed in the intervening eighteen years since Minot authored his working paper.
Additionally, while there is an abundant quantity of literature available on the subject of
contract farming as a tool for development in Africa, there is a relative deficiency of
such material in Asia, where the literature has been focused to a greater degree on the
business and scientific aspects of contract farming (Singh, 2000b). The rationale for the
development and growth of contract farming between regions also varied considerably.
The introduction and encouragement of commercial agriculture in the form of
outgrower schemes in Africa was, as Vellema (2002:4) pointed out, based on the need
- 15 -
to address major problems in production rates and food security. In Asia, the issues
were generally considered those associated with the organisation of agricultural
production as opposed to deficiencies in agricultural production itself. As such,
literature on contract farming in Asia has focused on quite different characteristics than
has literature elsewhere (Singh, 2002a).
2.4 Contract Farming and Development
Notwithstanding these factors, the universal growth in outgrower schemes and other
forms of contract farming in developing nations did partially have its origins in what
development agencies saw as an opportunity to achieve programming in private sector
development; a sector that was touted in the late 1980s and the 1990s as being the
panacea for all the development ills facing developing nations. As Little (1994b:219)
indicates in his essay on Contract Farming and the Development Question:
A new glossary of ideologically charged terms and policies emerged during the 1980s to emphasise market-led growth, privatisation and increased exports. Basic human needs, rural development and the alleviation of poverty fell out of fashion. Lacking a clear sense of historical precedent, the World Bank and others began to direct funds for the dismantling of state corporations (parastatals) and market structures that only a decade or so earlier they had strongly supported. … contract farming was seen as a way to avoid government-regulated markets and price controls. In the intellectual climate of the 1990s, contract farming is attractive because it complements the emphasis on the private sector and market-led growth.
In Africa, donor programs were influenced by the factors mentioned above: an agrarian
crisis; stagnant or declining agricultural production; and, a fall in agricultural exports
characterised by governmental economic mismanagement and by the relative absence of
a private sector (Carney, 1994; Grosh, 1994; Little and Watts, 1994a; Porter and
Phillips-Howard, 1997a; Singh, 2002a). In Asia, the growth in contract farming was
more a response to: declining plantation agriculture; the growing political incorrectness
of plantation agriculture as an acceptable land tenure system; an opportunity for
business expansion, growing global as well as domestic demand for various crops; and,
the general desire of governments (and donor agencies) to see agricultural smallholders
involved in export driven agriculture (White, 1997; Singh, 2002a).7
7 Also the researchers’ own experience in international development planning and programming from 1972 to 2001.
- 16 -
The support of contract farming by the donor community responded to one of the
fundamental problems that faced donors in the 1970s and early 1980s, namely, how to
channel extensive foreign aid budgets into regional and rural development programs.
These budgets had vast disbursement problems when compared with the infrastructural
projects implemented in the previous two decades. Outgrower schemes provided a
reasonably definable means of channelling funds into agricultural and rural
development, traditionally a potentially risky target area for most donors. Contrary to
Little’s (1994b) position above, these interventions could be, according to OECD/DAC
development assistance reporting criteria, classified as meeting basic human needs,
developing rural areas and contributing to the alleviation of poverty. The emphasis on
private sector development, a growing focus for most developmental aid programs from
the late 1980s until the present, was simultaneously also addressed. Finally, the
involvement of large national corporations or trans-national corporations provided for
the technical, managerial and financial surety required by donor agencies (Glover and
Kusterer, 1990b:11).
2.5 To Define or Not to Define
There seems to be a predisposition in much of the literature on contract farming to
attempt to define the term. At the same time, most of this literature then proceeds to
qualify their definition in accordance with their individual research hypothesis and/or
focus. These definitions, while preparing the reader to understand the researchers own
individualistic approaches to contract farming, leave the literature full of conflicting
definitions. The logic for entering the world of contract farming could take up volumes
and therefore it would be appropriate, as a starting point, to outline what Glover and
Kusterer (1990b:2) saw as general considerations for any discussion on defining
contract farming. Their observations were as follows:
• Contracts provide advantages to both the firm and its outgrowers; • The social impact of these schemes can be wide ranging and often extend
beyond the contracted farmer to hired labour, other household members and rural communities in general; and
• The coalition of interests within such an agricultural venture can be complex and, from the farmers point of view, formidable.
- 17 -
Glover (1990a), writing in the early 1990s, saw contract farming as being largely
positive by nature and his ‘general considerations’ tended to elude highlighting possible
adverse effects. As such, one might wish to add “and disadvantages” to his first
observation. Further, while he made note of the social impacts in his second
observation, the economic impacts can be considerable as well. In fact, the two aspects
should not be seen as distinct in any case, and should have been dealt with jointly.
Additionally, one assumes that “impact” refers to both positive as well as negative
impacts. This will be addressed later in this chapter.
Glover’s last point is well taken and, in fact, the globalisation of agriculture, here
represented by contract farming, rarely necessitates or implies standard production
relationships and varies considerably by crop, the type of contract and the governmental
regulatory environment (Goodman, 1990). Little (1994b:5) stated, “While the contract
provides a common structure, … the institutional and organisational configurations of
contract employment are extremely varied.” Variations brought about by the contracted
crop and the type of contract outgrower 8 can bring about considerable differences in
the success or failure of the contract, its social and economic influence and the manner
in which the complexities inherent in the contract are addressed.
Eaton and Sheppard (2001:4), in their Food and Agricultural Organisation (FAO) paper
- Contract Farming: Partnerships for Growth, have gone well beyond a simplistic
description of the problems of formulating a definition for contract farming when they
presented more than thirty challenges (or opportunities) in their contract farming
framework (Table 2.1 ).
Little and Watts (1994c:5) sum up the difficulties of trying to arrive at a common
definition for contract farming, when they stated:
The heterogeneity of contract production – a diversity embracing crops, actors, production relations, and institutional links – strongly suggests that any effort to outline a general “theory” of contracting would be foolhardy and ultimately unproductive.
8 For example: an impoverished peasant farmer, smallholder, capitalised farmer, or farming business enterprise.
- 18 -
Table 2.1 The Contract Farming Environment
Preconditions Support Components Feedback Political Stability
Suitability of:
- Market Environment
-Physical Environment
- Tenurial System
- Social Environment
-Cultural Environment
- Ecology
Availability/Access to:
- Land
- Secure tenure
- Farm Credit
- Farming Supplies
- Technology
- Training
Adequacy of Systems:
- Transportation
- Communications
- Other Infrastructure
- Educational
- Industrial
Food Security
- Inter-cropping
- Foraging
Relevant Legislation
Regulatory Framework
Environmental Controls
Quarantine Controls
Research/Extension
Information Systems
Political Support
Developmental Support
Governmental Support
Community Support
Industrial Organisation
Outgrower Association
Concepts and Strategies
Operational Model
Contract/Financial:
- Management
- Administration
- Monitoring
- Evaluation
Services:
- Education
- Commercial
- Research and Trials
Crop Schedules
Pricing policies
Contract Formulas
Contract Formats
Contract Nominees
Contract Enforcement
Farmer Selection
Field Selection
Technical inputs
Farm Credit
Extension Services
Technology Transfer
Training:
- Extension Staff
- Outgrower
Field Monitoring:
- Production
- Performance
- Efficiency
Industrial monitoring:
- Production
- Performance
- Efficiency
Crop Security
Scheme
Administration
-Contract Amendment
- Price Adjustments
- Quotas/Distributions
Financial Management
Industrial Management
Information Systems
Research/Technology:
- Innovations
- Adaptations
Feedback Via:
- Contracting Firms
- OG Info Systems
- Extension Systems
- Industrial Orgs
- Farmer Orgs
- Outgrower Forums
- Farmer Field Days
- Training Venues
(Source: adapted from Eaton, 1997:274; Eaton, 200:4).
2.5.1 INTEGRATION TO COORDINATION
David Burch and Roy Rickson (2001:165) portray agriculture as a sector that has
evolved over the last half century, from one that involved independent growers
producing food for local and regional markets to one where farmers produce crops
under contract for large national corporations or global interests – trans-national
corporations. Farmers are not seen to be independent any longer but rather just
participants in a much more complex production and marketing system.9
9 Little (1994:218) makes a more acerbic comment, on this topic, when he states “…contract farmers may be relegated to the status of hired hands on their own land.”
- 19 -
Burch (2001:168) refers to this evolutionary change as “vertical coordination” as
opposed to “vertical integration” in the agricultural sector. Vertical integration has been
commonly practiced in North America and Europe for a number of years. Under vertical
integration, agribusiness owns and controls the entire productive process – from basic
agricultural production to food processing and product distribution. Vertical
coordination, on the other hand, is a system whereby large national or global interests
attempt to minimise their costs and risks by devolving agricultural production directly
to agricultural producers. In this sense, vertical coordination is a system where a
central processing or marketing firm undertakes to purchase the agricultural production
of independent farmers under specified purchase arrangements, embodied within a
contract made in advance of the actual production (Baumann, 2000). The general
assumption is that the contract allows for the partitioning or sharing of risks between the
farmer and the processor with the former taking all the risks for production and the
latter all the risks for marketing (Glover, 1990a:3).
In practice, depending upon the type of contract, there can be a considerable variation in
both the levels of risk taking and in the long-term inter-relationships between the
contracting parties. It is this point that generates considerable discussion and
differences of opinion on the dynamics and impacts of contract farming. Minot (1986)
saw contract farming as a form of vertical coordination because it harmonised the
commodity marketing channels with respect to quantity, quality, timing and the location
of supply and demand. He saw contract farming as an alternative between true open
market relationships and vertical integration, per se. In this sense, it allows for a
somewhat tighter structure than a very open market would allow for, but yet not as rigid
as a vertically integrated process.
2.6 Contract Typology and Formulation
As indicated in the last two sections, it is important to remember that contracts vary in
terms of their intent, levels of intervention and in terms of the actual parties to the
agreements. Defining contract farming will remain difficult because of the myriad
types of contracts and the number of partners (actors) potentially involved. In the final
analysis, all three of these considerations are important not only from a perspective of
reviewing the literature but in terms of the potential integration of the producer into the
larger agribusiness processes and the determination of his/her level of independence.
- 20 -
Using a contract typology developed by Mighell and Jones (1963), Minot (1986) felt
that it was necessary to discriminate between what they concluded to be the types of
contracts being classified under the general umbrella of contract farming. These were
market-specification contracts, resource-providing contracts and the production-
management contracts. The market-specification contract can address inefficiencies in
the “spot market” by providing for the timely transfer of information between buyers
and growers in terms of quality and timing requirements as well as an assured price
structure. The resource-providing contract, largely replacing inefficient governmental
monopolies or the open market place, describes a contract under which the buyer
provides agricultural credit and inputs as part of an agreement between themselves and
the grower. Repayment is extracted from the agreed upon sale price at harvest time.
Finally, the production-management contract allows for the transfer of technology on
how to grow a specific crop where the costs of these extension services are recovered
from the agreed upon crop price. This, however, is not universal as frequently crop
processors see the transfer of technology to growers as being a legitimate investment in
their business. Minot (1986:17), possibly with a grain of cynicism, points out that
proponents of contract farming refer to this transfer of technology as ‘technical
assistance’ while critics of contract farming call it ‘control over production’. It is also
probably also necessary to include a fourth type of contract or at least acknowledge that
one frequently finds the resource-providing and production-management contracts
being combined in many developing countries into one contract. In other words, credit,
agricultural inputs and the transfer of technology are all catered for within one contract.
In addition, while production-management contracts are often associated with a pre-
planting determination of crop price, more frequently prices are determined using a
formula based upon world or domestic market prices in conjunction with some
assessment of crop quality.
Glover and Kusterer (1990b:4) used the term “intensity” to describe these variations in
contracts. Accordingly, they saw the least intense model as being the market-
specification contracts, as they are primarily just simple product supply contracts with a
fixed price, but contracts that exert no or limited control over production. On the other
hand, they saw the most intense model to be the production- management contract that
would involve a constant and rigorous control over all aspects of crop production.
Given the reality that there are a great number of permutations between these two
- 21 -
extremes, it is not surprising that arriving at a meaningful definition of contract farming
is difficult.
Compounding this definitional problem is the frequent use of a variety of terminology
to describe variations in the system. The most common of these terms are frequently
employed with no specific usage in mind and without specific distinctions between
them (Glover and Kusterer, 1990b:4; Eaton, 1997:272). The most common types of
schemes used in the literature inter-changeably with contract farming are as follows:
• Outgrower Scheme: In this scenario, crops were formally purchased by government agencies within a government sponsored agricultural program but, in the last two decades, these contractual arrangements are more often directly linked to large private sector NCs or TNCs as increasing privatisation has taken place in developing countries. Where confusion exists between government and private sector purchasing, there is a frequent reversion to the term contract farming;
• Nucleus estate – Outgrower scheme: Under this scheme, government owned, privately owned or privatised estate or plantation production (or any combination of all of them) is supplemented by purchases under contract from farmers who are within close transportation distance from a central plantation. Most frequently, some form of agro-processing is involved and the additional crop purchases are an attempt by the NC or TNC to ensure that their plant is working at full capacity. This type of contractual relationship does not necessarily replace open market purchases by the nucleus estate from independent, non-contracted producers, but they are considered essential to ensure a guaranteed supply for the processing plant; and
• Multipartite Arrangements: This terminology reflects the past and present situation whereby a myriad of players, or what Pari Baumann (2000:7) refer to as actors, become involved in the process of establishing contractual arrangements between farmers, governments at all levels, the domestic and global private sector, and finally, bilateral and/or multilateral foreign aid donors.
It must be borne in mind that all three of these descriptive scenarios are, in turn, subject
to and influenced by the “level and intensity” variables introduced earlier. The
contracts themselves depend upon the size and sophistication of the farmers being
contracted, the level and methods of technology transfer, the degree of agricultural input
provision, and ultimately the bargaining relationship between the processor and the
farmer. Then, one must superimpose over these factors a number of other ones, such as
the commodity contracted and its market, the political-regulatory-policy environment,
land tenure issues, the sophistication of the processing technology, transportation
factors, and a host of other variables. This leaves one with a multitude of possible
- 22 -
systems or schemes, all called contract farming, that does not auger well for an arrival at
a simple or unified definition or even a simple understanding of what constitutes
contract farming.
2.6.1 Contract Formulation As noted above, there are a variety of models upon which a contract farming system can
be structured, along with a great number of endogenous and exogenous factors that will
influence the final choice. Beets (1990:162) grouped them into three elements:
physical, socio-cultural and political/institutional. In more recent years, with the
decline of governmental participation in the agricultural sector, one must clearly add a
fourth element that explores the role of the private sector and both national and
international capital. Eaton’s (1997:274) response to the increasing complexities in
more recent contract farming was to develop a framework that brought together what he
saw as the key considerations one must incorporate into the development of a contract
farming scheme (see Table 2.1). A number of Eaton’s indicators will be addressed in
this research as they become relevant. In his concluding remarks, Eaton (1997:273)
indicated that in the formulation of agricultural contracts:
Cautious consideration is given by promoters, planners, and managers of contract farming projects as to which operational model is most appropriate and best suited for the situation. There is no single model suitable for all conditions, but rather a series of alternative variations. The available options are based upon economic considerations of both sponsors and farmers, the local political and physical environment and the aspirations and practices of the farming community.
In terms of the contract formulation, a significant number of researchers have indicated
that the crop being farmed is a key consideration when considering the nature of the
contract (see Glover, 1994; Little and Watts, 1994c; Dickson and Burch, 1996; Porter
and Phillips-Howard, 1997a; Singh, 2002b). As such, the crop produced under contract
becomes central to the debate on most of the socio-economic issues discussed on the
subject. Each crop has its own specific conditions, not only in terms of the crop
characteristics, but also in terms of the technological requirements, the means of
production, the methodologies required for technology transfer, labour utilisation, and a
number of other factors that, when combined, all affect the fundamental formulation,
rigor and duration of the contract. In a general sense, Binswanger and Rosenzweig
(1986) argued that a combination of technical and crop characteristics often are the
- 23 -
central determinants of making a decision to enter or not to enter into contractual
agriculture. Crops grown under contract often involve economies of scale associated
with processing linked to quality grading systems and, as such, require a greater degree
of coordination and maintenance (Baumann, 2000:19).
Baumann (2000:20) citing Goldsmith (1985:1132) outlined some of the technical
requirements that contributed to the development of the contract system. These were:
• Perishability: Where the need exists for expensive storage or speedy processing;
• Bulkiness: Where economies of scale exist in terms of transportation; • Permanence: Where growers are locked into a long term relationship with
buyers; • Processing: Where specialised and/or expensive processing is required; • Quality Variations: Where a uniform quality is desirable and justifies
contracting.
Baumann (2000), however, postulated that while these crop characteristics do influence
technical and productive strategies and vice versa, the model of labour utilisation
adapted is probably more a reflection of the broader social, economic and political
environments. As such, considerations such as individual and household welfare,
employment creation and its impacts, economic externalities such as staple food price
structures and labour displacements and the scope for future development based upon an
equitable share of the risks, responsibilities and profits influence or help shape decisions
concerning scheme determination and contract typology. In a similar fashion,
developmental benefits such as gender equity, the protection of the environment,
improvements in education and health, and the transfer of knowledge affect and
influence the general degree of sustainable rural and regional development.
2.7 The Nature of Contract Farming
The issues involved in contract farming do not differ significantly between developed
and developing nations (Glover and Kusterer, 1990b). In both cases, the literary
discussion portrays contract farming as being either detrimental to, or an opportunity
for, rural people and their communities. For example, since the 1980s, Australia has
embarked upon a range of neo-liberal policy reforms to expose the farm sector to open
market forces. Aimed at making the rural sector more internationally competitive and
- 24 -
economically viable, subsidies have been reduced, statutory marketing assistance has
been reduced, and opportunities for value adding, niche marketing and enhanced
linkages with trans-national corporations stimulated. Notwithstanding this, the view
persists that (Lockie, 2001:299), “Current agricultural and rural policy in Australia … is
a recipe for continued rural decline and the increasing dominance of agriculture by
global agribusiness.” This view is prevalent in spite of the fact that there are some
indications that the experience has been successful. The concepts of rural decline and
the industrialisation of agriculture are not restricted to developed countries alone and
similar sentiments are expressed in the literature concerning contract farming in the
developing world (see Eaton, 1998; Grossman, 1998; Singh, 2000a; Simmons, 2002).
As noted above, the literature addressing the policies or strategies involved in contract
farming contains sharp divisions. The neo-classical approach maintains that contract
farming will ensure agricultural modernisation through the transfer of technology and
capital on risk free terms. Baumann (2000:11) indicated that this approach argues that
“… contracts are freely entered into and serve to insulate the farmer from the market;
allow the farmer to make use of their endowments in these imperfect markets; and
arrive at appropriate combinations of income, risk and effort that reflect their resources
and preferences.” The anti-liberalisation approach, on the other hand, finds contract
farming to be tool of international capital with little socio-economic value or redemptive
features for rural populations and their communities. Supporting this latter perspective,
some recent studies have indicated that rural populations in general have been directly
or indirectly disadvantaged through the introduction of contract farming while realising
only limited gains (Glover and Kusterer, 1990b; Clapp, 1994; Daddieh, 1994; Little and
Watts, 1994a; Watts, 1994b; Porter and Phillips-Howard, 1997a; Collins and Wingard,
2000). The introduction of contract farming, according to these scholars, is seen to be a
means by which processors, often multi-nationals, control their raw material inputs and
the prices they pay farmers on the basis of unequal power relationships (Glover and
Kusterer, 1990b; Little, 1994b).
Furthermore, in developing economies, case studies have indicated that contract farming
has been observed to disrupt power relations within the farming households, increasing
tensions between male household heads, their wives and children (Carney, 1988;
Carney, 1994; Key and Runsten, 1999). Struggles over both resources and women’s
labour occur frequently in areas where contract farming has established itself. Carney
- 25 -
(1994) suggested that most literature on contract farming has ignored the tendency of
contract farming to control the ways in which peasants organise the labour of the family
members, particularly women. In other studies, contract farming is seen to be a means
of introducing social economic differentiation due to skewed distribution of incomes in
rural communities introduced as a result of contract farming schemes (Korovkin, 1992;
Key and Runsten, 1999; Kirsten and Sartorius, 2002). These studies argue that the
technological and monetary advances accrue to only a minority of farmers in any given
area, resulting in uneven development that may not necessarily meet the needs of the
country concerned (Meliczek, 1985). Carney (1994:185), in summation indicated that:
The potential advantages of using contract farming as a strategy for increasing agricultural productivity and fostering rural development in sub-Saharan Africa cannot, therefore, be assessed independently of the social relations regulating peasant production. Nor can contract farming expect to seal itself off from the maelstrom of international, national and domestic political economies within which male and female peasant’s labour to produce their crops.
There is also evidence to suggest that contract farming can make farming households
more vulnerable to food shortages, particularly where staple crops are replaced with
cash crops (Kennedy and Cogill, 1987; Magdoff et al., 2000). This is aggravated by
annual price fluctuations processors are willing to pay for cash crops that contracted
growers produce. Minot (1986:71) in his paper on contract farming and its effect upon
small farmers, indicated that, while the impact of contract farming can be quite intense,
its impact is also ‘relatively narrow’ providing benefits to limited numbers of farmers
and their families. While attempting to maintain a reasonably balanced view, Minot
(1986:72) postulated that:
Greater incomes are not always translated into improvements in standards of living broadly defined to include nutrition, education and health. Although the impact of higher incomes is generally positive, some schemes involve a shift from subsistence food production to commercial production. Although not harmful in itself, this is sometimes combined with poor choices regarding food purchases and/or inequitable distribution within the household. Men are assumed to be the growers and heads of households by the company and receive the crop payment. In cultures where men and women have separate budgets and spending responsibilities, such as in much of Africa, women are generally responsible for the care and feeding of the family. Thus, payment to the men may bias household purchases away from food and health related items. … However, it should be noted that
- 26 -
this problem can occur with any income-generating project and is not a problem unique to contract farming.
In addition, some literature suggests that smaller farmers will find greater difficulty in
participating in globalised agricultural economies where the expansion of business into
the agricultural sector has become more established (Eaton and Shepherd, 2001).
Evidence also suggests that smaller farmers have become increasingly marginalised due
to the propensity of processors to enter into contracts with larger farming operations.
Given that the processor will have to enter into fewer contracts to meet their production
requirements, the transaction costs of maintaining their outgrower scheme will be
reduced.
Paradoxically, there remains a prevailing opinion amongst governments and donors
alike that contract farming remains an economic panacea for the small peasant farmer
(Little and Watts, 1994a; Porter and Phillips-Howard, 1997a; Singh, 2002a; World
Bank, 2002b; World Bank, 2004a). Supporting this position is a body of evidence that
suggests that contract farming has the potential to significantly raise the welfare of
growers, particularly small farmers, by increasing their absolute income, their access to
knowledge, information and technology, credit, agricultural inputs, markets and other
services (see Carney, 1988; Clapp, 1994; Glover, 1994; Jackson and Cheater, 1994;
Hudson, 2000; Kirsten and Sartorius, 2002; Vellema, 2002). In this sense, contracts
allow small farmers to cultivate and market non-traditional cash crops with the possible
multiplier effects on employment, infrastructure and growth in the local economy (see
Glover, 1983; Glover, 1984; Minot, 1986; Glover and Ghee, 1992; Morrissey and
Mcgillivray, 1999; Warning and Hoo, 2000; Warning and Key, 2002). One must also
ponder Glover’s (1983) argument that, when compared to more traditional patron-client
relationships, modern contract farming leaves less room for exploitation between the
growers and the buyers. In terms of services, contract farming is seen as a means by
which farmers can access services once provided by the state in pre neo-liberal
economies, but which are no longer available to farmers from those sources (Dirven and
Ortega, 1996; Schejtman, 1996; Echánove and Steffen, 2005). Certainly the
consolidation of small farmers into corporate bodies, such as cooperatives, does provide
an avenue for processors to contract and work with small farmers. It also provides these
smallholders with a modicum of collective bargaining power to use in their dealings
with the contractors.
- 27 -
While on balance the discourse on contract farming does not imply a totally negative
picture, globalisation in the sector has certainly given rise to an increasing focus on a
number of environmental and socio-economic issues (Warning and Key, 2002). Glover
and Lim (1992), while clearly being more positive about contract farming than other
researchers, bring the debate down to relatively simple terms. While they acknowledge
that contracts can lend themselves to being exploitive in nature, they point out that they
can also result in notable increases in living standards. In this sense, according to
Baumann (2000:9), referring to earlier studies undertaken by Glover (1983; 1987;
1994), contract farming has to be “… examined on a case by case basis in order to
understand its potential as a tool in rural development strategies.” Baumann (2000:9)
went on to say that this examination should analyse the “… economic logic behind
contract farming and its political implications, in particular the effects of contract
farming on the process of empowerment and political organisation by outgrowers.”
The linkages between contract farming, as represented by the smallholder, and national
and/or international capital has historically fuelled the fires of the anti-agro
industrialisation camp and, therefore, one must take a step backward in an attempt to
view the situation objectively. One must recognise that there are potentially many
partners or actors involved in contract farming, defying a clear assessment of all of their
motives.10 There is, however, an economic (and probably a socio-economic) logic to
contract farming in the way it can, if properly balanced, address rural social and
economic development (Baumann, 2000:9). Baumann is correct in that there is
certainly a legitimate division of risk between the grower and the procurers and that it
does address the developmental objectives set by national governments and donors alike
that include smallholder development, the transfer of knowledge and technology, rural
confidence building and the generation of wealth. Clearly, however, any assessment of
the impact of contract farming on rural populations and communities must carefully
weigh the social and economic tradeoffs at the household, communal, regional and
national levels (Key and Runsten, 1999; Baumann, 2000).
10 Baumann (2000:11-13) presents a thorough, yet concise assessment of the motivation of potential actors involved in contract farming. Glover and Kusterer (1990b) also present a similar assessment, albeit with a much lengthier presentation.
- 28 -
2.8 Conclusion The experience of contract farming in developing countries shows that its growth, at
least in part, is related to neo-liberal policies that have resulted from the withdrawal of
government support and reduced participation in the agricultural sector (Raynolds,
2000; Dolan, 2001b; Echánove and Steffen, 2005). Yet a study of the historical
development of contract farming clearly outlines that contract farming has been a
significant force in agriculture for over a century, well before the introduction of neo-
liberal policies over the last twenty five years (Burch and Rickson, 2001; Eaton and
Shepherd, 2001; Kirsten and Sartorius, 2002; Echánove and Steffen, 2005). What is
evident, however, is that the use of the contract in the agricultural sectors of developing
countries has become a commonplace farm management tool.
The literature indicates that the growth in contract farming in developing countries was
also a response by development agencies who saw the agro-industrialisation of
agriculture as an opportunity for the privatisation of government held enterprises in the
agricultural sector (Little, 1994b). In Africa, donors saw governmental economic
mismanagement coupled with the absence of a private sector as being responsible for
the general agrarian crisis in Sub-Saharan Africa (Grosh, 1994; Porter and Phillips-
Howard, 1997a). In South East Asia, the growing unpopularity of plantation agriculture
and a general desire by donors (and governments) to see an expansion of economic
benefits for the rural smallholder drove the creation of outgrower schemes and in some
cases even land reform (White, 1997; Singh, 2002a; Dy, 2003; Patrick, 2004).
This review of the literature on contract farming has revealed that there are a great
number of opinions and judgements concerning contract farming in developing
economies. The study of contract farming can easily be compared to a hydra given the
multifaceted nature of this farming system. One of the central difficulties in drawing
any conclusion on whether contract farming should be encouraged or discouraged, rests
with the lack of comparability given the large number of types of schemes, crops being
contracted, the ‘actors’ involved and the socio-economic, political and institutional
environments in which they are nurtured.11
11 Actors in this sense refers to the list of entities that influence the contract farming system, broadly defines as the sponsors, the contracted farmers and governmental organisations.
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This lack of comparability is compounded by the fact that scholars inherently have
chosen to study differing aspects or elements that make up contract farming. In
addition, they have assumed diverse theoretical perspectives in their study of outgrower
schemes – neo-classical, neo-Marxist, etc. As a result, they have devised definitional
structures that have, in terms of their own research, best explain the specific facets of
contract farming that they are researching and the perspectives that they are using to
view the issues that arise. This has left future researchers with an array of definitions to
choose from. This has generally resulted in the development and the use of highly
technical, if not particularly functional definitions of contract farming (Minot, 1986;
Baumann, 2000).
Virtually all researchers agree that contract farming is, by its very nature, quite
unpredictable and that while in one area it might be considered developmentally
negative, in another, a similar scheme might be relatively successful (Porter and
Phillips-Howard, 1997a; Baumann, 2000). A number of researchers have noted that
contract farming schemes rarely involve standardised production relationships between
the actors and, as noted above, involve the same crop or are developed and implemented
within the same socio-economic, political and institutional environments (Goodman,
1990; Glover and Kusterer, 1990b; Little and Watts, 1994a; Little and Watts, 1994c;
Eaton and Shepherd, 2001). As such, contract farming schemes should be judged on an
individual basis, based upon their overall socio-economic effects within rural
communities.
Notwithstanding this, overall the literature does project a picture of contract farming
where, on balance, the positive effects do not entirely compensate for the negative
effects. It is clear that the development and initial implementation of contract farming
schemes can be quite complicated. It is, with this in mind, imperative that sponsors of
contract farming schemes seriously address, during the developmental phase, possible
adverse effects on rural society. In this regard, there is a need to conduct further and
more detailed research into: the income generation and income distributional effects of
contract farming; food security issues; social differentiation issues that specifically
address the exclusion of elements of rural society and the development of inequalities
within the household; rural employment including the possible creation of yet another
class of low paid rural citizenry; and, other factors that contract farming gives rise to.
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The need for a greater effort in terms of research compilation and connectivity along
with more cohesive research, in general, is called for. It is understood that such an
effort will result in a more informed decision-making environment within the globalised
agricultural sector where corporate farming and contract farming are both clearly in the
forefront of manifestations of neo-liberal policy-making. There is a need to explore the
issues or component variables that manifest themselves in order to obtain a better
understanding of the valuable lessons that can result and that, in turn, can be used to
design more beneficial contract farming schemes.
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3.0 RESEARCH DESIGN AND METHODOLOGY
3.1 Introduction
This research utilised a combination of methods consistent with other studies on the
social and economic dimensions of contract farming in both developed and developing
countries. Inasmuch as research on contract farming covers a range of disciplinary
perspectives, including geography, economics (rural, agricultural and development),
sociology, politics, agronomy, and history (Baumann, 2000; Eaton and Shepherd,
2001), the approach taken in undertaking the present research was to synthesise the
latest body of knowledge available and then to view it with the benefit of specific case
study data. This approach fostered the cross-fertilisation of experiences and lessons
learned in the countries chosen as study areas.
3.2 Selection of the Case Study Areas
In the process of selecting the countries in which to undertake the research, the
following criteria were originally identified during the development of the research
proposal:
• Sufficient exposure of the case study areas to contract farming while at the
same time being areas where limited research on the subject had been conducted;
• Differentiation of stages of contract farming and development to ensure broad experience and cross-fertilisation in research findings;
• Previous working experience and/or exposure to the country, region or area by the researcher; and
• Accessibility of the case study areas to ensure reasonable cost as well as the presence of adequate infrastructure, communications and a well developed tertiary research capability.
Given the above criteria, the preliminary identification of countries suitable for use as
possible case study areas focused on: 1) the Southern African Region (e.g. Zimbabwe,
Zambia, Lesotho, South Africa or Swaziland) with their longer exposure to contract
farming and their middle-income country status; and, 2) the Republic of the Philippines,
a developing country with a reasonable exposure to contract farming.
32
The knowledge of the socio-economic and cultural conditions of these countries gained
by the researcher in his years of working and living in them came into consideration in
the preliminary selection process. Further consideration was given to the costs involved
in undertaking the research as well as language and security issues. At the time of the
preparation of the original research proposal, the selection of the study crop was not
deemed to be of any particular importance. In fact, it was decided that various crops
could be used, as the study was not intended to be comparative in nature.
With these thoughts in mind, an iterative and opportunistic approach was then
undertaken in the selection of the first country in which to undertake research. Armed
with the information that most of the contract farming schemes in the Philippines
involved the cultivation of fruits and vegetables (e.g. bananas, pineapples, asparagus
and mushrooms) and that it took place largely in the southern Philippines, initial
communications were re-established by the researcher with former contacts in the
government, academia and the private sector in the Philippines.12
In the course of re-establishing contacts in the Philippines, the commercial cultivation
of the oil palm in the Province of Agusan del Sur, Eastern Mindanao (Figure 3.1), was
raised as a possible region and crop to focus upon. While the oil palm had been
produced on plantations in the Province since 1981, the crop in recent years has been
increasingly grown on an outgrower or contract farming scheme basis. Preliminary
discussions were held with politicians and local government officials within the
Province and they were found to be supportive of the research. The researcher was also
able, via a private sector associate in the Philippines, to meet with the expatriate
manager of Agusan Plantations Incorporated and its subsidiary milling operation,
Agumil Philippines Incorporated (Agumil), who had commenced an outgrower scheme
in the province on an experimental basis in 1996. The Chief Executive Officer (CEO)
of Agumil was also supportive of the proposed research and offered his company’s full
support.
These contacts proved to be crucial in a country such as the Philippines where data
collection can only be facilitated through such contacts. Furthermore, these contacts
12 The researcher was formerly the Head of the Development Assistance Section of the Canadian Embassy in the Philippines from July 1995 to August 1998, responsible for the delivery of the Canadian Economic Development Cooperation Program in the Philippines.
- 33 -
proved most useful in keeping the logistical costs of the research to a manageable level.
Finally, it was also useful that the researcher had first hand knowledge of the Province
and in fact had been made an Honorary Datu or Honorary Chief, in 1998, of the
Monobo people, an indigenous group whose home is in the Province of Agusan del Sur.
Figure 3.1 Province of Agusan del Sur, Philippines
(Source: Mindanao Economic Development Council, 2004)
Given the decision to focus on the oil palm in the Philippines, it was subsequently
decided to remain focused on this crop for the remainder of the research, both in Asia
and Africa. This required a considerable rethinking of the location for further research
because of the climatic prerequisites of the oil palm plant. After careful consideration,
it was decided to select a country in Africa that has not only been producing oil palm for
a long period of time, but also one that appears to be having difficulties not only with
their production levels but, more importantly, with their outgrower schemes.
A review of the literature suggested that Ghana was one such country. An associate
who now works with Fedepalma, the Colombian Oil Palm Association, defined West
Africa as an area of decline in the world of the oil palm. Surely, this ‘sunset’ country
would be a proper foil for the ‘sunrise’ industry in the Philippines. Ghana also met the
other criteria for the selection of a case study country: a country with sufficient levels of
contract farming; no accessibility problems; and, a country where the researcher has
spent five years living and working, three years in the early 1980s and two years in the
early 1990s.
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3.2.1 CASE STUDY COUNTRIES IN BRIEF13
Ghana Ghana, with a population of 20.4 million (2004) and a total area of 238,533 square
kilometres, lies in the centre of the West African coast. It shares borders with the three
French-speaking nations of Côte d'Ivoire to the west, Togo to the east, and Burkina Faso
to the north. To the south are the Gulf of Guinea and the Atlantic Ocean. From its
southernmost point, the country extends northwards for 670 kilometres while its east-
west distance is 560 kilometres (La Verle, 1994). Administratively, the republic is
divided into 10 administrative regions (Figure 3.2).
Figure 3.2 Ghana, West Africa
(Source: University of Texas, 2005)
The country's warm, humid climate has an annual mean temperature between 26°C and
29°C, with mean rainfall in the oil palm growing areas of the country ranging from
1,250 millimetres to 2,150 millimetres. Heavy rains are experienced from April through
to late June and, after a relatively short dry period in July and August, a lighter rainy
season begins in September and lasts until late November (La Verle, 1994).
13 A fuller description of the two case study countries can be found in Appendix V.
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Following its independence from Britain in 1957, Ghana’s economy went through a
succession of political and economic crises. The near total collapse of the economy and
pervasive poverty throughout the country resulted in Ghana embarking upon a
programme of economic restructuring in the 1990s. Policy priorities included tighter
monetary and fiscal policies, accelerated privatisation, and improvement of social
services. The program included privatisation of state-owned enterprises and
government divestiture of parastatals. This divestiture of the state-owned palm oil
plantations was to prove to have positive impacts on this sector (Government of Ghana,
2004a). In 2004, agriculture contributed 34.3 per cent to GDP, industry 24.2 per cent
and services 41.4 per cent. GDP in 2004 was US$ 48.27 billion with a growth rate of
5.4 per cent. The inflation rate at the end of 2004 was 13 per cent (Government of
Ghana, 2004a).
The Kwaebibirem District of the Eastern Region of Ghana provides the focus for this
research and lies in the centre of the Ghanaian tropical forest zone. The interviewed
outgrowers associated with the Ghana Oil Palm Development Corporation (GOPDC)
are from the villages of Asuom, Akokoaso and Otumi, all of which lie within this
district. The Kwaebibirem district meets or exceeds the regional and national averages
for key welfare indicators. Of particular interest to this research is the fact that
unemployment and even underemployment rates in the district are very low. The low
unemployment rates in the district have a direct impact upon oil palm production, a crop
heavily reliant upon the availability of labour. This affects the ability of outgrowers to
plant further farm plots with palm oil in the face of real labour shortages and given their
inability to stretch their own family’s labour resources. The unemployment rate14 was
3.7 per cent at the regional level as compared to 5.4 per cent at the national level.
Kwaebibirem’s rate was very low at 2.0 per cent with the female’s unemployment rate
at 2.9 per cent versus 1.0 per cent for the males. The underemployment rate15 was 16.4
per cent at the regional level. This compared with 9.1 at the district level and 13.6 per
cent nationally. In the district, more males than females are underemployed
(Government of Ghana, 2004b).
14 The unemployment rate is defined as persons who were unemployed and unable to find work in the seven days preceding the official employment survey. 15 The underemployment rate is defined as persons who sought to increase earnings and worked less or equal to 35 hours in the seven days preceding the official employment survey.
- 36 -
Philippines
The Republic of the Philippines is an archipelago lying south east of mainland Asia
between Indonesia and China. It has a population of 83.0 million (2004) and a total
land area of 298,170 square kilometres, consisting of over 7,000 individual islands. The
Philippines extends 1,855 km from north to south, between Taiwan and Borneo, and
1,108 km from the Philippine Sea on the east, the Celebes Sea on the south, and the
South China Sea on the west. The islands of the Philippines are comprised of three
natural divisions: the northern islands that includes Luzon and attendant islands; the
central islands including the Visayan Islands, Palawan and Mindoro; and, the southern
islands, consisting of Mindanao and the Sulu Archipelago (United States Government,
2005). The eleven largest of these islands16 contain about 95 per cent of the total land
area. Administratively, the republic is divided into 14 administrative regions, 79
provinces and 116-chartered cities (Figure 3.3).
Figure 3.3 Administrative Regions of the Philippines
(Source: Government of the Philippines, 2005) 16 The eleven largest islands are Luzon, Mindanao, Samar, Negros, Palawan, Panay, Mindoro, Leyte, Cebu, Bohol and Masbate.
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The Philippines is entirely within the tropical zone; hot, humid, and enervating, with a
mean daily temperature of 26.4°C (Columbia Electronic Encyclopaedia, 2004). Mean
average annual rainfall in Agusan del Sur is 3,335 millimetres with monthly rainfall
ranging from 823 mm to 5,188 mm and humidity levels ranging between 77 and 88 per
cent. Agusanos commonly refer to their climate as having ‘a wet and a very wet’
season. The very pronounced rainy period usually occurs between the months of
December and March.
The Philippines was less severely affected by the Asian financial crisis of 1997 than its
neighbours, aided in part by annual remittances of $6-7 billion from overseas workers.
A slight decline of GDP in 1998 (0.6%) was followed by expansions in the economy in
1999 (2.4%), 4.4 per cent in 2000, and accelerating to 6.1 per cent in 2004 reflecting the
continued resilience of the service sector, gains in industrial output, and an improved
export sector.17 With their tropical marine climate, heavy rainfall, and naturally fertile
volcanic soil, the Philippine economy is predominantly based on agriculture. In 2004,
agriculture contributed 13.7 per cent to GDP. Industry contributed 32.42 per cent and
the services sector 53.9 per cent. The inflation rate at the end of 2004 was 5.5 per cent
(Government of Ghana, 2004a; World Bank, 2004a). Nonetheless, it will take a higher
and sustained growth path to make appreciable progress in poverty alleviation given the
Philippines' high annual population growth rate and unequal distribution of income
(United States Government, 2005).18
In the Philippines, the focus of this research was in the province of Agusan del Sur
(Figure 3.4). It is located in North-Eastern Mindanao and is the fourth largest province
in the country. In 2003, the population of the province was estimated to be 611,210
with a growth rate of 1.79 per cent (Provincial Planning and Development Office,
2004). It is endowed with rich natural resources contained in its agricultural, forest, and
marshlands. The Province is bordered on the north by the Province of Agusan del
Norte; on the South by the Region XI and its Provinces of Compostela Valley, Davao
and Davao Oriental; on the west by the Provinces of Bukidnon and Misamis Oriental of
Region X; and, on the east by the Province of Surigao del Sur.
17 The growth rate faltered in 2001 (3.2%) due to the general global economic slowdown, an export slump coupled with domestic political and security concerns. GDP rates have been projected to be 4.8 per cent in 2005 and 5.0 in 2006. 18 The population growth rate at this time was 2.1 per cent along with a poverty incidence rate of 30 per cent.
- 38 -
Figure 3.4 Mindanao and the Province of Agusan del Sur
(Source: Government of the Philippines, 2005)
Agusan del Sur consists of 74 per cent forestland (Protected – 175,821 hectares and
Production – 487,629 hectares) and 26 per cent alien and disposable land consisting of
187,000 hectares of agricultural land and built-up areas of 34,628 hectares (NEDA,
2000; Provincial Planning and Development Office, 2004).19 Sixty-four per cent or
182,612 of the total labour force (284,000) were engaged in agriculture and forestry in
2003. Rice, corn and fruits were among the major agricultural crops. Rice (palay)
occupied the largest cultivated area and remains a major export from the Province
(Provincial Planning and Development Office, 2003). The Province has over 12,000
hectares of palm oil and nearly 40,000 hectares of coconut (NEDA, 2002; Provincial
Planning and Development Office, 2003).
3.3 Methodological Approach
A combination of data collection methods were used in the research undertaken in the
Philippines and Ghana to ensure the validity of the data used in the presentation and 19 Alienable and disposable land is a general classification of land in the Philippines. The term essentially refers to public domain/forest land that can be parcelled out and titled. A private individual who wants to ensure ownership will have a piece of land surveyed and then forward his/her request to the Bureau of Lands for review. The Bureau of Lands will check to see if there is any conflict of ownership, send an investigator to the area where the land in question is located to interview local people and if the request is valid, it will be then sent to the Registry of Deeds who will issue the land title.
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analysis of the research questions. Following an extensive literature review and a
search of secondary data, the researcher employed in-depth structured and semi-
structured interviews with farmers and contractors; farmer focus groups; informal
discussions with politicians, government workers, businesspersons, general population
and academic staff at the national and local levels.
3.3.1 SECONDARY DATA AND DOCUMENTS
A search and review of various secondary data was undertaken with the objective of
obtaining background socio-economic and other data relevant to both the general social
and economic situation in both study areas. The literature review also focused on
obtaining information specific to the cultivation of oil palm in the two areas. Data and
other secondary information was obtained from relevant websites, from private sector
sources, from unpublished university and media information and, finally, from official
government documents and statistical publications.
This secondary data search involved the review of all readily available materials and
statistical information on the two study countries, the two case study areas, and the
production of oil palm in these areas. To obtain these data, meetings were held with the
staff of educational and research institutions, with managers from relevant private
agricultural and agro-processing firms, with national and local politicians, with national
and local civil servants and with corporate farming concerns, amongst other relevant
sources.
Specifically, in the Philippines, secondary data were obtained from various sources such
as:
• The Philippine National Statistics Office relating to income and agricultural production;
• The University of the Philippines at Los Baños (UPLB) for general data, research and findings related to contract farming activities generally in the Philippines;
• The Agusan del Sur School of Agricultural Technology (ASSCAT) for discussions and data collection on their research and demonstration programs, specifically on the oil palm;
• The National Economic and Development Authority (NEDA) Regional Office XIII (Caraga), based in Butuan, Mindanao for a situation report on the Province of Agusan del Sur’s socio-economic condition within both the regional and national context;
- 40 -
• Philippine Department of Trade and Industry data relating to the production and marketing of oil palm in the country and in the Province of Agusan del Sur;
• The Philippine Congress of Oil Palm Farmers and Producers Proceedings; • The Agusan del Sur Provincial Planning and Development Office on the
detailed socio-economic situation in the Province, agricultural activity and specifically on the production of oil palm in the Province; and
• The Mindanao Development Commission for further socio-economic data and information on the development of a new oil palm estate in South West Mindanao complete with development costing (capital costs) and forecasted operational expenses during the first three years, a period when the palms are not mature enough to yield any fruits.
In Ghana, secondary data was obtained from the following sources, amongst others:
• Office of the President’s Special Initiative on Oil Palm (PSI-OP), State House, Accra, Ghana to obtain data and a briefing on the current status of oil palm sector in Ghana including the future development plans of the PSI-OP for the sector in Ghana;
• The Food and Agricultural Organization (FAO), both in Rome and in Accra, to acquire data on agriculture production and specifically on oil palm production in Ghana;
• The World Bank, Accra to obtain socio-economic data pertaining to the Eastern Region of Ghana and on agriculture production in the country generally;
• The United Nations Development Program (UNDP), Accra to obtain data on agriculture and the latest Human Development indicators for Ghana and its regions;
• The Office of the Chief Statistician, Ministry of Finance and Economic Planning, Accra to acquire specific data relating to the social economic standing of the population of the Eastern Region of Ghana and specifically the Kwaebibirem District where the intended interviewees are located;
• The Oil Palm Research Institute (OPRI) at Kusi, Eastern Region, Ghana to obtain a briefing on the oil palm sector and related scientific and economic research being undertaken by the Institute and to obtain publications issued by them on their activities;
• The Institute of Social Statistical and Economic Research (ISSER), University of Ghana (Legon) to discuss research activities and obtain information and data related to their research activities involving agriculture, agricultural families, farm workers and farm communities;
• Local government officials in the outgrower areas selected as research focal areas to obtain area-specific information and insights; and,
• Senior management staff of the three largest oil palm producers in Ghana to receive detailed briefings on their operations and, more specifically, the status and operational utility of their smallholder and outgrower schemes.
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3.3.2 STRUCTURED AND SEMI-STRUCTURED FARMER INTERVIEWS
In deciding on how best to gather information at the level of the contract farmers, the
researcher decided to employ in-depth interviews with single individuals, a
methodology “that allows significant probing of a respondent’s thoughts and opinions,
with its face to face nature allowing a bond of warmth and trust to be created”
(Walonick, 1997:np). These one-on-one interviews were considered the best means of
getting detailed and comprehensive information in a developing country where broader
survey techniques frequently fail (NOPWorld, 2004). In both Ghana and the
Philippines, the researcher asked questions from a questionnaire specifically designed
and prepared prior to the interviews, and recorded the interviewees’ responses verbatim.
However, because many of the questions were open ended in nature, there was
considerable scope for unstructured response and discussion. These ad hoc responses
and or comments were also recorded either on the questionnaires themselves or in the
researcher’s field notes.
In the case of the Province of Agusan del Sur in the Philippines, 62 per cent of all 83
contracted outgrower oil palm producers were interviewed using a combination of
structured questionnaires and semi-structured interview techniques. The interviews in
the Philippines were undertaken during two field visits over a four-month period
between October 2003 and March 2004. The names and locations of these farmers were
obtained from the outgrower contractor, Agumil, who were supportive of the nature and
intent of the research.
Figure 3.5 indicates that of the 83 contracted farmers, only 34 farmers had trees mature
enough for harvesting (“Group A Farmers”) and the sale of resultant ‘fruits’ to the
Agumil mill at Manat in Trento Municipality in southern Agusan Del Sur. The
researcher, using a census style sampling technique20, decided to interview all 34 of
these oil palm producers who were presently harvesting fruits. A total of 29 outgrower
interviews were successfully completed, with the remaining five either unwilling to
participate in the survey or not available in the Province at the time of the field research.
Appendix I-A contains the questionnaire used for this group of outgrowers.
20 A census survey is the process of obtaining information about every member of a population.
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The remaining 49 outgrowers (“Group B Farmers”) were not yet harvesting fruits at the
time of the research, as their trees were still too immature. The researcher selected 28
of these 49 farmers using systematic sampling,21 but only conducted 22 of these
interviews, as six of these selected population members were unavailable. The “Group
B Farmers” were interviewed with an abbreviated version of the structured
questionnaire used for the “Group A Farmers”. The questions omitted from these
interviews were questions pertaining to the harvest of oil palm and its associated
income. This questionnaire can be found in Appendix I-B.
Figure 3.5 Farmer Surveys Undertaken in the Philippines
Agumil Farmers83 under 134 contracts
29 "Group A Farmers" 22 "Group B Farmers"Palm Oil Producers Harvesting
AlreadyPalm Oil Producers Not Yet
Harvesting
29/34 = 85% 22/49 = 45%29/83 = 35% 22/83 = 27%
Non-Palm Oil Producing "Group C Farmers"
280 farmers (20 per each of the 14 municipalities)
34 Harvesting Farmers 49 Non-Harvesting Farmers
Survey Undertaken by the Researcher
Baseline Survey by Staff of the Provincial Planning and
Development Office (PPDO), Agusan del Sur
Finally, a structured survey was prepared by the researcher at the request of the Agusan
Del Sur Provincial Government. The survey was administered by the Provincial
Planning and Development Office (PPDO) under the general guidance of the researcher.
Two hundred and eighty (280) non-oil palm-producing farmers were selected on an ad
21 Systematic sampling involves the selection of every nth record from a list of population members.
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hoc basis from the 14 municipalities (20 interviews in each) in the Province of Agusan
Del Sur and were interviewed using a convenience sampling technique.22
The purpose of the survey of these “Group C Farmers” was to obtain, for the Provincial
Government, selected baseline data from farmers who were not farming under contract.
Key questions on the perceptions of these farmers towards people whom they knew
farmed under contract and their own interest in contract farming were of particular
interest to both the Government and to the researcher. Questions to the Group ‘C’
farmers included levels of technology use, education and training, labour use including
family labour, wage rates, and income. The questionnaire is in Appendix I-C.
In the case of Ghana, interviews were undertaken with outgrower oil palm producers
using a combination of structured questionnaires and semi-structured interview
techniques over a two-month period between August and October 2004. The
questionnaire, with a few minor modifications to reflect cultural differences, was the
same one that was used in the Philippines. This was done to allow for the merging of
the findings during analysis and presentation in the topical chapters later in this thesis.
The names of the contract farmers interviewed were selected from a listing of all
existing farmers under contract to the Ghana Oil Palm Development Corporation
(GOPDC) in 2004. At the time of the survey, there were a total of 4,487 ‘beneficial
owners’ who were GOPDC Outgrowers and 434 ‘beneficial owners’ who are GOPDC
smallholders working on farming plots allocated to them on the estate proper.23 At that
time, the total number of plots (farms) being farmed by the outgrowers was 6,337 and
the total number of plots by smallholders was 434. The outgrowers farmed 1,772,255
oil palm trees on 12,659 hectares of land (139 trees/hectare), while the smallholders’
farmed 203,019 trees on 1,450 hectares (140 trees/hectare).
For the purposes of the research in Ghana, a decision was made to exclude the
smallholders from the study. This was because their economic relationship as GOPDC
growers was economically biased in their favour as compared to the regular outgrowers.
22 Convenience sampling involves the selection of the respondents on an “availability or convenience” basis. It is used when the researcher wants to obtain an inexpensive and speedy approximation of the ‘truth’. 23 GOPDC labels all of the farmers who produce oil palm for as ‘beneficial owners’ but it recognises the difference between the farmers who use estate lands (smallholders) and those who are tenant farmers or land owners outside the estate (outgrowers).
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As smallholders, they were allocated rent-free land on the estate itself as a means of
placating adverse public reaction to the original confiscation of land by the state to form
the plantation in the mid 1970s. The regular outgrowers, on the other hand, are mainly
tenant farmers who, most frequently, sharecrop with the land-owning elite in the region
on a 2/3:1/324 basis enforced through the tri-partite contract agreements between the
GOPDC, the outgrower and the landowner.
A decision to concentrate the interviews in three of GOPDC’s twelve districts was
subsequently made in consultation with the GOPDC Outgrowers’ Manager.
Outgrowers in these three districts were identified as being representative of typical oil
palm producers under contract with GOPDC. The three districts, Akokoaso, Asuom
and Otumi, make up almost 40 per cent of the total number of outgrowers. The sample
was generated as depicted in Table 3.1.
Table 3.1 Selection of Interviewees amongst GOPDC Outgrowers
District Number of Outgrowers
Proportion to Total
Interviewees Interval Size
Akokoaso 572 30.4% 9 64 Asuom 791 42.0% 13 61 Otumi 521 27.6% 8 65 Total 1,884 100% 30 -
Based on this procedure, interviewees were subsequently selected from the three
districts using the outgrower lists provided by the GOPDC Outgrower Finance
Manager. The selection of farmers to interview was then made on a random basis,
resulting in the following:
• Akokoaso – starting from the 5th outgrower name on the list, outgrowers to be interviewed were selected based on an interval of 64 until 9 names were selected in total;
• Asuom – starting from the 7th outgrower name on the list, outgrowers to be interviewed were selected based on an interval of 61 until 13 names were selected in total; and,
• Otumi – starting with the 5th outgrower name on the list, outgrowers to be interviewed were selected based on an interval of 65 until 8 names were selected in total.
24 The contracts that GOPDC outgrowers sign are tri-partite agreements between themselves and the GOPDC on the one hand and with the landowner on the other. Under the agreements, the landowner receives 1/3 of the total monetary value of fresh fruit bunches (FFB) that the outgrower ships to the GOPDC mill.
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During the meeting with the GOPDC Outgrower Manager, the researcher was informed
that there are farmers on the list who were deceased or who were absentee farmers. It
was decided that if, during the process, they were selected, they would be replaced by
the name of the outgrower who followed them next on the list. In a similar fashion, if
any randomly selected outgrower happened to be a staff member of GOPDC, they were
replaced by the next name on the list because it was planned to use this group of
outgrowers as a sample population for the focus group discussion.
It should be noted, however, that most outgrowers farm multiple non-contiguous plots
of oil palm and, frequently, other crops as well. Therefore, the individual average plot
or farm25 size does not always represent the farmer’s total oil palm holdings or even the
total area that he/she farms. The randomly selected interviewees from Akokoaso had an
average of 3.01 Hectares of oil palm, while the average hectarage in Asuom and Otumi
were 4.11 hectares and 5.41 hectares, respectively.
3.3.3 INTERVIEWS WITH OIL PALM COMPANY EXECUTIVES
In the Philippines, interviews were held with the management groups of both of the oil
palm mill operators in the province, Agumil and the Filipinas Plantations Industries
Incorporated (FPPI).26 Table 3.2 provides a basic profile of these two estates, along
with the Kenram operation in Sultan Kudarat Province in Western Mindanao, including
their ownership, hectarage, production and the involvement of SH’s and OG’s in their
operations.
Agumil has produced oil palm on their 1800-hectare estate in Agusan del Sur since
1983. They initiated their outgrower scheme on a commercial basis only in 1999. For
Agumil, a structured interview was used at the onset of the research. Over the ensuing
four months, four more semi-structured interviews took place with two senior managers
of the company, one with the CEO and three with the Director of Outgrower
Operations. The outgrower hectarage in late 2003 was 1,821 hectares in the Province of 25 The terms “plot” and “farm” were often used interchangeably by both the Ghanaian outgrowers and the GOPDC. 26 There is one further oil palm mill in Philippines, located in the Province of Sultan Kudarat in Southwest Mindanao. Kenram Philippines formally operated a plantation of 1,600 hectares and maintained an outgrower scheme consisting of 3,000 additional hectares. After considerable political and economic difficulties, Kenram divested itself of the Plantation and today operates only the 22 metric ton mill. The plantation itself is now operated by the Kenram Beneficiaries Plantation Agrarian Reform Cooperative (KBPARC), while the outgrowers have also organised themselves into a cooperative known as the Kenram Beneficiaries Multi-purpose Cooperative (KERBEMCO).
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Agusan del Sur. Agumil also had a further 476 hectares under outgrower oil palm
production in four other provinces adjacent to Agusan del Sur.
Table 3.2 Philippine Oil Palm Estates, Outgrowers and Smallholders Hectares
(February 2004) Output
(Metric Tons)
Name Location Ownership
Year
Started In
Oil Palm
Estate Size
Outgrower (OG)
Smallholder (SH)
Crude Palm
oil
Palm Kernel
oil
KENRAM
Sultan
Kudarat, Mindanao
Filipino
Cooperative (100%)
1972
1,600
3,000 (OG)
10,683
n/a
FPPI
Agusan del Sur,
Mindanao
Filipino (60%)
Indonesian (40%)
1981
7,280
0 (OG)
25,217 (2003)
6,975 (2003)
AGUMIL
Agusan del Sur,
Mindanao
Singaporean
(60%) Filipino (40%)
1983
1,800
1,821 (OG)
9,300 (2003)
2,400 (2003) Palm
Kernel (Source: DA-AMAS, 2000, updated with information obtained during interviews of management in February 2004.)
A semi-structured interview was conducted with the FPPI, a firm managing the largest
oil palm plantation in Agusan Del Sur, with 7,280 hectares (Philippines Government,
2002). The FPPI planted their first palms in 1981. At 25 years of age these palms have
now reached their maturity in terms of yield. At the time of the study, the FPPI was
discussing outgrower oil palm contracts with 53 smallholder farmer cooperatives that
possess combined farmlands of 3,364 hectares.
In Ghana, structured interviews were conducted with the three largest oil palm
producers in the country. Table 3.3 provides a profile of the four largest Ghanaian
estates including their ownership, hectarage, production and the involvement of
smallholders and outgrowers in their operations. UniLever (Ghana) Ltd is the
substantive owner of both BOPP and TOPP. An interview was scheduled with the Joint
Managing Director of both firms to gather data on both estates simultaneously.
The Benso Oil Palm Plantation (BOPP) was established in 1977 and does not have an
outgrower program at all, although they have attempted to establish one a number of
times over the years. The original concession for the plantation consisted of 6,979
hectares, of which 4,750 hectares were planted as part of the estate while a further 1,650
hectares was granted to local smallholders for oil palm cultivation on a rent free basis.
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A total of 579 hectares remains undeveloped as they are subject to land disputes or are
unsuitable for oil palm cultivation.
Table 3.3 Ghanaian Oil Palm Estates, Outgrowers and Smallholders
Hectares
Output in Metric Tons
Name Location Ownership
Estate size
Outgrower (OG)
Smallholder (SH)
Crude Palm Oil
(CPO)
Palm Kernel
Oil (PKO)
BOPP
Benso, Western Region
UniLever (58.45%) Barclays (1.55%) Public (40%)
4,750
1,650 (SH)
17,260 (2003)
Palm
Kernel 4,515 (2003)
TOPP
Twifo, Central Region
UniLever (40%) PZ Cussons (1.48%) SIC (2.2%) Government (40.46%) Private (15.86%)
4,232
1,650 (OG) 1,018 (SH)
19,003 (2003)
Palm
Kernel 5,989 (2003)
NORPALM
(Old National Oil Palm
Plantation)
Western Region
NORPALM ASA (Norway - 75%) PZ Cussons (Ghana - 25%)
5,000
0 (OG) 30 (SH)
5,150 (2003)
Palm
Kernel 3,200 (2003)
GOPDC
Kwae, Eastern Region
SIAT/SSNIT/ATMF Joint Venture (80%) Government (20%)
5,315
1,450 (SH)
12,659 (OG)
30,000 (2003)
3,000 (2003)
The Twifo Oil Palm Plantation (TOPP), established in 1978, has a small outgrower
program of 1,650 hectares. TOPP was experiencing significant operational problems at
that time and, as such, was deemed unsuitable for the present research. The original
plantation of 14,000 hectares was never fully developed due to land disputes. In 1998,
when the estate was privatised, only 6,700 hectares was transferred to the new private
sector business. Of this total, 4280 hectares is presently planted with oil palms. The
remaining 2,468 hectares remains under tenurial dispute.
The National Oil Palm Plantation (NOPP) was abandoned until it was recently sold to
Norwegian business interests and renamed the Norwegian Palm estates (NORPALM).
The new owners are in the process of replanting the estate and do not have an outgrower
program at present.
The Ghana Oil Palm Development Corporation (GOPDC), established in 1974,
presently has over 20,000 hectares of land under oil palm cultivation. This consists of
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5,315 hectares on the nucleus estate, 1,450 hectares of estate land allocated to
smallholder farmers and the balance being cultivated by outgrower contracted farmers.
3.3.4 OBSERVATIONAL RESEARCH
During initial and subsequent visits to both research areas, opportunities were made to
generate personal observations on the general socio-economic condition of the two
research areas by walking around town/village centres and their market areas. In a
similar fashion, every occasion was taken to meet with and talk to local people in the
community to gather information not publicly available and to get general information
to familiarise the researcher with the local socio-economic and contextual situation.
During the field research in both countries, informal conversations were held with
politicians, officials, businesspersons, residents and farmers on a random and informal
basis. This information was noted in daily field notes maintained by the researcher.
These opportunistic discussions with communal leaders, particularly in October 2003,
provided the opportunity not only to develop, but also to pre-test the questionnaires
used for the completion of the interviews of oil palm outgrowers during the ensuing
months.
3.3.5 FOCUS GROUP DISCUSSIONS
Group discussions, or 'focus groups', are essentially a way of listening to people and
learning from them. This process of sharing and comparing among the respondents
usually involves between seven to nine people and, although conversation is usually
structured around a discussion topic or topics, it allows spontaneous and deep seated
feelings on a subject to emerge naturally (NOPWorld, 2004). Interaction between
respondents and honesty are but a few of the advantages of this qualitative method.
Focus group discussions generally provide insights into people’s attitudes, perceptions
and knowledge, particularly when the topics discussed are not statistically quantifiable.
They are particularly useful in the interpretation of earlier survey results (Morgan, 1997;
Strauss and Corbin, 1998).
Focus groups are also an excellent way of allowing issues salient to the participants to
emerge which may previously have not become apparent using other research
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techniques (Walonick, 1997). Conventionally, group discussions last from around one
and a half to two hours in duration. Respondents are recruited with specific criteria in
mind using a purposive sampling or judgment sampling process coupled with a quota
sampling technique.27 Planning the session, setting the agenda of topics (along with
guide questions) and the use of a moderator to maintain the group’s focus are important
aspects for the success of the use of this technique. The unstructured nature of the
groups and their discussions can make detailed analyses difficult and time-consuming
but rewarding (Nielsen, 1997; McNamara, 1999).
In the Philippines, eight Group ‘A’ farmers were invited to attend a two-hour focus
group discussion arranged to be held in the Municipal Hall of Trento. Judgment
sampling was used to ensure an outspoken and reasonably articulate group of oil palm
producers from the Group ‘A’ farmers. Coupled with judgment sampling, the
researcher used a quota or stratified sampling technique. This is to ensure balance in
terms of participation of individuals in the focus group from a gender perspective as
well as to ensure good geographic representation, i.e. to ensure the inclusion of
producers from the north, centre and south of the Province. This technique was utilised
to ensure a more complete reflection of the views of all Agusano oil palm producers.
Overall, the two methods were used to improve the chances of identifying crosscutting
themes, processes or issues that could represent the common views of the outgrower
population.
This focus group discussed and debated at length four key issues that had been
identified from the earlier structured and semi-structured Group ‘A’ and ‘B’ farmer
interviews. These issues were as follows:
• On Labour: Does having to hire labour pose a problem for bottom line profits? Once harvesting begins, do farmers see themselves hiring additional labour – Do they see labour shortages in the future? Will there be enough labour or will this be a problem?
• On transparency in pricing and grading: How important is this issue to farmers in Agusan del Sur? Do they really understand the formulas used? When they ask questions, do they get responses that they really understand?
• On time management: What is the relationship between non-oil palm activities and oil palm activities? Do non-oil palm labour demands
27 Judgment sampling is a common non-probability method where the researcher selects the sample based upon judgment.
- 50 -
compete with oil palm production or do they have a positive influence by giving them some sort of livelihood security? How do farmers manage their time between other farm activities and oil palm-related activities? Do other farm activities affect their attention to oil palm activities?
• On capital: Given the need for deep pockets (cash required at the beginning but harvest can only commence and as such, income generated only after 3-4 years), what do farmers do to cope? Is intercropping done as part of the coping strategy?
In the Philippines, arrangements were made for transporting participants and for a light
lunch following the discussion to allow for additional informal exchanges of ideas and
relevant information to take place after the group meetings28. The meetings were
managed by a facilitator and the researcher attended as an observer, taking hand notes,
but the discussions were also tape-recorded for further accuracy and analysis. The
analysis consisted of summarising the content of the responses and discussion on each
topic.
In Ghana, a focus group was also utilised to obtain more information on key issues that
were identified during the farmer interviews. Once again, judgment sampling was
employed in the selection of the focus group participants to ensure that the topics
identified during the course of the field survey were fully explored.
Given the high number of outgrowers who were also employees of GOPDC, it was
decided to use this population to obtain the focus group participants since this could
provide unique outgrower view. The GOPDC Outgrower Financial Manager provided
the list of staff outgrowers as of the second quarter of 2004 (see Table 3.4). In total,
128 GOPDC staff members are also outgrowers with a total farm size of 540 hectares
(composed of 247 farm plots). Collectively, they supply 3,005 tons of FFBs against the
target total tonnage of 3,415 tons. On average, these staff outgrowers supply 5.6 tons
per hectare, against their GOPDC target of 6.3 ton/hectare.
28 Originally, the researcher had intended to convene two separate focus groups that would discuss fewer issues but to a greater depth. On the night before the scheduled group discussions, it rained so heavily that on the day of the meetings, roads were impassable due to heavy flooding and landslides. This resulted in the farmers (and the researcher) in the north and centre of the Province being unable to attend the focus groups due to either the flooded roads, landslides or both. The focus group exercise had to be rescheduled but some farmers were not able to attend on the new dates and the researcher himself had to return to Manila for meetings and scheduled flights out of the Capital.
- 51 -
Table 3.4 GOPDC Staff Outgrowers (September 2004) Department # of Staff
Outgrowers Factors to Consider
Agric – Compound 1 Agric – Extension 17 Possible only on Mondays Agric – Nucleus 17 Possible only in the afternoons Agric – Nursery 2 Agric – Okumaning 1 Not possible Agric – Phyto 1 Agric – Plantation Admin 1 Agric – Roads 1 Not possible Agric – Smallholders 1 Possible only in the afternoons Agric – Transport 15 Not possible Corporate – Clinic 2 Not possible Corporate – Domestic 3 Not possible Corporate – Personnel 1 Corporate – Procurement 1 Corporate – School 4 Not possible Finance – Accounts 3 Finance – Payroll 1 Finance – SH/OG Accounts 3 Finance – Stores 7 Technical – Building 9 Not possible Technical – Mill 11 Not possible Technical – Workshop 17 Unknown 9 Not possible
Total 128 (Source: GOPDC, 2004)
Eight staff outgrowers were selected at random from this group of outgrowers. The
eight staff OG’s were also requested to complete a full questionnaire in addition to their
participation in the focus group discussions. Consideration was given to the fact that
some departments may not be able to participate in the focus group discussions because
they are either not in the compound or due to other technical reasons. Only those staff
outgrowers who had no restrictions to their participation in the focus group discussion
were considered, a population of 38. Eight participants were then subsequently chosen
at random from this group to participate in the focus group discussions, using a
systematic sampling technique with an interval of five.29 The chosen outgrowers
cultivate an average of five hectares of oil palm trees each under contract to their
employer, GOPDC.
This focus group discussed and debated at length five issues that had been identified
from interviews undertaken earlier with the GOPDC outgrowers. These were:
• On the practice of diversion: Why do outgrowers not meet production targets? What can be done to get outgrowers reach the targets? Can contract enforcement and legal recourse help?
29 Systematic sampling involves the selection of every nth record from a list of population members.
- 52 -
• On co-existence with smaller mills: Should the government or NGOs encourage the development of small mills? Will this be detrimental to commercially oriented mills such as GOPDC?
• On the pros and cons of plantation and outgrower schemes: What are the advantages and disadvantages of plantation oil palm farming? Of outgrower schemes?
• On the question of fertiliser application and credit provision: Should outgrowers be encouraged to apply fertiliser using their own funds? Is the provision of credit the only mechanism to encourage fertiliser application?
• On the issue of the length of the contract: 20 vs. 25-year contract – what is the best length? Why?
In Ghana, arrangements were made for an air-conditioned meeting room and
refreshments to allow a comfortable environment to encourage more open and informal
exchanges of ideas and information during the focus group meeting. The process was
managed by a facilitator and the researcher attended the focus group discussions as an
observer and took hand notes. Again, the discussions were tape-recorded for further
accuracy and analysis. As in the case with the Philippines focus groups, the analysis
consisted of summarising the content of the responses and discussion on each topic.
3.4 Conclusion
In conclusion, two oil palm producing countries were chosen to provide a broad-based
tableau upon which to explore the contribution that farming oil palm under contract
makes to rural development in the two countries. A number of qualitative and
quantitative methods were used to gather information on contract farming in the oil
palm industry in both Ghana and the Philippines. Direct interviews with outgrowers
and both formal and informal interviews with the trans-national corporations (TNCs)
working in the oil palm industry in the two countries provided not only an assessment
on their outgrower programs but also access to their data bases concerning their
outgrower programs. Informal discussions with officials from the various governmental
levels and organisations, both national and international, in the two countries provided
useful data to assemble the background setting for this research. The methodology
utilised enabled a clear portrayal of the socio-economic profile of the outgrowers in the
two countries. Subtle changes were made to the field questionnaires and organisation of
the focus group discussions to take into account the cultural variation between the two
groups of agriculturalists.
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Prior to the presentation of the research findings, the next chapter will look at oil palm
as a crop and as an industry in the agricultural development of Ghana and the
Philippines. The historical and cultural variations of oil palm cultivation in the two
countries are as different as are the characteristics of the farmers who cultivate the crop
under contract in the two regions. In this sense, it is not only an important aspect of this
research to outline those variations but also an interesting facet in the portrayal of the
cultivation of the oil palm under contract.
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4.0 THE OIL PALM
4.1 Introduction The cultivation of oil palm extends back through the centuries but the initiation of its
cultivation on plantations is a much more recently activity. The first plantations began
to appear at the beginning of the 20th century in Asia (1911), followed up two decades
later in Africa and the Americas. The cultivation of oil palm as part of a Nucleus estate
– Outgrower scheme is a more recent event, with the first schemes being established in
the early 1970s in Africa and Asia.30
This chapter will review the oil palm as an industrial crop, tracing the general
development of oil palm trade and the palm oil industry, to ensure a better
understanding of the crop within the context of the contracting out of its production in
the two case study areas. Section 4.2 will discuss the nature of the oil palm, while
Section 4.3 will review the oil palm’s global dispersal and its development into a key
industrial crop. This section will include a review of its evolution from a localised crop
utilised by traditional African societies into a modern industrial crop at the forefront of
the global production of edible oil for the food and non-food industries. A presentation
of the industry at the global level and at the regional level will also be included. Section
4.4 will present the industrial aspects of the crop including a review of the milling
processes utilised by both the small farm and the estates. Finally, Section 4.5 will make
a very brief presentation on the uses of the palm oil tree and the oils it produces, palm
oil and palm kernel oil.
4.2 The Oil Palm Species
The wild oil palm groves of Central and West Africa consist mainly of a thick-shelled
nut variety with a thin mesocarp, called Dura. Developments in breeding, particularly
the cross between Dura and a shell-less but small fruit variety called Pisifera, have led
to the development of a hybrid (Tenera) that has a much thicker mesocarp and a thinner
shell (Plate 4.1 and Figure 4.1). The resultant Tenera fruit, with its thick mesocarp, 30 The Nucleus Estate-Outgrower Scheme normally consists of a core plantation estate with a processing factory along with individual contracted farmers in the surrounding areas who grow the contracted crop on their own or tenanted land for sale to the factory for processing (Baumann, 2000).
55
contains much more oil and fat (chemically saturated oil) than does either of its parents.
In addition, the Tenera nut is small and is easily shelled to release the palm kernel. The
Tenera palm kernel is smaller than the Dura kernel although the Tenera bunch is much
larger than the Dura. In all, the Tenera is a much better variety for industrial and
economic purposes. All breeding and planting programs now use this latter type, the
fruits of which have a much higher content of oil than the native Dura. The Pisifera is
not used commercially because, more often than not, their fruit bunches tend to fail and
rot on the palm before maturity (Corley and Tinker, 2003).
Plate 4.1 Tenera (Upper) and Dura (Lower) Fruitlets
(Source: GOPDC, 2004)
Figure 4.1 Dura, Pisifera and Tenera Fruitlets
(Source: Diemer et al., 2004)
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Under ideal climatic conditions and good management, these modern high-yielding
Tenera varieties developed by breeding programs, are capable of producing in excess of
20 metric Tons (MT) of bunches/ha/yr31, with palm oil extraction rate per bunch of 25
per cent (Table 4.1). This is equivalent to a yield of five MT of oil/ha/yr (excluding the
palm kernel oil), that far outstrips any other source of edible oil (Poku, 2002a).
Table 4.1 Ideal Composition of Oil Palm Fruit Bunch Factor Value
Bunch weight 23-27 kg
Fruit/bunch 60-65 %
Oil/bunch 21-23 %
Kernel/bunch 5-7 %
Mesocarp/bunch 44-46 %
Mesocarp/fruit 71-76 %
Kernel/fruit 21-22
Shell/fruit 10-11
(Source: Poku, 2002a)
In reality, however, such high yields are rarely achieved because climatic conditions are
usually less than ideal and management practices vary considerably from location to
location. Erratic rainfall patterns affect oil palm in view of its high sensitivity to water-
related stresses. The management of costly inputs of labour, imported fertilisers,
pesticides and harvesting machinery, also directly affect possible yields on both
plantations and smallholder plots (Poku, 2002a).
The Tenera palm has no branches but the mature palm has around 36-40 leaves. These
leaves are 5-8 metres long and 5-8 kg each, with 250-350 leaflets per leaf and 12
m2/leaf. The growing point of the adult oil palm produces 20 to 25 leaves every year
(Plate 4.2). The stem (trunk) of the oil palm is up to 30-60 cm in diameter, can reach up
to 15 m in height after 25 years; and remain covered with persistent leaf bases for up to
16-20 years, afterwards they will normally detach. The trunk is crowned by the palm’s
growing point; if this growing point dies, the palm dies. The palm has a productive life
of about 25 years, with peak production being achieved between years six to fifteen
(Diemer et al., 2004).
31 These “bunches” are referred to within the industry as “Fresh Fruit Bunches” or FFB. The term FFB will be used extensively in this paper.
- 57 -
Plate 4.2 Mature Oil Palms at GOPDC
(Source: P. Huddleston, 2004)
The oil palm bears its fruit in bunches, commonly called Fresh Fruit Bunches or FFBs,
varying in weight from 10 to 40 kg (Plate 4.3). The female inflorescence has an average
of 120 spikelets, with about 4,000 individual flowers. The individual fruitlets, ranging
from 6 to 20 grams, are made up of an outer skin (the exocarp), a pulp (mesocarp)
containing the palm oil in a fibrous matrix, a central nut consisting of a shell (endocarp)
and the kernel itself (Poku, 2002a; Diemer et al., 2004).
Plate 4.3 Fresh Fruit Bunch (FFB)
(Source: Ghana Oil Palm Development Corporation, 2004)
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Two kinds of oil are obtained from the fruit, crude palm oil (CPO) and palm kernel oil
(PKO), both of which are important for domestic consumption and world trade (Poku,
2002a). The CPO is extracted from the fleshy, fibrous mesocarp (outer layer or pulp) of
the fruit that contains 45-55 per cent oil. Palm oil and its derivatives are solid at
ambient temperature in the tropics, melting at 25°-50°C. PKO is a hard oil quite
different from palm oil and it more closely resembles coconut oil, with which it is
readily interchangeable (Diemer et al., 2004). It is extracted from the palm kernels
themselves who contain about 50 per cent oil content.
4.3 The Industrial Development of the Oil Palm
Fossil, historical and linguistic evidence indicates that the oil palm (Elaeis guineensis)
had its origins in West Africa (Rees, 1965; Hartley, 1988; Sowunmi, 1999). Direct
evidence to this effect has also accumulated over recent decades by the dating of pollen
in sediments (Elenga et al., 1994; Corley and Tinker, 2003). Notwithstanding its
origins, the oil palm has adapted extremely well to other tropical lowland regions and,
over the last half century, the heart of the industry has shifted from Africa to South East
Asia, and to a lesser extent, to Latin America. In these regions, the oil palm has found
an ideal combination of climatic, management, research and developmental conditions.
In spite of the fact that international trade in palm oil commenced in the 1830s, the oil
palm, as an industrial crop, has risen from relative obscurity to prominence only in the
last half century. At that time, coastal traders primarily acquired their palm oil supplies
from West African small farmers who obtained palm oil from natural palm groves. The
establishment of oil palm plantations, per se, did not take place in Africa for another
century. By comparison, the first oil palm plantations in Asia were established in 1911
(Indonesia) and in the Americas (Colombia) in 1932 (Carrere and Lohmann, 1996;
Corley and Tinker, 2003; Callano, 2004).
The motivation for the extensive development of the oil palm industry in many areas of
the tropical world has been its extremely high potential productivity. The oil palm
generates the highest yield of oil per unit area compared to any other oilseed crop.
Because of its economic importance as a high-yielding source of edible and technical
oils, the oil palm is a popular crop produced by both individual farmers and on
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plantations in tropical regions that are within 10° of the equator with a high annual
rainfall (minimum 1,600 mm/yr).
4.3.1 TRADE IN PALM OIL
International trade in palm oil began at the turn of the 19th century, and trade in palm
kernel oil developed later in the 1830s. Palm oil from West Africa became the principal
cargo for slave ships after the abolition of the slave trade. The establishment of trade in
palm oil resulted from the Industrial Revolution in Europe as new uses for the oil were
developed. As people in Europe began to take sanitation and hygiene more seriously,
demand for soap increased, resulting in the demand for vegetable oils suitable for soap
manufacture and other technical uses (Poku, 2002a). In the early 1870s, exports of
palm oil from the Niger Delta were 25-30,000 MT per annum and, by 1911, these
exports from the British West African territories grew to 87,000 MT. The export of
palm kernels began in 1832. By 1911, British West Africa alone accounted for the
export of 157,000 MT. Seventy-five per cent of these exports came from Nigeria, the
largest exporter until 1934, when Malaysian exports of palm oil exceeded Nigerian
levels (Poku, 2002a).
Regionally, Africa continued to dominate the export of CPO until 1962 when the
combined export shipments of CPO from Indonesia and Malaysia reached 328,000 MT
as compared to 232,000 MT from all of Africa. By 1985, Africa had all but disappeared
from the palm oil export market while a greater number of Asian and Latin American
oil palm producing countries were starting to increase their exports (Corley and Tinker,
2003). One of the factors that has accounted for this relative decline in production is the
fact that traditional farmers in Africa have not embraced the Tenera. Consumers
complained that the palm oil produced from the variety was too fatty and, when using
this variety for household food preparation, the oil’s fattiness results in the oil
solidifying, instead of remaining fluid and red in colour, as it returns to ambient
temperature. In addition, oil from the Tenera does not have the right taste for the soup
base of the traditional West African cuisine - Palm Oil Soup. Extension officers failed
to position the Tenera as a high-yielding industrial variety, as opposed to oil from the
Dura for home cooking. The negative perception of Tenera led to its slow adoption and,
consequently, the failure of Africa to maintain its lead in palm oil production.
- 60 -
By the end of 2004, total world exports of CPO had risen to 20.7 million MTs and 1.6
million MTs of PKO. Table 4.2 indicates that while Nigeria (3d place), Cote d’Ivoire
(8th place) and the Democratic Republic of the Congo (9th place) remain within the top
ten producers of CPO in 2004, only two African states (Cote d’Ivoire (9th place) and
Ghana (10th place) remained as significant CPO exporters (Foreign Agricultural Service,
2005). However, it should be noted that smallholders, who are not part of the formal
sector and whose production goes largely unreported, produce a considerable quantity
of palm oil in Africa. This production, ostensibly used for home cooking in its raw
unrefined form, is produced mainly from natural groves or plots of unimproved varieties
of oil palm (Omoti, 2003).
Consistently the top producer, Malaysia accounted for 46 per cent of global production
in 2004 (Table 4.3). Indonesia ranked second at 38 per cent, while Thailand and
Nigeria ranked a distant third and fourth at 2.9 per cent and 2.7 per cent respectively
(International Institute for Environment and Development et al., 2004). The whole of
South East Asia led the rest of the world in palm oil production, accounting for 88 per
cent of total world production.32 Between 1994 and 2003 (see Table 4.3), Malaysian
production of palm oil grew at an average of 6.8 per cent per year, while Indonesian
production growth outstripped the world average, growing at an average of 12.3 per
cent per year (Foreign Agricultural Service, 2005). Together, Malaysia and Indonesia
produce palm oil on 6.4 million hectares of land. This accounts for approximately 80
per cent of the global area devoted to oil palm (Corley and Tinker, 2003; International
Institute for Environment and Development et al., 2004). Indonesia is forecasted to
surpass Malaysia as the world’s leading producer of palm oil by 2015 (Corley and
Tinker, 2003).
Of the seventeen or so competing vegetable oil and fat products, palm oil is the fastest
growing segment of the world edible oil production base, growing from less than six
million metric tons (MT) in 1983/1984 to more than 29 million MT in 2003/2004
(Foreign Agricultural Service, 2005). In the five-year period 1999/2000 to 2003/2004,
palm oil production increased at an average of 7.5 per cent per year. In comparison, the
total supply of oils and fats only grew at an average annual growth rate of about 4 per
cent in the same period, to 127 million MT (Basiron et al., 2004). At present, CPO
accounts for 21 per cent of all global production of oils and fats and 26 per cent of
32 Malaysia, Indonesia, Thailand, Papua New Guinea and the Philippines combined.
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global production of vegetable oil supply (International Institute for Environment and
Development et al., 2004). Oil palm is the highest yielding oil crop per hectare,
yielding between 2 to 7 MT per hectare. Forecasted 2020 production totals for palm oil
are 36 million MT (Corley and Tinker, 2003).
Table 4.2 Palm Oil: World Supply and Distribution (‘000 MTs) Years 1999/2000 2000/2001 2001/2002 2002/2003 2003/200433
Production
Malaysia 10,842 11,804 11,909 13,354 13,416
Indonesia 7,050 8,030 9,200 9,750 11,000
Thailand 525 620 600 630 840
Nigeria 720 740 770 785 780
Colombia 524 548 528 543 575
PNG 336 329 316 325 380
Ecuador 222 201 217 247 340
Cote d’Ivoire 278 220 240 251 310
DR of Congo 145 155 167 170 175
Honduras 97 108 110 112 165
Costa Rica 138 138 140 144 140
Others 897 916 915 923 965
Total 21,821 24,283 25,419 27,262 29,086
Exports
Malaysia 8,845 10,475 10,500 11,650 11,765
Indonesia 3,871 4,776 5,979 6,600 7,300
PNG 241 320 328 326 367
Colombia 97 69 91 108 150
Thailand 87 180 82 138 140
Costa Rica 75 79 83 107 91
Guatemala 61 74 68 78 80
Honduras 0 22 34 82 70
Ecuador 26 26 34 64 60
Cote d’Ivoire 72 75 65 63 58
Ghana 19 17 21 21 21
Others 674 589 543 576 632
Total 14,068 16,702 17,828 19,813 20,734
(Source: FAS, 2005; Oil World Annual (1999 – 2003))
33 Preliminary figures (2003/2004).
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Table 4.3 Major World Producers of Palm Oil: 1994-2003 (‘000 MTs) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Growth
1994-2003
Malaysia 7,403 7,221 8,386 9,069 8,319 10,55
4
10,84
2
11,80
4
11,90
9
13,35
4
6.8%
Indonesia 3,421 4,008 4,540 5,380 5,361 6,250 7,050 8,030 9,200 9,750 12.3%
Nigeria 645 640 670 680 690 720 740 770 775 785 2.2%
Colombia 323 353 410 441 424 501 524 548 528 543 5.9%
Cote
d’Ivoire
310 300 280 259 269 264 278 220 240 251 (2.3%)
Thailand 297 316 375 390 475 560 525 620 600 630 8.7%
PNG 223 225 272 275 210 264 336 329 316 325 4.3%
Ecuador 162 178 188 203 200 263 222 201 217 247 4.8%
Costa
Rica
84 90 109 119 105 122 138 138 140 144 6.2%
Honduras 80 76 76 77 92 90 97 108 110 112 3.8%
Brazil 54 71 80 80 89 92 108 110 118 132 10.4%
Venezuel
a
21 34 45 54 44 60 73 80 80 79 15.9%
Guatemal
a
16 22 36 50 47 53 65 70 81 91 17.1%
Other 1,265 1,676 815 869 844 832 879 919 922 940 (3.2%)
TOTALS 14,304
15,210
16,282
17,946
17,169
20,625
21,877
23,947
25,236
27,383
7.5%
(Source: Oil World Annual (1999 - 2003); Oil World Weekly (12 December 2003))
Past production trends suggest that per hectare yield growth will be slow, so the great
majority of this increased production seems likely to stem from increased hectarage
planted in palm oil. Half of the increased hectarage is expected to be in Indonesia and
much of the rest in the Malaysian states of Sabah and Sarawak (Corley and Tinker,
2003; International Institute for Environment and Development et al., 2004). Indonesia
is projected to overtake Malaysia as the world’s largest producer by 2007, although the
2004 Tsunami in Sumatra will likely affect this projection. The continued growth of the
industry in the Philippines, Papua New Guinea and Thailand will ensure that Asia’s
leadership of the industry continues well into the present century.
Global consumption of major vegetable oils and fats has been increasing over the recent
past. Growing consumer demand, particularly in the developing world, and increased
usage of vegetable edible oils to replace the use of animal fats in food and non-food
applications has been largely responsible for the increasing levels of palm oil
consumption (International Institute for Environment and Development et al., 2004).
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At present (2004), the annual consumption of palm oil is 28.5 million MT (Foreign
Agricultural Service, 2005). Projections suggest that world consumption of palm oil
will exceed 40 million MT by 2020. This represents a doubling of world palm oil
consumption from 14 million MT in 1994/5 to 28 million MT in 2003/4 or an annual
growth rate of 8 per cent. Figure 4.2 illustrates the relationships between and the trends
for palm oil production, export and domestic consumption.
Figure 4.2 World Production, Export and Consumption of Palm Oil (1964-2004)
0
10000
20000
30000
40000
50000
60000
1964/1965
1969/1970
1974/1975
1979/1980
1984/1985
1989/1990
1994/1995
1999/2000
2004/2005
Years
'000
Met
ric T
ons
ConsumptionProductionExports
(Source: Foreign Agricultural Service, 2005)
4.3.2 THE OIL PALM IN AFRICA
Although the oil palm was already well known and exploited by the natives of West and
Central Africa for many centuries, it began to assume greater importance in the first half
of the nineteenth century for industrial applications in Europe, notably in soap
manufacture, lubrication of railway truck axles and later in the manufacture of
margarine (Omoti, 2003). Prior to this time, palm oil’s primary use was for food in the
international trade of African slaves. With the demise of the slave trade in 1807, trade
in palm oil declined until the 1830s when the British deliberately encouraged the oil
palm trade. The trade increased from 12,000 MT in the 1830s, to 30,000 MT in the
1860s and to 87,000 MT by 1911 (Corley and Tinker, 2003).
Wide discrepancies between the published statistics and actual palm oil production in
Africa have to be taken into account when interpreting the statistics (Table 4.2, Table
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4.3 and Figure 4.2) on oil palm production. Many smallholder and homestead palm oil
producers who exploit the groves or produce from unorganised small and homestead
holdings account, form a significant proportion of Africa’s total production especially in
Nigeria, Cameroon, Ghana and the Republic of Benin. Production by this group is more
often than not either grossly under-estimated or totally ignored in the published
statistics (Omoti, 2003).
In Africa, the crop is still widely found in sub-spontaneous and planted groves and
estates from the coasts of the Gulf of Guinea and extending inland about 100 to 1500
km from latitudes 10o N to 10o S. The main belt runs through the southern latitudes of
Cameroon, Côte d’Ivoire, Ghana, Liberia, Nigeria, Sierra Leone, and Togo and extends
into the equatorial regions of Angola and the Congo. It is cultivated under one of the
following production systems: natural or semi-natural grove homestead system; small-
scale monoculture or mixed cropping system; or, on medium to large-scale industrial
estate systems (Corley and Tinker, 2003).34
In conclusion, the oil palm has and continues to play a very important role in the
history, socio-economic and political life of its African producing countries. Its
production has remained an integral part of the socio-economic dynamics of the people.
Palm oil constitutes the single most important source of edible oil for most West
Africans, especially those living in the coastal and forest zones (Baryeh, 2001). The
bulk of the palm oil production from Africa is used for domestic consumption in its raw
and unrefined form.
4.3.3 THE OIL PALM IN ASIA
Oil palm is fast becoming a major tropical industrial crop throughout the world but
more so in Asia. During the 14th to 17th centuries, oil palm seedlings were taken to the
Americas and from there to the Far East. The plant appears to have thrived better in
Asia than in Africa. Rey Callano (2004) describes the oil palm in Asia as “The Golden
Crop of Asia” because of its growing economic importance.
By the early 1960s, Malaysia and Indonesia had surpassed Africa’s total palm oil
production. At present, these two Asian countries continue to lead the world in the
34 These four production systems are described in detail in Appendix III.
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production and export of oil palm and its products. Thailand and Papua New Guinea
are also beginning to become significant Asian producers and the Philippines is also
expanding its hectarage through the development of outgrower schemes throughout the
islands of Mindanao, Bohol and Palawan (Chang, 2005).35
The factors leading to the spectacular performance of Malaysia lie in the solid research
and development that they have undertaken backed by a conscious desire to implement
research findings. The plantation development culture acquired from long cultivation
and processing of latex rubber was a good foundation on which to introduce the large-
scale plantation cultivation of palm oil. The mastery of technology and rapid
mechanisation, together with government support for the industry as a systematic and
strategic industrial development policy, has facilitated private sector investment in this
sector (Plate 4.4).
Plate 4.4 Manual vs. Mechanical Harvesting of Mature Trees
(Source: Fedepalma website, 2005)
35 Agumil Philippines, under a separate corporate identity plans to develop a total of 10-15,000 hectares in Bahol consisting of both cooperative and outgrower farms and 20-30,000 hectares in Palawan according to a personal conversation with C.K. Chang of Agumil in January, 2005. By the end of January 2005, 4,700 hectares of oil palm trees have been planted in Bahol with the 2005 target set for 6,700 hectares. The 800 Hectares of the Bohol plantings is managed by Agumil’s subsidiary, Palm Incorporated (Bohol).
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4.3.4 THE OIL PALM IN THE AMERICAS
The presence of the oil palm in the Americas can be traced back to the early 1700s
during the period of the African slave trade to the Americas. Historical evidence exists
that oil palm seedlings were transported by slave traders to the Portuguese slave-trading
enclave at Bahía, Brazil. It is thought that palm oil, an indispensable ingredient in West
African cuisine, was used by Portuguese African slaves at Bahía to prepare food for
incoming slaves from Africa. In this manner, prior to their trans-shipment to other ports
in the Americas, the physical condition of the slaves, who frequently arrived at Bahía in
emaciated conditions, would be improved in order to fetch better prices for the slave
traders in the slave markets (Bozzi et al., 1998).
While the oil palm was introduced early in Brazil and the crop was well suited to the
climatic conditions of the Bahía area, the crop was not produced in significant quantities
and declined in importance with the demise of the slave trade. In spite of its early
introduction into the Americas, its first commercial exploitation did not occur until 1944
when United Brands started the first oil palm plantation in San Alejo, Honduras (Bozzi
et al., 1998). The crop, however, did not become a major plantation crop in the region
for another forty years.
Since 1990, the growth in the cultivation has been significant. At present, in the
Americas, the oil palm is referred to as ‘El Oro Verde’ or Green Gold, an apt
description, as palm oil is becoming a major export from the region. Of the palm oil
producing and exporting countries in the world, five countries in the Americas rank
within the top ten exporters in 2003/2004 – Colombia (4th with 150,000 MT), Costa
Rica (6th with 91,000 MT), Guatemala ( 7th with 80,000 MT), Honduras (8th with 70,000
MT), and Ecuador (9th with 60,000 MT) (Foreign Agricultural Service, 2005).
Following the general global trend, oil palm cultivation in the Americas increased by
178,000 hectares, from 259,000 hectares to 437,000 hectares during the decade ending
in 2001 (see Table 4.4), representing a 5.4 per cent average annual expansion (Bolivar
and Cuellar-Mejia, 2003).
In South America, Colombia, Ecuador, Brazil, Venezuela and Peru, remain as the
principal oil palm producers. In 2001, these five countries had 324,000 hectares planted
with mature trees, of which Colombia and Ecuador accounted for 75 per cent of the total
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(see Plate 4.5 and Figure 4.3). In Central America, Costa Rica, Honduras and
Guatemala had a total area of 93,000 hectares, representing 82 per cent of the entire
region’s plantings in 2001. Colombia’s plantings of mature oil palms assures its
leadership in the combined regions with 32 per cent of the total area under cultivation,
followed by Ecuador, Brazil, Costa Rica and Honduras (Bolivar and Cuellar-Mejia,
2003).36
Table 4.4 Oil Palm Hectarage, Production and Consumption in the Americas (2001)
Country Area Growth (%) Production Growth (%) Production Growth (%) Dom. Consp. Growth (%)(Ha) 1991-2001 (MT/Ha.) 1991-2001 (1000 MT) 1991-2001 (1000 MT) 1991-2001
Costa Rica 39 6.4 3.5 1.6 138 8 45.7 -1.6Dominican Rep. 8 4.8 3.5 2.4 26 7 39 11.4Guatemala 21 n.a. 3.4 n.a. 70 n.a. 35.6 n.a.Honduras 33 1 2.9 0.7 94 1.6 66.5 0.2Mexico 12 n.a. 2.9 n.a. 35 31.9 200.3 11.3Nicaragua n.a. n.a. n.a. n.a. 8 27.6 30 29.3Panama n.a. n.a. n.a. n.a. 11.8 2.2 12 n.a.Brazil 42 1.3 2.6 3.3 110 4.6 100.2 -3.6Colombia 138 3.9 4 3.9 547.2 8 451.8 5.8Ecuador 104 5.7 2.3 0.7 240 6.4 230.3 6.1Peru 10 5.2 3.9 -0.2 39 5.4 35 6.8Venezuela 30 25.9 2.7 -0.7 80 24.4 111.5 19.8Totals 437 5.4 3.2 2.4 1399 7.9 1357.9 5.6
(Source: Bolivar and Cuellar-Mejia, 2003)
Figure 4.3 Major Americas Oil Palm Producers: Land Area (2001)
39,000
8,000
21,000
33,000
12,00042,000
138,000
104,00010,000
30,000Costa RicaDominican Rep.GuatemalaHondurasMexicoBrazilColombiaEcuadorPeruVenezuela
(Source: Bolivar and Cuellar-Mejia, 2003) 36 Additional information on oil palm in the Americas can be found in Appendix IV.
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Plate 4.5 Newly Planted (left) and Four Year Old Plantation (right)
(Source: Fedepalma website, 2005) 4.4 Palm Oil Processing
The processing of oil palm FFB to produce edible oil has been practiced in Africa for
thousands of years, and the highly coloured and flavoured oil that results from the
processing process remains today as an essential ingredient in much of the traditional
West African cuisine. The traditional home process while simple is tedious and
inefficient. Over time, even before the product assumed international importance,
farmers naturally developed better technologies for extracting the palm oil. These
technologies evolved into a commercial base of small-scale palm oil processing in the
sub-region that has systematically acquired greater sophistication, efficiency and
reliability (Poku, 2002a).
In Africa, traditional methods of palm oil extraction take place side by side with the
improved semi-mechanised to fully mechanised industrial methods. In recent times,
palm oil processing is practiced using methods that can be grouped into four main
categories according to their throughput and degree of complexity. These processes are
as follows: the traditional methods (essentially home processing), small-scale
mechanical units (less than 2 MT/Hour), medium-scale mills (between 3 to 8 MT/Hour)
and large industrial mills (greater than 10 MT/Hour). In Asia and the Americas, palm
oil extraction mainly takes place in either the medium or large-scale processing mills, as
there is virtually no cultural requirement in these two regions for the oil in its raw un-
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refined state.37 Therefore, any discussion on the traditional or small-scale oil extraction
units relates solely to Africa.38
4.4.1 TRADITIONAL PALM OIL PROCESSING
The women in the villages are generally responsible for the processing and sale of farm
produce (see Plate 4.6). There are no statistics of the volume of oil produced by the
traditional method of processing in all of Africa, as most of the oil produced is not
recorded before disposal in consumption and sales. Furthermore, most of the traditional
processing is in unorganised smallholdings. However, it is well known that the
traditional method of palm oil extraction is very inefficient, compared to the semi-
mechanised or fully mechanised industrial mills. Oil extraction rates by the traditional
methods could be as low as 5 per cent, and rarely as high as 13 per cent (Poku, 2002a).
Plate 4.6 Traditional Processing of Oil Palm in Ghana
(Source: Paul Huddleston, 2004)
The need for improvement in its extraction has been recognised since trade in palm oil
assumed international significance. Traditional processing methods vary across Africa,
but are essentially the same throughout the region. Although they are well adapted for
37 The exception would be in the case of Brazil, where the vibrant culinary culture of former African slaves exists to this day. 38 The utilisation of medium to large-scale mills, however, varies even within Africa. Large-scale mills account for about 98 per cent of palm oil processing in Cote d’Ivoire. The remaining 2 per cent is processed using traditional methods. In Ghana, on the other hand, large-scale mills account for the processing of only about 28 per cent of national CPO production, with the remaining 72 per cent by medium and small-scale processors (Addo, 2002).
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small scale processing, the major drawback of these systems continues to be one of
inefficiency, coupled with the poor quality of the oil produced (Poku, 2002a). The
systems are arduous, and can hardly be adapted for processing large quantities of fresh
fruits at the same time. Due to these shortcomings, the traditional systems are giving
way to improved semi-mechanised systems.
4.4.2 SMALL-SCALE MECHANICAL UNITS
According to Kwasi Poku (2002a:1) in his FAO Agricultural Services Bulletin, Small-
scale Oil Palm Processing in Africa, small-scale agro-processing, that involves some
mechanisation, “…seems to hold the key to rural poverty reduction and the prolific oil
palm tree provides the best raw material for starting rural industries.” The domestic
demand for palm oil in Africa has resulted in a growing demand by small-scale
processors for more sophisticated mechanised extraction units. Accordingly, demand
for small-scale palm oil units is shifting from simple stand-alone operational machines
to those that are more integrated but still easy to operate and maintain.
A number of smallholder and simple oil mills have been introduced into Africa since
the 1920s. Over time, palm oil mills have improved, but they have remained beyond
the financial reach of small farmers. Their complexities and maintenance requirements
have made them less adaptable to the need and skills of the smallholder farmers. For
this reason, there is an ongoing demand for simpler, lower capacity, cheaper mills for
small and medium farmers. Such mills must be adaptable to the skills of these farmers,
and result in decreased labour input than required by traditional methods (Poku, 2002a).
4.4.3 MEDIUM AND LARGE-SCALE PROCESSING
The large estates use the highly efficient industrial oil mills, requiring low labour input.
These mills are usually far too expensive and beyond the reach of smallholder farmers,
even if they contemplated aggregating their holdings to justify investments in such mills
(Plate 4.7). Many smallholder oil palm producers ship some, if not all, of their FFBs to
local plantations that have large processing mills with throughput milling capacities of
between 20 to 60 MT of FFB per hour. Outgrowers under contract must contractually
ship all of their FFBs to the mill. Nevertheless, these mills welcome the FFB of non-
contractual smallholders as well.
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Plate 4.7 45 MT/Hour Oil Palm GOPDC Mill at Kwae, Ghana
(Source: Paul Huddleston, 2004)
Processing of the FFBs into CPO must take place within 24 hours of their harvest to
prevent deterioration of the quality of the extracted oil. As outlined earlier, one unique
feature of the oil palm fruit is that it produces two types of oil - palm oil from the flesh
of the fruit (mesocarp), and palm kernel oil from the seed or kernel. For every 10 MT
of palm oil, about one MT of palm kernel oil is also extracted. The various steps in
CPO and PKO oil extraction are depicted in Figure 4.4. The FFBs are sterilised under
high pressure and temperature shortly after their arrival at the mill. This process also
softens the fruit bunches, which facilitates the stripping of the fruitlets from the
individual bunches. The fruits are then mechanically pressed to extract the oil from the
fleshy mesocarp and further clarified and purified to remove moisture, dust, dirt and
other impurities (Addo, 2000). Plate 4.8 shows some of the activities that take place at
the mill.
As indicated in the diagram, both the solid and liquid waste materials are returned to the
plantation proper. By-products from the milling process have important uses. The
empty fruit bunches are returned to the plantations and used as organic fertiliser. The
mesocarp fibre, which still contains a small quantity of oil, and broken shell, is used as
fuel to generate power to produce both steam for the mill and electricity for the
plantation proper. The seeds are dried, cracked and separated to produce palm kernels,
which are sold as finished product or further processed to produce palm kernel oil
(PKO). At most plantations, effluent from the mills is channelled to a system of on-site
ponds where it is subjected to anaerobic and aerobic treatment. It is then used as a
plantation fertiliser, a cost-saving measure that also protects waterways from pollution.
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Figure 4.4 Crude Oil Palm Processing on an Industrial Estate
(Source: used with the permission of the Asian Agri Group, Sumatra, Indonesia, 2004)
The crude palm oil produced during the milling process is transported by tanker truck
from the mill to the domestic refinery or directly to the seaport for export in its raw
form. It can also be domestically refined and further processed into a number of other
products by local food and chemical industries.
Crude palm oil must be refined prior to its use as food. Refining removes free fatty
acids, colour and odour from the CPO. The result, Refined Bleached Deodorised
(RBD) palm oil, is fractionated to produce liquid palm olein and palm stearin fractions.
This refining and fractioning of the CPO, into products such as cooking oil, stearin, and
shortenings, can take place in either the country of origin or the destination country
(Addo, 2000).
Processing competence varies widely and actual extraction rates of medium to large-
scale mills ranges between 13 – 25 per cent. Under proper overall management and
thorough harvesting and processing practices, high extraction rates are often achieved.
In Africa, the inability to quantify the output from traditional processing coupled with
the wide variation in extraction rates of the semi-mechanised and fully mechanised
industrial mills result in inaccurate statistics on Africa’s palm oil output. In addition, in
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spite of the fact that the oil palm has its origins in West Africa, rainfall patterns in West
Africa do not allow for even harvests throughout the year. As a result, most African
nations have milling capacities that far exceed the availability of FFBs throughout the
year. This leads to an overall low capacity utilisation of milling capacity in general
(Omoti, 2003). In Asia and the Americas, virtually all FFBs are processed in medium
or large-scale mills. The production of FFB in Asia and in the Americas is much more
evenly distributed over the year and, as such, their mills operate closer to full capacity
than is the case in Africa.
Plate 4.8 Plantation Milling Processes
(Source: Paul Huddleston, 2004)
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4.5 The Use of the Oil Palm and Its Oils
4.5.1 THE OILS FROM THE PALM
Palm oil is used in food manufacturing processes, including the manufacture of
margarine and compound cooking fats. It is also used for the manufacture of soap,
lubricating oils and candles and in the tin plate industry where it is used to protect
cleaned iron surfaces before the application of a tin veneer. Further, it is used as an
industrial lubricant in the textile and rubber industries. A recent innovation is the use of
palm oil as an environment-friendly carrier in pesticide formulations (Diemer et al.,
2004). Figure 4.5 indicates an indicative listing of the applications of palm oil.
Figure 4.5 Uses of the Palm Oil and Palm Kernel Oil
(Source: Used with the permission of the Asian Agri Group, Sumatra, Indonesia, 2004)
Raw or refined but unbleached red palm oil is used for cooking throughout the world. It
is used as an oil base for many spicy foods and gives its distinctive reddish colour to
curries, African oil palm soups, and other sauces. It can also be used as a portion in
margarine blend to provide a natural source of colouring and a desired level of vitamin
A, and as a nutritional ingredient for instant noodles, salad dressing and peanut butter.
In its stearin form, palm oil is used for products such as shortenings, pastry margarines,
vanaspeti or a vegetable ghee that can be used as a substitute for butterfat.
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Kernel oil can be used as cooking oil or edible fat, for the manufacture of ice cream and
mayonnaise, in the confectionery and bakery trade, as a substitute for cacao butter and
in the manufacture of toilet soaps, soap powders and detergents. In West Africa, it is
used as hair oil and skin lotion, and is often mixed with imported scents. Mixed with
kerosene, it is used as a furniture polish. It is sometimes used in traditional medicine
(Addo, 2000; Bergert, 2000; Diemer et al., 2004).
Finally, in the oleo-chemical industry, kernel oil is used for the manufacture of short
chain fatty acids, fatty alcohols, methyl esters, fatty amines, amides, etc, that are utilised
in detergents, cosmetics and many other products.
4.5.2 BY-PRODUCTS FROM THE MILLING PROCESS
In addition to oil, the oil palm supplies a number of other products that provide for the
cultural or daily economic necessities of people living in oil palm growing areas of the
world.39 The oil palm tree itself has a multitude of uses and virtually every part of the
palm can be used to address people’s needs (Diemer et al., 2004). A pictogram
indicating the variety of ways that the oil palm, as a whole, can be utilised in daily life
is presented in Figure 4.6.
Ten MT of processed FFBs will yield 1.4-2.4 MT of crude palm oil and 300-450 kg of
palm kernels, leaving between 72 to 83 per cent of the FFBs weight as residual matter
following the processing at the mill. This solid side products from the milling process
would include the empty fruit bunches, palm press fibre, kernel shells and palm kernel
press cake (Addo, 2000; Bergert, 2000; Diemer et al., 2004).
Empty fruit bunches or the husks of the FFBs are frequently returned to the oil palm
plantations as mulch to enhance moisture retention, soil nutrient content and soil
organic matter. The material is increasingly turned into a rich compost to be used on
organic plantations or on outgrowers farms (Inkumsah, 2004). Alternatively, it can be
used as fuel in the mill boilers for the generation of steam used in the mill operations
and to generate electricity for the mill and/or the plantation. Wastewater from the
milling process is treated and irrigated back into the plantation areas. Used in these 39 For example, the trunk of the tree is used extensively in West Africa for the production of palm wine for both everyday and ceremonial uses. In the Philippines, and elsewhere in Asia, the leaves or fronds are used for the construction of floor and wall mats used in the construction of rural housing.
- 76 -
fashions, waste from the milling process is ploughed back into the overall farming
system. This not only saves the costs of wood fuel, irrigation and chemical fertiliser,
but also contributes to the overall protection of the environment.
Figure 4.6 Uses of the Oil Palm Tree
(Source: Poku, 2002a; Diemer et al. 2004)
Kernel shells are also used as a source of fuel at the mill, unfortunately, the shells
contain silicates that form a scale in the boilers if too much shell is fed into the furnace,
limiting the quantity of shells that can be used. In some areas, however, shells are sold
as fuel material for blacksmiths or for the preparation of 'pozzolana', a cement
substitute. The shells are frequently also used as 'gravel' for nursery paths or farm roads
on the plantations themselves (Diemer et al., 2004; Inkumsah, 2004). Kernel press
cake, the fibrous material that remains after the pressing stage of the milling process
can, after the removal of the palm kernels, is sold for livestock feed. It is rich in
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carbohydrate (48%), protein (19%) and oil (5-8%). Despite the high oil content,
however, the kernel press cake is dry and gritty and is not enthusiastically accepted by
all types of livestock. As an ingredient in mixed feeds, its unpalatability is of less
importance (Diemer et al., 2004).
The components of the oil palm have a variety of other uses. These include: 1) the bud
or the heart-of-palm, called palm cabbage, is eaten as a salad vegetable; 2) palm fronds
or leaves are used to make roof thatching, wall or floor mats, baskets and fencing; 3) the
fronds are also utilised to create ‘banking’ which aids in the prevention of soil erosion
among the oil palms 4) the leaves and empty fruit bunches, having a high cellulose
content, are processed into pulp for the production of paper; 5) the cellulose fibre is also
used for the construction of mattresses, fibre board, and agricultural and automotive
mats (Addo, 2000; Bergert, 2000; Poku, 2002a; Omoti, 2003; Diemer et al., 2004).
4.6 Conclusion The clear advantage for the oil palm remains the fact that its productivity per hectare is
much greater than any other edible oil crop, thus cutting the cost of land, infrastructure,
harvesting and maintenance (Corley and Tinker, 2003). Bio-technological advances by
the industries leading palm oil exporters, Malaysia and Indonesia, have allowed for
outputs of up to five MT of oil per hectare. A higher level of mechanisation by oil
palm’s major competitors has also resulted in increasing yields per hectare.
Mechanisation in the oil palm industry, however, remains low and the cultivation of oil
palm continues to be highly reliant upon labour. In the short-term, its competitive
position, therefore, depends on the relative cost of labour (Corley and Tinker, 2003). If
the global palm oil industry is to remain competitive in the long-term, it will be
necessary for it to keep pace with other edible oil crops in terms of both biotechnology
and mechanical technology. Corley and Tinker (2003) further postulate that the oil
palm industry will have to carefully address other major issues facing it. Amongst these
issues are: 1) the subsidies that support many of the other oil crops that clearly impact
upon the competitive advantage of palm oil; 2) the health of palm oil consumption; 2)
concerns about genetically modified oil crops; and 3) the impacts of oil palm on the
environment and particularly plantations on first growth forests and bio-diversity.
These are all interesting issues, but issues beyond the scope of the present research.
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5.0 OIL PALM IN THE PHILIPPINES AND GHANA 5.1 Introduction
There is a general recognition that there has been a fundamental shift in agricultural
development strategies, from those that favour state intervention to those that are more
strongly oriented towards free market forces (Goldsmith, 1985; Williams and Karen,
1985; Arnold, 1998; Govereh et al., 1999; Eaton and Shepherd, 2001; Kanji and
Barrientos, 2002; Simmons, 2002; Balisacan, 2003; Bebbington, 2003; Chatterjee,
2003; Gwynne, 2003; Patrick, 2004; World Bank, 2004a). This transition is particularly
important in understanding the changing structure of agriculture and agricultural
development in a situation where governments in the last two decades have retreated
from high levels of intervention towards a policy position that favoured the role of
private capital. In the past, government intervention in the economy and agricultural
development process was generally seen as the most effective means of achieving socio-
spatial equity and poverty alleviation in rural areas (World Bank, 2003; World Bank,
2004a). This not only reflected the state-socialist leanings of many governments at the
time, but also the approach of foreign aid organisations and development agencies. For
example, organisations such as the World Bank stressed the importance of ‘integrated
rural development’ schemes that, in addition to focusing on agricultural productivity
and nutrition, also emphasised the importance of health care, education and transport
systems (Potter et al., 2004). For many governments, the solution to rural
underdevelopment lay in the promotion of agrarian industries that were best suited to
local environmental conditions and that could provide a substitute to imports,
particularly in the area of agricultural commodities.
In Ghana, this involved the establishment of state or parastatal firms that would
underpin agricultural development. The outcome, in terms of the oil palm industry, was
the formation of a number of large plantation estates and processing industries, most of
which had a high level of government ownership and control. At the same time, estates
were often accompanied by tenant farmer arrangements and/or outgrower programs
(Daddieh, 1994). In the Philippines, it involved public-private sector initiatives
working either directly in partnership with, or indirectly through, land or other resource
allocations, including tax incentives (Dy, 2003). In the oil palm industry, plantations
79
were established both under full private sector control and under partnership
arrangements between government and the private sector.
The state-driven approach to agricultural development came under increasing pressure
from the 1970s as rising debt, low commodity prices and a series of global economic
recessions undermined its efficacy. It has been pointed out that this approach often had
negligible impacts on socio-economic wellbeing, and even contributed to the loss of
productive traditional cultural and agrarian systems (Dorward et al., 1998).
Furthermore, there was a concern that many of these development schemes were
inefficient, unaccountable and a poor use of scarce state resources (White and Bhatia,
1998). In response to these problems, an increasing focus was placed on market-led
solutions, and particularly on the role of the private sector in promoting agricultural
development. In simple terms, state intervention was eschewed in favour of a broadly
neo-liberal development agenda (Dorward et al., 1998).
The outcome of this transformation was the privatisation of many state-owned or
parastatal agricultural development schemes, particularly large plantation estates. Such
divestitures often resulted in an increasing level of ownership by large trans-national
corporations. The general view was that these firms could provide access to capital,
technology, and markets that might otherwise not be available. Furthermore, a more
market-oriented agriculture would lead to increasing levels of innovation and
diversification by farmers. There were, however, those who argued that the transition to
a market-led system would increase the financial vulnerability of landholders through
unequal political and economic relationships with corporations. Hubbard (1995)
suggested that the two main opposing camps in the market liberalisation debate could be
summarised as ‘market optimists-state pessimists’ and ‘market pessimists’. While few
felt that the state was capable of a sustained provision of agricultural services, many
scholars were extremely cautious about the likely efficacy of the private sector (Little
and Watts, 1994a). Of particular concern was the capacity of the private sector to
alleviate poverty and promote social equity amongst small rural landholders. At the
heart of much of the debate is the issue of outgrower schemes which have increased
rapidly in number along with structural adjustment in the agricultural sector.
In the case of Ghana, this was particularly evident in the oil palm industry, which has
experienced the privatisation of the state-owned or parastatal plantations established in
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the 1970s, together with the rapid expansion of contract farming schemes (White and
Bhatia, 1998). This has had significant implications not only for the nature of the oil
palm industry in the country, but also for local farming systems and agricultural
development. In the Philippines, while the neo-liberal agenda has driven the nation’s
agriculture for the last two decades, it was the Comprehensive Agrarian Reform
Program that initiated the move from public-private sector plantations and private sector
plantations towards farmer land ownership and the origin of many of the outgrower
programs (Arnold, 1998; Government of the Philippines, 2003a; Callano, 2004; Grino
Jr., 2004). In the case of the Province of Agusan del Sur, the plantation at FPPI reverted
back to the original landholders who then leased the former plantation area back to the
firm. Agumil did not face this problem because when they established their business,
they leased the land from the landholders to form their nucleus estate.
The previous chapters have established the conceptual framework and methodology in
part through a review of the literature concerning both contract farming and the oil
palm. The literature review on contract farming in Chapter 2 frequently made reference
to the fact that contract farming schemes should be judged on an individual basis, based
upon their overall affects upon rural communities. Within this context, a number of
researchers have noted that contract farming schemes rarely involve standardised
production relationships between the actors. Additionally, research studies into contract
farming schemes seldom involve the same crop, thus it is difficult to form a basis for
comparison. In reality, contract farming schemes are seldom developed and
implemented within the same socio-economic, political and institutional environments
(Goodman, 1990; Glover and Kusterer, 1990b; Little and Watts, 1994a; Little and
Watts, 1994c; Eaton and Shepherd, 2001). Notwithstanding this, it is not the purpose of
this chapter to rectify or even analyse the dichotomies between the studies. It is,
however, the purpose of this chapter to present a historical perspective of contract
farming in the oil palm sector so as to better understand its development and the role
that it has played in agricultural and rural development, since its introduction as a non-
traditional industrial cash crop into the Philippines in the 1960s and Ghana in the 1970s.
The working hypothesis is that the comparison of contract farming schemes is
complicated by their very nature but the varieties of crops being produced under
contract makes it virtually impossible to do so in any case.
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The two countries ventured into oil palm production from somewhat different
perspectives, with the Philippines entering the industry mainly as an export initiative
and Ghana to meet domestic demands for the palm oil for culinary and cultural reasons.
The Ghanaians also clearly wanted to increase exports to achieve foreign exchange
earnings. This chapter will present the detailed history of oil palm cultivation in the two
countries, focusing on the nucleus estate-outgrower schemes that have been developed
to support their industries. The similarities and differences in the approach taken by the
governments of these two countries towards the attainment of the development
objectives at both the national and local levels will be highlighted as will their
respective future plans to expand the industry.
5.2 Philippines
Sustainable rural sector growth is critical for ensuring broad based development and the
alleviation of poverty in the Philippines. In this context land reform remains a major
bottleneck.40 Access to land not only improves equity, it also enables new asset owners
to apply for bank loans and secure access to financial capital. The lack of sufficient
collateral has affected the growth of rural credit. Farmer-beneficiaries under the
Comprehensive Agrarian Reform Program (CARP) are supposed to be landless
residents of the barangay or municipality where the land in question is located, and are
meant to have worked directly on the land, whether as tenants or seasonal farm workers.
This has not always been the case. There are many examples of wealthy landlords
circumventing the regulations. The transferability feature of CARP lands must be
addressed so that it does not impede the functioning of the land market and long-term
investments in agriculture (Asian Development Bank, 2005). The World Bank in 2000
recommended that a shift in CARP implementation should take place to ensure that the
targeting of the landless is improved (Schelzig, 2005).
As indicated earlier, land reform was the catalyst in the Philippines for the development
of the nucleus estate-outgrower schemes in the oil palm industry. In terms of the
40 Under the Comprehensive Agrarian Reform Program (CARP), Filipino landless farmers and farm workers, in the interests of ‘social justice and to move the nation towards sound rural development and industrialisation’, were to receive ownership of economic-sized farms. The deadline for the completion of CARP has been postponed on many occasions. The target completion date of CARP was extended to 2008 from its initial target of 1998. CARP initially identified 7.8 million hectares of agricultural land for redistribution to 3.9 million rural producers, farmers, and workers. As of the end of June 2003, 6.01 million hectares had been redistributed, most of which was public land (Asian Development Bank, 2005).
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plantations present in Mindanao in 1988, the CARP assured their management that they
could redirect their lease payments to the new landowners, frequently their estate
workers, or redistribute the estate land to cooperatives formed by their workers.
According to Vellema (2002:43) this was done while at the same time reassuring the
firms involved that “… they could sustain their operations in the country.” Dole and
Del Monte, two large plantation producers in Mindanao, reached settlement quickly,
opting for the redistribution to cooperatives owned by their workers who leased the land
back to them for an agreed rental payment (Vellema, 2002:42). The workers continued
to work on the estates for the two companies and were not outgrowers.
In the case of the three oil palm plantations that were operational in Mindanao in the
late 1980s, all were subject to land redistribution under the CARP. The initial response
of the three firms varied, however, with Kenram Industrial Development Corporation
(Kenram) turning their estate lands over for redistribution to their estate workers, who
organized themselves into two cooperatives (Government of the Philippines, 2002).
The two cooperatives effectively became contracted outgrowers and supplied oil palm
fruits to the mill that Kenram owned and operated. The Filipinas Palm Oil Industries
Incorporated (FPPI) continued to lease their estate while in the background the estate
lands were redistributed under CARP. The rent that they had previously agreed to pay
now goes to the beneficiaries. The FPPI only launched an outgrower scheme in early
2004 (Cinco, 2004). Finally, the Agumil Industries estate at Manat, Agusan del Sur
continued to be leased from the original landholders but they launched the pilot phase of
their outgrower program in 1996.
Although the oil palm was first introduced in the 1960s, the expansion has been modest.
The implementation of the CARP curtailed any plans that either Agumil or FPPI had to
expand their nucleus estates. The failure of CARP to complete the land reform
program, coupled with the ten-year waiting period for the transfer of land titles to the
beneficiaries has played a critical role in restricting the growth of the oil palm industry.
The slow growth of the industry has also been due to the shortfall in available financing
mechanisms for a crop that has a short history in the Philippines, and a shortage of
suitable planting materials coupled with limited technological information concerning
the cultivation of the crop. Finally, there has been a lack, if not an absence, of
government policy and support of the oil palm industry in the Philippines (Central
Cotabato Peace and Development Council, 1999). Inspite of this, the high demand for
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palm oil in foreign markets has resulted in an increasing interest among local growers,
investors and processors to expand the production of oil palm in the southern part of the
Philippines (NEDA, 2003). Cognisant of its significant contribution to the economy,
potential expansion areas for palm oil plantation in areas suitable for the cultivation of
oil palm have been identified by government and all three palm oil mills now devote
considerable resources and attention to the expansion of their outgrower programs
(Callano, 2004).
5.2.1 MENZI AGRICULTURAL CORPORATION
First imported into the Philippines in 1960, oil palm seedlings were planted in the 275
hectare plantation of the Menzi Agricultural Corporation on the island Province of
Basilan in Western Mindanao (Figure 5.1). With plans of a further expansion of
hectarage, the corporation constructed a 1.5 metric ton crude palm oil processing mill in
1963. While this would be considered a small mill, it was adequate for the modest
hectares involved at that time. The planned expansion of the plantation was never
realised and the oil palms were never replaced as they matured. Oil palm, at this time,
was not considered to be a crop that the government felt had a future in the Philippines
and there was little encouragement or support provided (Grino Jr., 2004). In 1993, the
plantation was converted to a farmer’s cooperative following the enactment and
implementation of the Philippines’ Comprehensive Agrarian Reform Program (CARP).
The new cooperative, the United Workers Agrarian Reform Beneficiaries Multi-Purpose
Cooperative, has subsequently removed the senile oil palm trees and has planted the
former plantation area with rubber trees (Government of the Philippines, 2000b;
Government of the Philippines, 2003a; Grino Jr., 2004).41
5.2.2 KENRAM INDUSTRIAL DEVELOPMENT INCORPORATED
The second oil palm venture in the Philippines took place in 1967 when Kenram
Industrial Development Incorporated (Kenram) converted its 4,600 hectare ramie42
plantation in Sultan Kudarat Province, in Region XII, Central Mindanao to oil palm
41 Mr Onofre T. Grino Jr is presently the President of the Menzi Agricultural Corporation. In 1960, as a resident of the Island of Basilan, he was engaged by Menzi to establish and operate their oil palm Plantation. 42 Ramie is a type of a natural fibre and the plant from whose bark it is derived. This perennial shrub of the nettle family is native to East Asia. Lustrous, durable, soft, stronger than cotton, and resistant to chemicals, mildew, and shrinking, the fibre is also readily dyed, but hard to spin. Twine and thread are made from the fibre, and the cloth (often mixed with other fibres) is used in upholstery, tapestries, and other materials (Microsoft® Encarta® Encyclopaedia, 2003).
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(Figure 5.1). Kenram established a 1,600-hectare nucleus estate and an outgrower
scheme with local farmers on the remaining 3,000 hectares. Land title remained in the
hands of Kenram. This provided the company with the economic justification to
construct a 22 metric tons fresh fruit bunch (FFB) per hour processing mill at their
plantation to process the plantation’s production along with the production of their new
outgrowers (Government of the Philippines, 2000b; Government of the Philippines,
2002; Government of the Philippines, 2003a; Bahala, 2004).
Figure 5.1 Administrative Regions and Provinces of Mindanao, Philippines
(Source: Government of the Philippines, 2005)
The Comprehensive Agrarian Reform Program (CARP) affected privately owned
plantation areas in the Philippines such as Kenram Industrial Development Inc. Shortly
after the implementation of CARP, the owner of Kenram Juan Garcia Jr. voluntarily
submitted his estate for redistribution under the CARP Voluntary Offer to Sell Scheme
(VOSS). His 306 plantation workers formed themselves into the Kenram Agrarian
Reform Beneficiaries Multi-purpose Cooperative (KARBEMPCO) and they now
operate the former plantation.43 After considerable delay, the actual land title of the
plantation land was passed to the cooperative in July 2002 (Philippines Information
43 KARBEMPCO, registered as a cooperative under the Philippines Cooperative Act, originally had 306 members and now has 413. It employees 188 fulltime workers on the 1,600 hectare former Kenram nucleus Estate and has total assets of US$ 2.27M and net worth of US$ 0.8M (Government of the Philippines, 2003b).
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Agency, 2002). The outgrowers, producing oil palm on the remaining 3,000 hectares of
Kenram lands, organised themselves into a cooperative known as the Mapantig
Agrarian Reform Beneficiaries Multi-Purpose Cooperative (MARBEMPCO).44
Kenram Industries continues to own and operate their 22 MT FFB/hour oil palm mill
supplied with FFBs from their former plantation and outgrower program lands. In order
to achieve maximum mill capacity, Kenram is a major proponent of further oil palm
outgrowers in Sultan Kudarat.
5.2.3 FILIPINAS PALM OIL INDUSTRIES INCORPORATED
The next oil palm plantation was established in the Philippines only after another
fourteen years. In 1981, Guthrie Industries of Malaysia (Guthrie) collaborated with the
Philippine National Development Council (NDC), a government parastatal agency, in
the establishment of an 8,000-hectare palm oil plantation in the Province of Agusan del
Sur, Mindanao (Figure 5.2). The plantation was complemented by a 36 ton FFB per
hour processing mill (Government of the Philippines, 2000a; Bahala, 2004). The joint
venture has changed its ownership configuration over the years and its present corporate
name is Filipinas Palmoil Plantations Incorporated or FPPI.45 The FPPI was not
originally designed to have an outgrower component but, in June 2002, with the estate’s
oil palm trees approaching maturity, the company initiated an intensive replanting
program on the estate and an outgrower scheme that mainly targeted farmers and/or
cooperatives (Cinco, 2005).46
Following this decision, considerable effort has taken place to organise farmer
cooperatives and to obtain financing for them through the Land Bank of the Philippines
or from the Quedan and Rural Credit Guarantee Corporation (Box 5.1). FPPI’s target is
to have 1,000 outgrowers with 3,000 to 4,000 hectares of land. Cinco (2004) indicated
that FPPI strategy is to contract peasant farmers, organised into farmer groups, as their
44 MARBEMPCO, commenced operations as a cooperative with 297 members, 50% of whom are Christians and 50% Muslims, and employs 102 full time workers. It has total assets of US$ 1.1M and net worth of US$ 0.36M Ibid.. 45 FPPI was an amalgamation of the Guthrie shares of two previous cooperating joint ventures, NDC-Guthrie Plantations Inc and NDC-Guthrie Estates Inc who, at their dissolution, jointly produced in excess of 45,000 metric tons of crude palm oil (CPO) annually. The companies were broken up when the CARP law was enacted in 1988 as the legislation called for the awarding of all NDC holdings to Agrarian Reform Beneficiaries (Government of the Philippines, 2002). The areas were subsequently leased back from the beneficiaries to make up the 7,280-hectare estate that exists today. 46 Mr Charlie Cinco is the FPPI Industrial and Community Relations Manager and was interviewed in San Francisco, Agusan del Sur on 23 February 2004. Subsequent conversations were held with him in February 2005 concerning the development of their outgrower program.
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contribution towards area development. They are also targeting farmers with larger
landholdings in order to reduce their outgrower scheme’s transaction costs. These
larger landholders seldom require external financing and are more likely to engage local
farm labourers. In terms of the community’s overall socio-economic welfare,
employment growth is seen by FPPI as beneficial. According to FPPI’s Industrial and
Community Relations Manager, Charlie Cinco, 253 farmers had already signed
contracts to be outgrowers by January 31, 2005 and have planted oil palm seedlings on
742 hectares under their outgrower scheme’s first year of operation (Cinco, 2005).
Figure 5.2 Province of Agusan del Sur, Mindanao
(Source: Mindanao Economic Development Council, 2004)
5.2.4 AGUMIL PHILIPPINES INCORPORATED
In 1983, the last of the “historical” plantations was established, and like FPPI, it was
located in Agusan del Sur. Its 1,800 hectares of leased land was set up under the name
Agusan Plantations Incorporated (API) and was owned by Filipino, Malaysian and
Singaporean private sector business interests. An outgrower program, however, was not
established until thirteen years later in 1996. In 1996, API set up a sister company
called Agumil Philippines Incorporated (Agumil) whose main function was to purchase
and erect a crude palm oil processing mill. Agumil’s 22 metric tons per hour mill
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commenced operation in 1998 (Government of the Philippines, 2000a; Government of
the Philippines, 2002; Government of the Philippines, 2003a; Bahala, 2004; Callano,
2004).
Box 5.1 Farm Credit for Palm Oil Production in the Philippines
The Quedan and Rural Credit Guarantee Corporation (QUEDANCOR)
QUEDANCOR is a Philippine government financial institution under the Department of Agriculture (Republic Act No. 7393, approved on April 13, 1992), with enlarged powers and resources, to accelerate the flow of investment and credit resources into rural areas to trigger the vigorous growth and development of rural productivity, employment and enterprises to generate more livelihood and income opportunities. Its capital stock is two billion (PhP 2,000,000,000) Pesos of which 60 per cent is by way of government subscription and the remaining 40 per cent from farmers, fisherfolk and other private investors.
The word Quedan comes from the Spanish word quedar which means to "deposit or to leave behind." It is an old system of recording commodity deposits as practised during the Spanish colonial period in the Philippines. Farmer entrepreneurs trading in sugar, copra, hemp, tobacco and palay deposited their stocks in warehouses and negotiable warehouse certificates or quedans were issued to them. These quedans became convenient instruments for trading the commodity and for obtaining a loan.
The Land Bank of the Philippines
The Land Bank is an implementing agency of the Comprehensive Agrarian Reform Program (CARP) and is directly involved in land valuation, compensation to owners of private agricultural lands, and the collection of amortisations from CARP farmer-beneficiaries.
Its primary function is to provide credit assistance to small farmers and fisherfolk and is essentially a government bank with a social mandate to spur countryside development. It operates under the following guiding principles: to be a catalyst for countryside development and poverty alleviation; to maintain a commitment towards the development of cooperative systems; to encourage sustainability through cross-subsidy operations (commercial banking profits supporting agrarian operations); to be a self-reliant government institution with no budgetary support; and, to have a complete commitment towards environmental protection and sustainability.
Private Sector Banks
Notable for its alliance with Agumil’s contract farming scheme is the First Consolidated Bank, a private sector bank, that promoted a number of Agumil’s outgrowers with financing to cover the costs of planting and caring for the Palm oil seedlings for the first five years before the farmers begin to realise profits.
The mill’s capacity far exceeded the limited production of FFBs that could be produced
on Agumil’s 1,800-hectare plantation. A decision was made, therefore, to establish an
outgrower farming scheme of 3,500 hectares to ensure the economic efficiency of the
mill.47 In anticipation of this event, Agumil’s first outgrower planted 14 hectares of oil
47 As of November 2004, Agumil’s outgrower program consisted of 405 individual farmers.
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palm seedlings in June 1996. Between October 1999 and February 2000, a further 301
hectares were added to their outgrower scheme followed by a planting of a further 1,442
hectares before February 2003 in Agusan del Sur alone. In mid 1997, there was a
breakthrough in Central Cotabato oil palm industry when Agumil, with the assistance of
the Department of Trade and Industry (DTI) – Sultan Kudarat, succeeded in establishing
marketing arrangements under contract with a number of local oil palm growers. As a
result, a regular oil palm purchasing and transporting operation was institutionalized
(Central Cotabato Peace and Development Council, 1999). From April 2000 to May
2003, Agumil contracted outgrowers in adjacent provinces to plant another 480
hectares. By October 2003, Agumil had more than 2,300 hectares under outgrower
contracts providing additional FFB to their mill at Manat, Agusan del Sur.
Table 5.1 provides an overview of the three largest - established and producing – oil
palm estates in the Philippines at present. With the advent of the large plantings in
Bohol and the proposed plantings in Palawan, the Philippines can move towards self-
sufficiency in palm oil production. However, one issue that stands in the way to a more
established industry in the Philippines is the question of land access.
Table 5.1 Philippine Oil Palm Estates (2003-2004)
Estate Size
Outgrower
(OG)
Name
Location
Year
Started (Hectares)
Crude Palm Oil
(MT)
Palm Kernel Oil
(MT)
KENRAM
Sultan Kudarat, Mindanao
1967
1,600
3,000 (OG)
10,683
n/a
FPPI
Agusan del Sur, Mindanao
1981
7,280
253 (OG)
25,217
6,975
AGUMIL
Agusan del Sur, Mindanao
1983
1,800
1,821 (OG)
9,300
2,400
Palm Kernels
5.2.5 THE FUTURE OF THE OIL PALM IN THE PHILIPPINES
The late 1990s have seen an increased level of activity in the palm oil industry in the
Philippines. In 1994, a small plantation (350 hectares) was established near Trento,
Agusan del Sur, in collaboration with Agumil and close to their mill at Manat in the
south of the Province. In 1999, a 440-hectare Agrarian Reform cooperative signed two
management contracts (220 hectares each) for Agumil to act directly as managers of the
cooperative’s holdings under the direction of a Board of Directors (Narciso, 2003). The
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1990s also saw the initiation of a plan to establish a 10,000-hectare plantation in Lanao
del Norte Province with funding from Malaysian investors. The investment
commenced in 1999 with the planting of 500 hectares (Government of the Philippines,
2000b). The Lanao del Norte investment, however, has experienced ongoing disputes
over land allocation and land title with local political and tribal leaders. Local villagers
and their leaders were not consulted over the developmental plans to establish the oil
palm plantation in their tribal area and the actual ownership of the tribal land was under
some doubt.
Table 5.2 indicates the provinces with potential for further development of the oil palm.
In 2001, further outgrower planting of oil palm seedlings took place throughout most
provinces in Mindanao (Bahala, 2004). In mid-1997, the Central Mindanao (Region
XII – Central Mindanao) palm oil industry received a boost when the Philippine
Department of Trade and Industry (DTI) in the Province of Sultan Kudarat assisted in
the negotiation of a commercial liaison between local palm oil growers and Agumil
(Government of the Philippines, 2003a). The agreement resulted in an organised
collection of Fresh Fruit Bunches (FFB) in the Sultan Kudarat for transport to Agumil’s
mill at Manat in Agusan del Sur. Discussions concerning the enhanced development of
the industry in Sultan Kudarat have included the future construction of a processing mill
once sufficient quantities of FFB justify such an investment (Chang, 2004).48
The future of the oil palm in Central Mindanao (see Figure 5.1) was further enhanced
when the Philippine Industrial Crops Research Institute (PICRI), located at the
University of Southern Mindanao, together with Agumil and the Cotabato Peace and
Development Council (CCPDC)49 entered into a collaboration in 1999 to rapidly
expand palm oil producing areas in Region XII (Callano, 2004).
In 2001, Agusan Plantations commenced operations of a new estate, named Palm
Incorporated (Bohol), on the provincial island of Bohol in the Eastern Visayas (Region
VII). By January 2005, 4,700 hectares of trees have been planted with plans to
complete the planting of 6,700 hectares by the end of 2005. The eventual planned
hectarage on the island by Palm Incorporated (Bohol) is 10-15,000 hectares. This 48 Mr C.K. Chang is the CEO and Managing Director of Agumil Philippines Inc, Agusan Plantations Inc and Palm (Bohol) Inc. He was interviewed on February 15th, 2004. Subsequent discussions were held with him in early 2005 regarding their expansion plans in Mindanao, Bohol and Palawan. 49 The CCPDC is a grouping of like-minded government and non-governmental organisations dedicated to the furtherance of peace and development in Region XII – Central Mindanao.
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hectarage is needed to ensure the economic efficiency of the 30 MT per hour processing
mill presently being constructed on the island. As of January 2005, construction of the
mill was 60 per cent complete. Agumil is also proceeding with its plans to establish a
20-30,000 hectare estate on the Island of Palawan (Region IV) in the Western
Philippines (Zonio, 2004; Chang, 2005). Figure 5.3 indicates the location of these two
areas within the Philippines.
Table 5.2 Land Available for Palm Oil
Development in the Philippines50
REGION/PROVINCE HECTARES Region IVB – Mimaropa
Palawan 70,000 Region VII – Central Visayas
Bohol 1,750 Region IX – Western Mindanao
Zamboanga del Norte 7,530 Zamboanga del Sur 31,430
Region X – Northern Mindanao Bukidnon 65,090 Misamis Occidental 10,370 Misamis Oriental 1,440 Lanao del Norte 830
Region XI – Southern Mindanao Compostela 2,070 Davao del Sur 6,220
Region XII – Central Mindanao South Cotabato 17,000 Cotabato 1,180 Sultan Kudarat 5,630
Region XIII – Caraga Agusan del Norte 10,370 Agusan del Sur 7,490 Surigao del Norte 31,360 Surigao del Sur 93,790
ARMM Maguindanao 9,270 Lanao del Sur 3,280
TOTAL HECTARES AVAILABLE 376,100 (Source: Government of the Philippines, 2002; Bahala, 2003)
50 The availability of land suitable (climate, soils, terrain, etc.) for the cultivation of oil Palm in the Philippines was based upon a study commissioned in 2002 by the Department of Agriculture and the Coconut Development Authority, the government agency responsible for the oil Palm in the Philippines.
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Figure 5.3 Administrative Regions of the Philippines
Agusan del Sur
N
Palawan
Bohol
(Source: Adapted from Government of the Philippines, 2005)
In 1997, there were 15,000 hectares of aging oil palms in Mindanao but by 2003, this
number increased to 21, 232 hectares (Bahala, 2004; Callano, 2004). A concerted effort
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by the companies involved is required to replant these senile palms. With the advent of
the Bohol oil palm plantings, however, there is now a total of over 25,000 hectares
dedicated to the oil palm in the Philippines (Bahala, 2004). Table 5.3 indicates their
dispersal by regions (see Figure 5.1 and Figure 5.3 to locate the administrative regions
referred to). Of this overall total number of hectares, 52 per cent are due for replanting
as they have reached their maturity in terms of both their productive yield and the ease
of access for harvesting the FFBs as the trees are now more than 30 metres tall. The
percentage of palm oil plantings located in Mindanao is high (82%) because it has
suitable climatic conditions and the absence of typhoons. Within Mindanao itself, the
largest area of palm oil plantings remains in Region XIII – Caraga, with 13, 500
hectares or 53 per cent of the total (Bahala, 2004).
Table 5.3 Oil Palm Plantings the Philippines (2003)
Region
Number
Region
Name
Number
of Hectares
Percent
of the Total
IVB Palawan 0.00 0.00
VI Western Visayas 0.00 0.00
VII Central Visayas 3,994.1551 15.83
IX Western Mindanao 0.00 0.00
X Northern Mindanao 190.00 0.77
XI Southern Mindanao 217.38 0.86
XII Central Mindanao 6,776.81 26.82
XIII CARAGA 13,461.72 53.36
XIV ARMM 596.89 2.36
TOTAL 25,226.95 100.00
(Source: Bahala, 2004)
This section has outlined the development of the oil palm in the Philippines and from its
onset the government of the Philippines has had little, if any, significant role in the
development of the industry (Dy and Chau, 1990; Government of the Philippines,
2003a; Callano, 2004). While the CARP had a major impact on the plantation economy
in Mindanao, its effect on the oil palm industry has been minimal (Chang, 2005; Cinco,
2005). In the case of FPPI and Agumil, the nucleus estate lands were leased and the
51 Region VII includes the island of Bohol where an Agumil subsidiary, Palm Incorporated, is located. As of January 2005, there were 4,700 hectares of Palm oils planted with plans for the planting of a further 2,000 hectares by the end of 2005, for a total of 6,700 hectares.
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redistribution of lands that took place simply meant that the rental payments went to
different parties but production on the estates carried on as before. Kenram Industrial
Development Incorporated, however, was in another situation altogether as it actually
owned their estate lands for over fifty years. The principle owner, Juan Garcia Jr.,
decided shortly after the implementation of CARP to turn Kenram’s land over to CARP
for redistribution to their workers (Government of the Philippines, 2002). This took
place in 1988 but it was not until July 2002 the actual land title was passed on to
KARBEMPCO (Philippines Information Agency, 2002). The principal impact of
CARP on the oil palm industry in Mindanao was that it forced the three oil palm
processors to plan and implement outgrower schemes to increase the supply of FFB for
their mills that were performing well under capacity (Central Cotabato Peace and
Development Council, 1999; Government of the Philippines, 2003a; Bahala, 2004;
Callano, 2004).
5.3 Ghana
According to the World Bank (2004a), Ghana is one of the few countries in Africa that
has sufficient economic potential and a strong enough social capital base to set it apart
from other countries in sub-Saharan Africa. Since 1992, successive elected
governments have exerted efforts to work closely with Ghana’s strong social
institutions, including traditional authorities and civil society organisations as well as
the private sector, in order to foster development, particularly in rural areas. Unlike the
situation in the Philippines, the oil palm industry in Ghana has attracted considerable
government support since the 1960s. Following independence in 1957, there was
recognition that the oil palm industry had considerable potential, not only in terms of
national economic development but also from the perspective of agricultural
development. Much of the initial investment structure was state-oriented and far from
successful, with a number of commentators suggesting that this was largely the result of
a preference for socialised production under the aegis of state farms (see for example,
Sofranko et al., 1976).
Over the years, the oil palm industry has gradually been liberalised in line with the
broader principles of neoliberalism. This is in line with current developmental thinking
that argues that the strengthening of the role of industrial and commercial enterprises is
an important aid to private sector development (Samuel, 1990). Indeed, Ghana was one
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of the first of the sub-Saharan African countries to pursue economic growth and
development through liberalisation and the privatisation of state firms (White and
Bhatia, 1998). During the 1990s, Ghana succeeded in dismantling and eliminating most
of the controls and distortions in its economy and now pursues an outward-oriented
development strategy with a reduced role for the state in directly productive economic
activities (Jebuni, 1995). While there certainly may be serious limitations to the market
liberalisation strategy, over the past decade, privatisation and the establishment of
contract farming systems have proceeded at a rapid pace in their agricultural economy.
This is particularly evident in the case of the oil palm industry that has experienced the
full privatisation of the state-owned or parastatal plantations established in the 1970s.
Plans being developed by government, under their oil palm initiative, call for a rapid
expansion of contract farming schemes in conjunction with a further expansion of the
industry (White and Bhatia, 1998). This will have significant implications not only for
the nature of the oil palm industry in the country, but also for local farming systems and
agricultural development.
Oil palm and the by-products from the oil palm itself are interwoven into the socio-
economic and religious fabric of Southern Ghana. For Ghana and the Ghanaians,
therefore, this is not just a cash export crop to meet the growing demands of the world
economy but rather an important part of local and regional economies of West Africa
(Poku, 2002b). Ghana is becoming a growing exporter of palm oil and, particularly,
organic palm oil from the GOPDC and other nucleus-outgrower schemes that are
becoming revitalised under private sector management in Ghana. The next section will
give some details of the early history of the oil palm in Ghana, followed by a brief
expose on the four largest producers in Ghana.
5.3.1 EARLY HISTORY
The Dutch were the first to try to introduce the plantation system on the coast of Ghana
in the early eighteenth century. Other plantations followed in the late 1800s and in the
early 20th century, but the plantation system failed to gain any significant acceptance
due in part to inter-tribal conflicts, inter-colonial interests over territorial expansion and
acquisition, and due to the negative attitude towards the plantation system by the British
colonial management system. In this regard, Gyasi pointed out that (1996:373):
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It appears that, despite pressure by external private commercial interests, plantations were not very much favoured by the dominant British colonial administration. This was partly because of the fear that, by dispossessing the owners of the land, the extensive land acquisitions necessary for the plantations would alienate the peasants, seriously disrupt their export production system, and precipitate local opposition ….
The British also felt that the traditional farming systems were more economically
resilient than the large plantations. As such, plantations did not make much impact on
the environment and agricultural production during the colonial era in Ghana (Gyasi,
1996). In spite of the British Colonial Office’s high regard for the traditional farming
systems, exacerbated by growing population and the associated growing demand for
palm oil, Ghana’s production of palm oil fell far short of expectations. To a certain
extent, production was also hampered by depressed prices in the 1920s and 1930s while
coffee and cocoa were both experiencing relative success as cash crops. By the time
Ghana gained its independence in 1957, palm oil had all but disappeared from their
export inventory. Production could not even meet domestic demand (Daddieh, 1994).
In the years immediately following independence in 1957, Ghana remained over-
dependent on cocoa exports to generate state revenues (Daddieh, 1994). There was also
ongoing demand for a dwindling supply of palm oil, particularly in the coastal and
forestlands of Southern Ghana where it formed an important part of the local diet. The
difficulty facing Ghana was that palm oil needed to be imported, even though it had to
compete for scarce state resources with other essential imports and developmental
requirements. Ghana’s efforts to initiate renewed interest in the planting the oil palm as
a cash crop was, however, far from successful. Daddieh (1994:193), in a historical
comparison of state-sponsored palm oil development in Ghana and Cote d’Ivoire, noted
that “ … while palm oil agribusiness and associated contract farming were pursued with
evangelical zeal in Cote d’Ivoire, the Ghanaian demarche proved to be comparatively
schizophrenic and extremely modest.”. In fact, Cote d’Ivoire undertook a focused
program to develop their palm oil industry in 1961 and by 1984 had 100,000 hectares
under cultivation. Total industrial output had reached 158,632 metric tons of palm oil
by 1984, representing a twenty five-fold increase since independence (Cote d'Ivoire,
1984).
In Ghana, on the other hand, agriculture policy vacillated from creating a “public sector
peasantry” to an “agrarian bourgeoisie” but overall the government displayed a
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preference for socialised agricultural production on state owned farms (Daddieh,
1994:194). Gyasi (1996:373) noted that, “… mainly because of capital constraints,
political interference, poor planning, mismanagement and the rigidity of the centralised
state control system, these state-owned farms did not prove economically viable.” As a
result, there was no significant increase in oil palm hectarage and, in the 1960s, while
Cote d’Ivoire was aggressively closing the gap between domestic supply and demand;
Ghana’s gap was in fact widening (Daddieh, 1994).
In 1972, there was yet another policy shift when the military under General
Acheampong seized control of government and shifted its agricultural focus to large-
scale private investment in plantation agriculture. Despite recognising the economic
and social benefits of traditional small-scale farming, the government “…insisted that
contracting be made an integral part of any agri-business operation …” under the new
schemes that were eventually to be supported with loans from International Financial
Institutions (Daddieh, 1994:196). The government-sponsored schemes called for the
private sector to provide financial support and technical services to either smallholder or
outgrower farmers adjacent to the plantations.52 These new plantation schemes
proposed by the Government would eventually be supported with loans from
international financial institutions.
The development of large palm oil agri-business in Ghana was, as in the case of Cote
d’Ivoire, therefore the result of a combined effort of the private sector, the state and
international capital from development agencies such as the European Development
Bank, the World Bank and the African Development Bank (World Bank, 1981; World
Bank, 1993). The first such large enterprise in Ghana, the Ghana Oil Palm
Development Corporation (GOPDC), was a US $22.5M project in the Eastern Region
of Ghana. Government during the 1970s also established three other large estates: the
Twifo Oil Palm Plantation (TOPP), located near Twifo Praso in the Central Region; the
Benso Oil Palm Plantation (BOPP) near Benso in the Western Region; and, the National
Oil Palm Plantation (NORPALM) in the Western Region. The establishment of these
four estates contributed significantly towards the expansion of Ghana’s oil palm
hectarage from 18,000 hectares in 1970 to 103,000 hectares by 1990 (Gyasi, 1996).
Table 5.4 indicates the four largest oil palm plantations in Ghana, their size and their 52 In Ghana, it is necessary to distinguish between smallholders who are contracted tenant farmers on the nucleus plantation estate and outgrowers who are farmers who rent or own their own land outside the confines of the estate.
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contingent outgrower and smallholder numbers. Figure 5.4 shows their approximate
juxtaposition to each other in Ghana.
Table 5.4 Ghanaian Oil Palm Estates (2004)
Estate Size
Outgrower (OG)
Smallholder (SH)
Name
Location
Year
Started
(Hectares)
Crude Palm Oil
(MT)
Palm
Kernel Oil (MT)
GOPDC
Kwae, Eastern Region
1975
5,315
1,450 (SH)
12,659 (OG)
26,164 (2004)
1,536 (2004)
BOPP
Benso, Western Region
1976
4,507
1,650 (SH)
17,260
Palm Kernel
4,515
TOPP Twifo, Central Region
1978
4,240
1,650 (OG) 1,018 (SH)
19,003
Palm Kernel
5,989
NORPALM Prestea, Western Region
1983
4,478
0 (OG) 30 (SH)
5,150
Palm Kernel
3,200 Figure 5.4 Oil Palm Estates in Ghana
(Source: University of Texas, 2005)
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The results of the state’s foray into oil palm plantation agriculture turned out to be
modest, in part because the state did not have access to land for the estates and had to
resort to expropriation. As Daddieh (1994:197) pointed out:
The Ghanaian state did not have the luxury of making use of land already expropriated from peasant households by the erstwhile colonial state. It …has been resisted each step of the way by lawyers representing the Chiefs and families of affected villages. On the occasions when it did prevail, it incurred considerable costs, legal delays in implementing projects, violent reactions by landowners, and high compensation bills. The State’s projected image as an ally of the peasants was tarnished, and its legitimacy was called into question.
5.3.2 THE GHANA OIL PALM DEVELOPMENT CORPORATION (GOPDC)
The GOPDC was the first notable plantation established in Ghana. It is located aside
the village of Kwae, near the city of Kade, in the Eastern Region of Ghana, 130
kilometres from the capital, Accra. Phase I of the GOPDC project (US $22.5M) was
primarily made possible through a concessional development loan ($13.6M) from the
International Development Association (IDA) in 1975 (Inkumsah, 2004). The
Government was responsible for providing the remaining US $8.9M. The investment
was expected to produce an annual income of US $17M at peak production of the palms
(years 8 to 15) and to generate foreign exchange savings of US $5M annually (World
Bank, 1993).
The birth of the GOPDC in 1975 was a difficult one, fraught with court challenges to
the government’s expropriation of land for the nucleus estate. Of the 8,000 hectares
originally expropriated by government for the nucleus estate, only 6,343 hectares (5,143
on the estate proper plus 1,200-hectare tenant smallholdings) has been developed. The
balance continues to be tied up in legal land disputes, 30 years after the establishment of
GOPDC. The first hectares were not planted until two years after the establishment of
the plantation in 1975, due to legal proceedings, and the first FFB were harvested in late
1982 (World Bank, 1993; Daddieh, 1994). Figure 5.5 shows the estate’s landholdings
and the plantings of seedlings in the years between 1977 and 2000.
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Figure 5.5 GOPDC Nucleus-Estate, Kwaebibirem, Eastern Region, Ghana
(Source: Ghana Oil Palm Development Corporation, 2004)
The December 1982 deadline for the completion of Phase I of the IDA-supported
project at GOPDC reached its target with 5,143 hectares against the project goal of
5,200 hectares. This amount included 1,200 hectares of oil palms cultivated by
outgrowers and/or smallholders (World Bank, 1982).53 The US $13.6M IDA grant was
used for the following: the establishment and operation of a 4,047-hectare estate, and
carrying out of field trials with oil palms; the provision of technical services and credit
facilities to assist smallholders develop 3,000 acres of outgrower holdings; the
construction and operation of a 10 ton/hour palm oil mill, and the establishment of a
fruit collection system for outgrowers; the training of personnel; the construction of 10
miles of road in project area; and the provision of technical assistance to the
53 Cyril Kofie Daddieh does not discriminate between outgrowers and smallholders. However, the two entities are not equal as the smallholders have access to estate lands for which they do not pay rent while the vast majority of the outgrowers who are under contract to GOPDC are tenant farmers who pay their landlords 1/3 of their income under the terms of the tri-partite contractual agreements used by GOPDC.
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Agricultural Development Bank. The project was approved in February 1975 and was
closed in June 1984 (World Bank, 1993).
The first phase of the project was followed with a second phase project (US $24.1M
IDA grant in June 1984), intended to consolidate the gains of the Phase I development
of the nucleus plantation and smallholder/outgrower plantings. The World Bank
evaluation report (1982:np) stipulated that:
There were no unusual technical project risks, and implementation problems are expected to be minimal since the project will be based on the institutions and experience of Phase I. However, the project faces risks related to: (a) the high rate of domestic inflation that, if it continues, could lead to cost over-runs, and (b) the availability of foreign exchange to meet recurrent costs of imported farm inputs. However, in view of satisfactory experience with the Government's contributions under Phase I, and assuming continued efforts by the Government at containing inflation, these risks are significantly reduced.
Phase II was expected to increase palm oil production through an additional 2,500 ha of
outgrower plantings. The main components included: vehicles, equipment, and housing
for nucleus estate and oil mill employees; inputs, extension services, and credit to
smallholders/outgrowers; consultant services; training; and development of an oil palm
research program. The mill’s capacity was increased from 10 MT/hour to 30 MT/hour
during Phase II. The project was closed in December 1993.
Total production of FFB in 1985 was 17,560 MT of which 10,000 MT came from the
estate itself and 1,556 came from the estate smallholders and only 528 MT came from
the outgrowers (GOPDC, 1986). Daddieh (1994:200) reported that, by 1986, 320
peasant households were participating in the contract but that their production levels
(FFBs) lagged well behind those at the nucleus estate. By 1998, however, the
outgrowers and smallholders, cultivating a total of 6,616 hectares of oil palm, were
contributing 52 per cent of the production processed at the mill, 45,889 MT of FFB
(Addo, 2000:12).
In spite of its apparent progress, GOPDC suffered from some of the reasons that led to
its establishment. First, due to the government’s heavy involvement in the agricultural
sectors, the project was seen from the start as a social engineering project and not a
business venture per se. Second, while the anger aroused by the government’s land
appropriation was partly assuaged by the creation of the smallholder plots that were
provided to local residents rent-free, local residents never really forgave the government
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or GOPDC. Throughout the entire expropriation process, lawyers representing the
Chiefs and families of affected villages resisted the government. While the government
prevailed, it incurred considerable costs, legal delays, violent reactions by landowners,
and high compensation bills (Daddieh, 1994). Not only was the government’s image as
an ally of peasants tarnished, its very legitimacy was even called into question. As
noted above, nearly 1,700 hectares of the original GOPDC estate expropriated by
government for the nucleus estate were never developed (World Bank, 2003). All of
this resulted in the scheme being beset, from the very start, with labour unrest on the
plantation itself, agitation over the land expropriation from external sources, and
possibly, unrealistic demands from the organisations representing both the smallholders
and the outgrowers (Aeschliman, 2001; Poku, 2004).
In 1995, GOPDC was privatised under the Ghanaian government’s divestiture program.
The privatisation reflected the emerging neo-liberal development paradigm that
transformed the role of the state throughout much of Africa. Encouraged by
international aid agencies, the Ghanaian government began to sell state-owned firms,
particularly those that had the potential to contribute to export income, economic
growth and development. GOPDC was purchased by SIAT (Ghana) Ltd. (80%), with
the government retaining a 20 per cent shareholding. SIAT (Ghana) itself is owned by
SIAT Belgium (51%), the Social Security and National Insurance Trust, a Ghanaian
parastatal (30%), and a private financial institution, The African Tiger Mutual Fund
(19%). The management contract is held by SIAT (Belgium) which, by 2004,
employed 300 permanent workers and 1600 contract workers as part of the GOPDC
operation.
The original mill at GOPDC under Phase I IDA funding was a 10 MT of FFB per hour
unit but by the end of Phase II, the mill’s capacity had been expanded to 30 MT/hour.
Under private ownership, the mill has been upgraded twice – first to 45 MT/hour and
finally to its present capacity of 60 MT of FFB per hour (Plate 5.1). Under SIAT
management, further efforts have been made to modernise the mill, the plantation and
the outgrower systems. Since 1995, the privatised company has made the following
improvements (Inkumsah, 2004):
• The storage capacity was increased (1995) with the addition of a new 6,000 MT storage tank at Tema Port near Accra;
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• The expansion and modernisation of the oil palm seedling nursery to 10 hectares and the installation of a drip irrigation system (Plate 5.2);
• The construction of a new office building; • The development of new outgrower accounting and payment systems
software; • The installation of a kernel cracker; and, • The construction of a 45 MT/Day palm kernel oil crushing plant in 1999
for the production of Palm Kernel Oil (PKO).
Plate 5.1 60 MT/hour Mill at GOPDC, Ghana
(Source: Paul Huddleston, 2004) Plate 5.2 Expanded and Irrigated Nursery at GOPDC, Ghana
(Source: Paul Huddleston, 2004)
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Finally, following the approval of an African Development Bank (AfDB) US $7 M loan
in 2003/4, the GOPDC commenced construction of a 100 MT/Day crude palm oil
(CPO) refinery and fractionation plant at their Kwae estate.54 The refinery is expected
to be completed by December 2006 (Inkumsah, 2004). Part of the AfDB loan funds
will be used to purchase a new environmentally-friendly boiler system that will utilise
waste products from the milling process. This 30 MT per hour superheated steam waste
fired boiler will give GOPDC the possibility to produce steam and electricity
throughout the year, even during the lean season. GOPDC is also presently developing
a new generation of its software, Enterprise Resource Planning (ERP), to network
information from the mill, the plantation, outgrower accounts, financial accounts and
stores to coordinate the various departments of the company (Inkumsah, 2004).
In 2002, GOPDC purchased a nearby abandoned former State Oil Palm Plantation
(SOPP) – the 5,080-hectare Okumaning Estate from the Government of Ghana.55 Four
thousand hectares of this former SOPP estate, a short drive from the GOPDC’s present
operations, will form a new nucleus estate, 580 hectares will be leased out to tenant
smallholders and the remaining 500 hectares will be used for biodiversity experimental
plots. 630 hectares of oil palms were planted in 2002, 518 hectares in 2003 and 400
hectares in 2004 for a total of 1,548 hectares by the end of 2004 (Plate 5.3). One
thousand further hectares were planned for development in 2005 (Inkumsah, 2004).
Plate 5.3 GOPDC Estate at Okumaning, Ghana
(Source: Paul Huddleston, 2004)
54 The refinery/fractionation plant will produce RBDO (Refined Bleached Deodorised oil), Olein and Stearin. 55 The government of Ghana under its Governmental Holdings Divestiture Program in 2002 divested Okumaning.
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The two IDA-assisted projects turned out to be conservative in their expectations of
outgrower participation. Phase II of the project called for the development of an
additional 2,500 hectares of outgrower farms. Added to the 1,200 hectares developed
under Phase I, the two phases of the project were expected, therefore, to provide for the
development of 3,700 hectares of outgrower and smallholder farming plots by the end
of the project in 1993. At the time GOPDC was privatised in 1995, however,
outgrowers were cultivating 11,600 hectares of oil palm and smallholders were farming
oil palms on 1,000 hectares of estate lands.
By December 2004, over 6,000 smallholders and outgrowers produced 72,000 MTs of
FFBs under contract for the GOPDC. With the ongoing development at Okumaning,
GOPDC has presently suspended its outgrower recruitment program due to a shortage
of seedlings. However, on a case-by-case basis, existing outgrowers who meet their
annual FFB delivery targets are provided support to develop additional oil palm plots
under contract (Inkumsah, 2004). Outgrower lands represent the majority of the area
planted with oil palm at Kwae. As Table 5.5 indicates, these outgrowers, farming
1,772,255 oil palm trees under 6,613 contracts, produce FFB for GOPDC on 12,659
hectares of land. In addition to this, 435 smallholders now cultivate 1,450 hectares of
oil palms on estate lands provided for smallholders. In total, the two groups cultivate
1,975,274 oil palms on 14,109 hectares under 7,048 contracts with GOPDC.
Table 5.5 GOPDC Outgrowers and Smallholders (2004)
GOPDC DISTRICT OG CONTRACTS TREES HECTARESABAAM 318 87,812 627.19ADWAFO 393 106,806 762.92AFOSU 394 110,130 786.72AKAWANI 898 221,824 1,584.52AKOKOASO 572 159,231 1,137.32ASUOM 802 229,747 1,640.51KWAE 859 212,678 1,519.25NEW ABIREM 440 118,275 844.89NKWATENG 636 157,708 1,126.49OFOASI 436 108,621 775.76OLD ABIREM 332 93,958 671.16OTUMI 533 165,465 1,181.89
TOTAL OUTGROWERS 6613 1,772,255 12,658.62SMALLHOLDERS 435 203,019 1,450.16
GRAND TOTALS 7048 1,975,274 14,108.78
(Source: GOPDC Data, August 2004)
All outgrower land lies within a radius of 30 km from the GOPDC nucleus estate and
processing facility, a circumferential area deemed to be viable for the transport of the
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FFB to the mill by GOPDC management (Inkumsah, 2004). GOPDC operates 33
collection points within this catchment area to facilitate the timely collection of the FFB
crop of the outgrower farmers. Every centre is responsible for the collection of the
harvest of an average of 160 outgrowers each. The outgrowers themselves are
responsible for getting their FFB to the collection points, although GOPDC does have a
listing of certified private firms that farmers can hire to transport their crop to the
collection points. Through the construction and maintenance of an extensive road
network (about 500 km in total) GOPDC has opened up the entire area to make
individual farms more accessible. Estate trucks collect the containers daily from the
collection points for processing at the mill (Kemeh-Mensah, 2004).
GOPDC has built a useful geographic information system with an inventory of all
contracted oil palm farms in the area. Based upon this data, GOPDC has divided the
outgrower area into twelve districts (see Table 5.5), each served by at least one
extension agent. Figure 5.6 shows the locations of the twelve districts and their
proximity to the nucleus estate. Figure 5.7 graphically shows the number of hectares
per district and Figure 5.8 indicates the number of outgrower contracts serviced by
extension staff in each district. An outgrower tracking system, especially developed for
the program, allows management to monitor the productivity at the individual plot or
contract level and to trace all fruit shipments that arrive at the GOPDC mill. Linked
with the farmers' accounts, it is a powerful management tool for the traceability and
follow-up of each individual farm. Amongst other things, the enhanced system has
ensured the timely collection of outgrowers FFB and the payment of the outgrowers for
their FFB within three (3) days of their delivery, avoiding two of the key irritants
present under the previous management of GOPDC by government.
Despite the improvements that the private sector has brought to bear at the nucleus-
estate, increases in outgrower shipments of FFB have outstripped those of both the
estate itself and the smallholders (Table 5.6). This means one of three things: there
have been vast productivity gains made by the outgrowers themselves; that additional
outgrower contracts were added after privatisation; or, that the plantation nucleus-estate
and the smallholders were already producing at capacity. In fact, the truth lies within all
three possibilities. Certainly, the outgrowers are much more comfortable with their
relationship with GOPDC now than they were in, say, 1994 (Daddieh, 1994; Addo,
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2000; Aeschliman, 2001; Poku, 2004).56 As noted above, the timely payment of the
outgrowers for their deliveries of FFB has gone along way to placating their feelings of
being abused by the estate. This together with the use of world market prices, coupled
with payment for fruit quality, has led to an overall improvement in the relationship
between outgrower and mill.57 Inkumsah (2004), however, indicated to the researcher
that a lot more could be done by GOPDC to improve their communication with the
outgrowers, particularly on how prices for the outgrower’s FFBs are set.
Figure 5.6 GOPDC Outgrower Districts
Metres
(Source: Ghana Oil Palm Development Company (GOPDC), 2004)
56 During the researcher’s interviews with outgrowers in August and September 2004, no farmer expressed displeasure with their relationship with the privatised GOPDC. However, many did express concerns about the government-owned GOPDC prior to 1995. 57 Previously the price paid by the processors in Ghana was set by the industry’s own organisation, The Ghana Oil Palm Development Association, but the prices paid to farmers presently is based upon world market prices with variations due to quality factors.
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Figure 5.7 GOPDC Outgrower Hectares by District (2004)
0.00 500.00 1,000.00 1,500.00 2,000.00
Hectares
ABAAM
ADWAFO
AFOSU
AKAWANI
AKOKOASO
ASUOM
KWAE
NEW ABIREM
NKWATENG
OFOASI
OLD ABIREM
OUTMI
GO
PDC
Dis
tric
ts
(Source: GOPDC Data, 2004) Figure 5.8 GOPDC Outgrower Contracts by District (2004)
318
393
394
898
572
802
859
440
636
436
332
533
0 200 400 600 800 1000
OG Contracts
ABAAM
ADWAFO
AFOSU
AKAWANI
AKOKOASO
ASUOM
KWAE
NEW ABIREM
NKWATENG
OFOASI
OLD ABIREM
OUTMI
GO
PDC
Dis
tric
ts
(Source: GOPDC Data, 2004)
5.3.3 BENSO OIL PALM PLANTATION (BOPP)
The Benso Oil Palm Plantation (BOPP), located between Adum-Banso and Benso in the
Wassa Mpohor East District of the Western Region of Ghana, was incorporated in
January 22, 1976 as a limited liability company. At the time of its incorporation, the
ownership of the company was shared mainly between government (40%) and Unilever
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PLC (58.45%). Barclay’s Bank (Ghana) Pension Fund held the remaining 1.55 per
cent. Government announced its plans to divest its 40 per cent share of BOPP in the
early 2000s (Ghansah, 2004). The company was converted into a public limited
liability company on May 7, 2004, just prior to the sale of the government’s share
holdings. A number of issues were immediately raised over whether the government
had ever paid compensation for the land itself or for all of the buildings on farmers’
properties when the land was expropriated in the early 1970s (Ghana News Agency,
2004). Following a number of court representations, the government came to an
agreement on a compensation package for the traditional owners of the area and, finally,
a public share offering of all of the government’s 40 per cent shares (13.92M shares) in
the company was launched on June 16, 2004 at the price of Cedi 5000 (US $0.55) per
share (Addo, 2000; Boateng, 2003).
2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
A. NUCLEUS 42,088 39,841 39,895 44,293 43,671 50,254 50,864 40,822 47,996 36,614
SMALLHOLDERS 7,993 7,676 9,410 11,188 7,347 9,281 10,092 8,375 11,879 6,161
OUTGROWERS 64,050 42,934 41,214 55,422 39,217 43,599 46,350 30,145 35,025 18,632
STATE ORGANISATIONS 0 0 0 0 0 0 0 556 1,143 987
PRIVATE FARMERS 2,127 793 1,108 1,479 864 2 17 314 3,767 3,921
TOTAL 116,259 91,244 91,627 112,382 91,099 103,136 107,323 80,212 99,810 66,315
PROCESSED 116,259 91,545 91,627 112,382 91,099 103,136 107,323 80,212 99,810 66,315
B. PRODUCTION 25,183 19,981 19,452 24,292 20,755 22,193 22,876 18,114 22,850 15,067
EXTRACTION RATE (%) 21.7 21.8 21.2 21.6 22.8 21.5 21.3 22.5 22.9 22.7
OIL SOLD 26,164 17,571 19,549 23,667 21,275 21,760 25,700 17,113 21,858 15,329
C. PRODUCTION 5,014 4,494 4,719 4,703 3,811 3,012 4,615 3,214 3,906 2,567
EXTRACTION RATE (%) 4.3 4.9 5.1 4.2 4.2 2.9 4.3 4.0 3.9 3.9
KERNELS SOLD 0 0 0 0 0 0 286 3,401 3,656 2,567
D. PRODUCTION 1,705 1,467 1,438 1,692 1,425 2,193 0 0 0 0
EXTRACTION RATE (%) 1.8 1.8 1.5 1.5 1.6 1.1 0 0 0 0
PALM KERNEL OIL SOLD 1,536 1,343 1,447 1,718 1,532 2,625 0 0 0 0
(Source: GOPDC Financial Report, December 2003; Supplementary GOPDC Data 2005)
Table 5.6 GOPDC ANNUAL FFB, PALM OIL and KERNEL PRODUCTION (MT)
FFB PRODUCTION
CRUDE PALM OIL
PALM KERNELS
PALM KERNEL OIL
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Roselyn Boateng (2003:n.p.), of Databank Research, noted in her critique of the
company prior to the sale of the government’s shares stated that, “BOPP’s consistent
record of profitability over the years has distinguished it as a blue chip company. This
steady performance has been on the back of an efficient management and a highly
skilled and dedicated workforce.” When the government’s share offering was issued in
2004, Ms. Boateng recommended that Ghanaians buy the stock. It was subsequently
over-subscribed. The posted BOPP share price on February 22, 2005 on the Ghana
Stock Exchange was Cedi 7,150. The company posted a 39 per cent growth rate in
profit after tax from 2003 to 2004 and it is forecasted to increase a further 25 per cent in
2005 (Boateng, 2003).
The original BOPP plantation concession consisted of 6,977 hectares, of which 4,507
hectares were subsequently developed into the nucleus estate. A replanting program
was launched in 1999 to replace mature and senile trees with higher yielding varieties
resulting in a reduction of producing oil palms to 3,700 hectares at that time. Because
of an aggressive replanting program on the estate, the hectarage being harvested
annually has remained at about 3,800 hectares. BOPP does not have an outgrower
program, although they have attempted to establish one a number of times over the
years with no success. Of the original concession for the plantation, 2,030 hectares
were never utilised until 1995 when BOPP developed a smallholder rent free tenant
system on 1,650 hectares of estate lands. The scheme was funded through l’Agence
française de Développement (AFD), and implemented through the Ghana Agricultural
Development Bank. Farmers were selected from the local communities and the scheme
has been reported as being very popular and successful (Addo, 2000). The project
budget covered the cost of farmer’s agricultural inputs, on a loan basis administered by
BOPP. In addition to bearing the costs of administration, BOPP also provided all of the
extension services at no cost to the project (Addo, 2000). BOPP severely enforces the
terms of their contract with their smallholders. For example, if the smallholder does not
circle weed his trees, BOPP will do so but the cost will be charged to the farmer and
recovered from the farmer’s shipments of FFB to the mill. In exceptional cases, BOPP
takes over the total management of the smallholder’s plot. Out of the original
concession, 577 hectares remains undeveloped, most of which is subject to land
disputes or is unsuitable for oil palm cultivation.
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The 20 MT per hour mill, made operational in 1979, processes FFBs from more than
6,000 private farmers in the Western and Central Regions of Ghana in addition to the
FFBs that come from the estate proper.58 The BOPP mill has a designed capacity of 20
MT of FFB per hour and a CPO storage capacity of 4200 MT. During 1998, the mill
was able to process 83,208 MT of FFB and, at an extraction rate of 18.9 per cent,
produced 15,733 MT of CPO. In 1999, 86,535 MT of FFB yielded 16,395 MT of CPO,
an extraction rate of 18.9 per cent. The capacity utilisation of BOPP’s mill in 1998 was
84 per cent (Addo, 2000).
BOPP has medium term plans to expand the mill from 20 MT/hour to 30 MT/hour in
conjunction with the introduction of more modern management and technical practices
at the mill. The present mill, however, is operating well under-capacity so that
increasing production from the estate and the smallholders, as well as the initiation of an
outgrower program would seem to be imperative. The company expects to continue
losing some production due to the ongoing replanting exercise on the estate and,
therefore, output is expected to remain at 45,000 MT/year during the 2004 to 2006
period (Boateng, 2003). The plantation, however, is yielding an acceptable 13.8 MT
per hectare (Addo, 2000). BOPP has a more even cropping pattern like Malaysia’s – 60
per cent of the production is harvested in the first six months and 40 per cent in the
second six months (Ghansah, 2004).
5.3.4 TWIFO OIL PALM PLANTATION (TOPP)
The Twifo Oil Palm Plantation (TOPP) was established in 1978 with developmental
assistance from l’Agence Française de Développement (AFD) and the European Union.
At its onset, it was owned 80 per cent by government and 20 per cent by Mobil Oil
(Ghana) Ltd. The nucleus estate developed a small outgrower program of 1,650
hectares, but they continued to experience significant financial and management
difficulties with their operation. The original plantation was composed of 14,000
expropriated hectares but it was never fully developed due to land disputes that continue
up until the present time. When the estate was privatised in 1998, 6,700 hectares were
transferred to the new private sector business. Of this hectarage, 4,232 hectares are
presently planted in oil palm. The remaining 2,468 hectares is under tenurial dispute
58 Private farmers refers to farmers who, while producing oil Palm for sale to the nucleus estate, are not under contract to the estate and are free to sell their FFB to any purchaser.
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preventing the company from bringing it into production (Ghansah, 2004). The
ownership of TOPP at present is as follows: UniLever (40%); PZ Cussons (Ghana) Pty
Ltd (1.48%); State Insurance Corporation (2.2%); Government (40.46%); and, Private
(15.86%)
In 1983, government developed the Twifo Smallholder Project with EU finding on
1,018 hectares of adjacent government-owned land. The project was to operate as a
farmer ‘cooperative’ that, under TOPP management, would sell their FFB production to
the estate’s mill. The Twifo Smallholder manager reports to the TOPP estate manager,
under a management agreement signed between government and Unilever-TOPP
(Addo, 2000). This management system was designed to prevent the diversion of FFBs
to other mills. TOPP, in return, agreed to provide fertiliser on a loan basis, technical
assistance and a ready market for the cooperative.
The Twifo Smallholder Project was originally established with the objective of
empowering smallholders but little empowerment has actually taken place due to the
project’s design. Under the terms of Ghana’s agreement with European Union, the
actual ownership of the land was retained by the cooperative set up by the project. This
discouraged the enthusiastic participation of selected project (cooperative) smallholder
farmers. The project designers also assumed that the cooperative’s member
smallholders would form the workforce on the oil palm landholdings. The project’s
farmers, however, are not legally required to work for the cooperative and, regardless of
any contribution they do or do not make, as members of the cooperative they receive 70
per cent of any resultant profits. The other 30 per cent of any profit is held by the
cooperative as ‘retained earnings’ or as a cash reserve for an unlimited period. The
majority of the smallholders have lost interest in the project and the smallholders make
little, if any, contribution to the cooperative. The cooperative, therefore, is required to
hire non-cooperative labour to do the weeding and the harvesting of the oil palm,
resulting in an unnecessarily high level of administration costs (Ghansah, 2004).
Ironically, those that do work for the cooperative are paid additional daily wages to
work on the lands of the cooperative in addition to the 70 per cent of the profits that
they receive from the cooperative. The development project has reverted, in essence, to
being a welfare system for the targeted farmers.
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Fraught with these problems, the company has largely abandoned the program. A fire
at their administrative offices burned all of the outgrower records, including
indebtedness by them to the nucleus estate.59 Current estimates indicate that there are
1,650 hectares planted by outgrowers, and while TOPP has a list of the original
outgrowers, they have no information on the location or size of their farms. The second
reason for TOPP’s disillusionment with their outgrower program is the practice of
‘diversion’ that has severely reduced outgrower shipments to the estate’s mill.60
Finally, the continuing land ownership issues confronting the estate’s 6,700 hectares
overflows into neighbouring areas and has affected the validity of most outgrower
contracts (Ghansah, 2004). While understandably disenchanted with their outgrower
program, TOPP is still attempting to revive it, as it is essential to achieving higher
efficiencies at their mill. The TOPP mill is presently capable of processing 45 MT per
hour up from the 30 MT/hour plant initially installed in 1977. When the estate was
purchased in 1998 by Unilever, its present owner, the mill was only working at 20
MT/hour (Ghansah, 2004).
In an effort to resuscitate their outgrower program, TOPP has extension agents staying
in the villages to provide technical assistance and on the job support to their outgrowers
and to private farmers. Routine meetings with farmers are held and inspection visits are
scheduled before payment is done in order to meet certain milestones such as for
weeding or fertiliser application. The extension agents do training orally and visual aids
are not used. In addition, TOPP also sponsors community projects, such as the
construction of public toilets, communal water hand pumps, and schools. Projects of
this nature generate a certain degree of awareness by the people of Unilever’s concern
for the community and encourage them not to divert their FFBs to the local small mills
but rather to the mill at TOPP’s estate.
TOPP also operates a contracted out scheme for the collection of FFBs from the
outgrowers’ farms. These private collection agents deal directly with the farmers on a
20 per cent commission basis. TOPP checks their scales regularly and conducts spot
checks on the amount they pay to the outgrowers. TOPP also imports fertiliser in bulk
for resale to the outgrowers. Presently, the system is operated on a cash and carry basis
59 It was widely suspected that the fire was the result of arson by a group of outgrowers dissatisfied with the contractual arrangements they had made with the nucleus estate but this was never proved. 60 Diversion is the shipment and illegal sale of FFB to local small mills instead of to the estate, in violation of the outgrower contract.
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due to TOPP’s disillusionment with the outgrower scheme but historically it was done
on a loan basis, repayable from FFB sale proceeds. During the lean period, TOPP also
provides gifts in the form of products such as soaps to discourage diversion (Awuku,
2004). Had outgrowers remained loyal to TOPP, it would have exerted more efforts in
fine-tuning the incentives provided to farmers (Ghansah, 2004).
While TOPP no longer manages a pro-active outgrower recruitment program, when a
farmer undertakes land preparation on his/her own initiative, TOPP will construct any
feeder roads that are required and enter into an outgrower contract with the farmer. Soil
sampling is only done on the nucleus estate but not on the outgrower’s plots. It is
assumed that their soil types are suitable for oil palm as their plots are in the general
vicinity of the nucleus estate. Tests for trace and major elements are conducted
annually on the plantation but not at all on the outgrower’s farms.
5.3.5 NORPALM GHANA LTD
The Government abandoned the National Oil Palm Plantation (NOPP), located at
Prestea in the Western Region, and divested it in 2000 to the private sector.
NORPALM ASA (75%) and PZ Cussons (Ghana) Ltd (25%) now own the Plantation.
The estate has been renamed the Norwegian Palm Estate (NORPALM). The new
operators are in the process of replanting the estate and do not have an outgrower
program at present. While no face-to-face interview was held with NORPALM, the
researcher sought information from them electronically.
The estate’s 4,478 hectares consists of 1,700 hectares of producing palms, 1,000
hectares of immature palms planted between 2002 and 2004 and 2,300 hectares of land
yet to be replanted. The new owners have plans to plant 500 hectares of oil palm
seedlings a year. The NORPALM estate has collaborated with the President’s Special
Initiative for oil palm and an outgrower program is planned for the near future. While
not having an outgrower program at present, they procure FFB from 5,000 non-
contracted individual private farmers adjacent to the estate in the Central and Western
Regions.
The NORPALM mill has a processing capacity of 20 MT of FFB per hour and a storage
capacity for CPO of 1000 MT. In 1998, the mill processed 21,438 MT of FFB to
produce 3,405 MT of CPO, an extraction rate of 15.9 per cent. The capacity utilisation
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rate was only 22 per cent in 1998 (Addo, 2000). The 2003 production of CPO reached
5,145 MT, a record for the company. The new owners have invested US $1M to
upgrading and modernising their processing plant, to install three new boilers to
produce steam and electricity and to install a new kernel-cracking unit.
5.3.6 THE FUTURE OF THE OIL PALM IN GHANA
Domestic consumption is increasing due to population growth, continuing urbanisation
and a reasonable rate of economic growth in the country. To respond to domestic
demand, efforts to improve the yields of small private oil palm holdings, outgrowers
and smallholders will have to be multiplied. Improving the efficiency of oil extraction
equipment in Ghana and ensuring greater capacity utilisation is part of this task, as is a
more concerted effort to improve farm yields through the promulgation and distributing
improved varieties of oil palm seedlings.
Presently, the large estates and the medium scale farms covering over 50,000 hectares
are all under improved genetic material. Out of a total of 248,000 hectares of private
holdings, only about 70,000 hectares are planted with improved genetic material.
Ghanaian productivity on its large estates of 11 MT of FFB per hectare is, however,
comparable to their Cote d’Ivoire competitors who have similar climatic conditions
(Addo, 2000). The remaining 178,000 hectares is planted with poor quality untested
genetic materials consisting of illegitimate seedlings, volunteer seedlings, germination
of hybrid seeds and unimproved Dura materials.
The government through the President’s Special Initiative in Oil Palm has devised a
systematic and consistent replanting policy to replace this large hectarage of untested
genetic planting materials. They also wish to increase the number of outgrowers or
business and cooperative ventures producing palm oil in Ghana. Part of this program
will finance the increased production of improved varieties at the Oil Palm Research
Institute (OPRI) at Kusi in the Eastern Region. OPRI's projected seed production for
the period 2000 to 2005 is presented in the Table 5.7. The projected trend is to produce
seed nuts to cover about 8,000 hectares of plantings per annum. This would cater for
the annual replanting of about 4,000 hectares and the creation of new plantations of
about 4,000 hectares. There is some merit in supporting the OPRI to produce all the
required non-estate planting materials for the country locally. This would save foreign
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exchange, provide employment and produce materials that are genetically adapted to the
production environment. It would also eliminate illegitimate private nurseries and
suppliers.
TABLE 5.7 Planned Improved Oil Palm Seed Production at OPRI (2000–2005) 2000 2001 2002 2003 2004 2005
Series 3 Trees 717,500 867,500 927,500 927,500 1,190,000 1,190,000Series 2 Trees 962,000 962,000 962,000 962,000 962,000 962,000Total 1,679,500 1,829,500 1,889,500 1,889,500 2,152,000 2,152,000 IHectares 7,869 8,572 8,572 8,852 10,083 10,080
(Source: Addo, 2000)
The milling equipment on the large estates, when calibrated, maintained and operated
properly can achieve high extraction rates of 20 per cent to 23 per cent that are
comparable to international standards. In addition, these mills are able to produce palm
oil of an exportable quality. However, in the medium-scale mills (1.5 to 5.0 MT of FFB
per hour) extraction rates range from 15 per cent to 18 per cent, lower than the standard
in the industry. This results in a loss of about 2 per cent to 5 per cent of oil that
translates into a notable loss of revenue, given the volume of their output. Addo (2000)
also determined that the processes and the type of equipment used in most of the
medium-sized mills were inefficient and obsolete. For these mills to attain acceptable
output levels standard to the industry, their equipment will have to be replaced and their
milling processes improved particularly in the clarification and quality assurance
processes.
The four big estates in Ghana have now all been privatised and they all are making
strides to improve their overall efficiency, production and profit. In some cases this is
reflected in ambitious replanting programs (BOPP and TOPP) and the retooling of their
plant through either expansion, modernisation or both (NORPALM and GOPDC). In
some cases, however, it has involved a re-focusing or fine-tuning of their smallholder or
outgrower programs (TOPP or GOPDC). In all cases, the government’s new initiatives
in the oil palm industry are attracting their attention. The President’s Special Initiative
in Oil palm Program (PSI-OP) has the objective of encouraging the development of a
system whereby all the land planted with oil palms is managed in such a way that it is
highly productive. The program also supports a more concentrated industry to replace
the scattered nature of existing oil palm production in order to achieve higher
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efficiencies with reduced costs for logistics and farm management (Food and
Agricultural Organisation, 2004).61
The PSI (OP) will develop 5,000 hectares per site, and estimates that this will cost US$
1,500 to develop one hectare, which means US$ 7.5M for each of the eight sites it plans
to develop in its short-term program. Implementation will start at two prototype sites,
with PSI funds62 The FAO agreed to support the PSI-OP program with a Technical
Cooperation Program (TCP) in late 2004. The TCP assistance will concentrate on the
organising and training of farmers, establishing and registering companies and studying
the best approach to implement the expansion of the PSI. These are the areas where the
PSI lacks expertise and resources, where the FAO has a comparative advantage and that
are also the most critical with regard to the sustainability of the PSI project (Food and
Agricultural Organisation, 2004).
The initiative recognises the need for a strong organisation to manage the industry. The
plans call for the creation of a Ghana Oil Palm Board to work in concert with, and not
necessarily replace, the existing Ghana Oil Palm Development Authority (GOPDA).
Such a board would have oversight responsibilities including, but not limited to the
legal framework; regulatory functions; research and development; market intelligence
and information services; advisory services; industrial networking; trade facilitation and
promotion (Poku, 2002b).
The main challenge of the initiative is the establishment of well-functioning private
companies that combine smallholder farmers with a medium-scale processor. This
unique approach has great advantages with regard to efficiency and economy of input
supply, quality assurance, and marketing. At the same time, it will protect and improve
the livelihoods of small farmers and their communities, without disrupting valuable
social structures. This new system will ensure that all the land planted with palms will
61 Ghana has the climatic conditions for the development of a viable oil palm industry to support market opportunities in the EU, the African Region, and Ghana itself. These market opportunities, however, are currently being exploited by products from Asia because of the low level of development of the Ghanaian oil palm industry. In response to the need to supply these markets and to reduce import costs, a initiative for the development of the oil palm industry was announced by H.E. the President of the Republic (PSI), to make the oil palm industry one of the new drivers of economic growth and wealth creation. 62 A number of activities will precede the actual start-up of the program. These will include: the organisation and training of farmers; the establishment and registration of the farmer owned companies; the reallocation of agricultural land; the establishment of operational oil palm mills; making the nurseries operational; and, the development of operational plans on how to implement the rest of the PSI program.
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remain productive and in support of the mill by ensuring economies of scale. In turn,
the scattered nature of existing oil palm farming will be replaced by an operation that
ensures greater efficiency in conjunction with reduced costs for logistics and farm
management (Food and Agricultural Organisation, 2004). If the PSI program is
successfully implemented, it will result in a considerable expansion in the total national
hectarage devoted to oil palm. It will also be instrumental in replacing the majority of
the low yielding ‘Dura’ variety oil palms with the ‘Tenera’ variety.
6.3 Conclusion
The historical development of the oil palm industry in both Ghana and in the
Philippines is important for the understanding of the development of their outgrower
programs. Few if any studies have been undertaken at the industry level and, while it
may be easier in the case of oil palm than in other crops, this is a major failing of
studies elsewhere. There are exceptions to this and Vellema (2002), for example,
offered us a detailed analysis of the cultivation of beans under contract in the
Philippines.
The development of the oil palm industry is quite different in Ghana than it is in the
Philippines. In Ghana, palm oil has been used for thousands of years as an integral part
of the cultural, religious and biological needs of the country and its people. For
Ghanaians, the oil palm is a part of their daily life forming the basis of their cuisine and
social-cultural patterns. In addition to this, the oil palm trees are often felled before
they have reached their useful life to make palm wine, a drink of great importance to the
religious and socio-cultural way of life of the Ghanaian people. Finally, in Ghana,
FFBs are diverted to household or small mills to produce CPO that is used directly, in
its raw form, in the daily food of the people living within the forest and coastal areas of
Ghana.
The Philippines has no history of using palm oil as part of their staple diet. Oil palm is
simply a profitable cash crop that beyond its industrial uses has no special significance
within society and is not directly used by Filipinos for either home consumption or wine
making. Hence, household or small mills in the country are non-existent and
consequently, the practice of diversion of FFB is not a problem faced by mills operating
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in the Philippines. With only three mills in the country, the consequence for outgrowers
of selling their FFB outside their contracts draws immediate attention and penalty.
The large estates in both the Philippines, but more significantly in Ghana, through their
outgrower schemes have created a pool of farmers who have improved their skills in the
cultivation of the oil palm crop. The cultivation practices that these farmers have
learned have been extended to the cultivation of other tree crops that they produce and
that are produced by the labour they engage to assist them in the cultivation of oil
palm.63 Therefore these technologies and cultivation practices have been transferred
into neighbouring farming areas. The large estates with their nucleus and outgrower
systems have developed incentive systems that have encouraged higher labour
productivity. This high labour productivity is having a multiplier effect on the
surrounding private holdings. The earnings of labour on the farms are comparable to
their counterparts in the other sectors of the economy (Addo, 2000).
With the exception of the problem of diversion in Ghana, the modern nucleus estate –
outgrower program in Ghana and the Philippines are very similar, including the
everyday concerns of both outgrowers and processors. The modern rendition of the
model in both countries developed along similar paths and during similar timeframes.
Today in Ghana, the four large estates are owned and operated by the private sector
after having mixed results under government ownership and management. The
Philippines palm oil industry has been mixed in this respect with Kenram and Agumil
being private sector companies at the outset and FPPI having been at one time co-
owned by the government and the private sector. Today in both countries, these estates
are all owned and operated by the private sector. It is in the manner in which their
respective governments are pursuing and encouraging oil palm production that creates
interesting correlations between the two countries in terms of contract farming in oil
palm production. Both governments are letting the private sector take the lead role, as
their economies are transformed by structural adjustment and neo-liberalisation.
63 For example, interviews with GOPDC outgrowers and estate managers and extension workers indicate that farmers apply cultivation technologies that they use for the oil palms or that they see practiced by oil palm growers in other crops, e.g. citrus cultivation in the GOPDC catchment area.
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6.0 THE OUTGROWER, PRODUCTION AND INCOME 6.1 Introduction
Contract farming is often referred to as the panacea for curing the ills of under-
performing agriculture in developing economies (Kherallah and Kirsten, 2001). From
this perspective, there is now a considerable body of literature that examines the impacts
of the extension of corporate agribusiness into more traditional agrarian systems (Little,
1994b; Dapaah, 1995; Benziger, 1996; Burch et al., 1996; Dickson and Burch, 1996;
Schejtman, 1996; Burch et al., 1999; Morrissey and Mcgillivray, 1999; Warning and
Hoo, 2000; Eaton and Shepherd, 2001; Kirsten and Sartorius, 2002; Gereffi and
Sturgeon, 2004). Furthermore, there is a tacit recognition that there is an ongoing shift
in agricultural development strategies away from those that favour state intervention to
those that are more strongly oriented towards free market forces (Arnold, 1998;
Govereh et al., 1999; Eaton and Shepherd, 2001; Kanji and Barrientos, 2002; Simmons,
2002; Balisacan, 2003; Bebbington, 2003; Chatterjee, 2003; Gwynne, 2003; Patrick,
2004; World Bank, 2004a).
While there certainly may be serious limitations to the market liberalisation strategy, it
is also clear that a strong commitment to this approach remains for most development
agencies and governments. Little (1994b:219), however, cautions us that this
enthusiasm has resulted in inflated expectations as both development and government
agencies inevitably oversell the benefits of their projects to their management and the
public. Nevertheless, over the past decade, privatisation and the establishment of
contract farming systems have proceeded at a rapid pace in developing countries. In the
case of Ghana, this is particularly evident in the oil palm industry, which has
experienced the privatisation of the state-owned or parastatal plantations established in
the 1970s, together with the rapid expansion of contract farming schemes (White and
Bhatia, 1998). In the Philippines, government at the local, regional and national levels,
in conjunction with a very active private sector, are expanding the outgrower program in
the oil palm industry across the entire geographic area that supports oil palm in the
country (Government of the Philippines, 2003a; Bahala, 2004; Callano, 2004). This has
had significant implications not only for the nature of the oil palm industry in the two
countries, but also for local farming systems and agricultural development.
120
Central to the debate is contract farming, which has increased rapidly in line with
structural adjustment in the agricultural sectors of developing economies. The literature
seldom contests the generally held view that contract farming schemes, particularly
operated by the private sector, can provide smallholders with access to capital,
technology, and markets that might otherwise not be available. Furthermore, a more
market-oriented agriculture would lead to increasing levels of innovation and
diversification by farmers (Carney, 1988; Glover, 1994; Little, 1994b; Vellema, 2002).
On the other hand, much of the literature has focused on the consequent implications of
contract farming on family farming systems, local social dynamics, agricultural
development, and broader patterns of industrial change (Little and Watts, 1994a;
Baumann, 2000; Little, 2000; Tonts et al., 2003). This latter set of literature frequently
points out that contract farming has often had negligible impacts on socio-economic
wellbeing, and even contributed to the loss of productive traditional cultural and
agrarian systems (Dorward et al., 1998). The opponents of contract farming direct the
focus of the discussion to the more coercive characteristics of some of these contracting
arrangements, particularly the dependence of farmers on the inputs provided by firms,
the loss of control over decision-making on their property, the threat of price
manipulation, and the possible environmental consequences (Glover and Kusterer,
1990b; Clapp, 1994; Daddieh, 1994; Little and Watts, 1994a; Watts, 1994b; Porter and
Phillips-Howard, 1997a; Collins and Wingard, 2000). In terms of the wider processes
of agricultural development, it has been suggested that these failings in the contract
farming system can undermine the prosperity of local and regional economies and
contribute further to the problems of social inequity and poverty (Baumann, 2000).
A significant volume of the literature on the subject argues that contract farming
schemes rely on larger farmers to the detriment of local smallholder farmers (Little,
1994b:222; Baumann, 2000:30). While it is true that smaller farmers increase the
transaction costs for scheme sponsors and require greater contact by extension agents in
order to ensure consistency of product quality, scheme sponsors frequently enter into
contract with smaller farmers for both geographic and political reasons (Glover, 1984).
In the former case, the requirements of the crop determine its geographic boundaries
and the contract farming scheme must utilise the farmers who work in that area.64 In
the latter case, governments often encourage scheme sponsors to utilise small farmers. 64 For example, the cultivation of oil palm is constrained by climatic factors such as rainfall, hours of sunlight and temperature.
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The literature also presents contract farming as a tool used by the private sector’s
national or multi-national corporations to subsume the only factors of production
possessed by smallholders, land and labour (Clapp, 1994). With this in mind, it should
also be recognised that larger farmers would be less willing to surrender their
independence as compared to smallholder farmers (Glover and Kusterer, 1990b). This
chapter, at least in part, will present the social and economic characteristics of the
outgrowers who were interviewed as part of this research. In the case of oil palm in the
two study areas, the selection of outgrowers can not be easily defined in terms of the
literature. In Ghana, virtually all of the outgrowers are small tenant farmers. In the
Philippines the outgrowers are a mixture of smallholders and larger more independent
farmers, few of whom would be considered large farmers in the local context.
The overall purpose of this chapter is to develop and present the profile of the GOPDC
and Agumil outgrowers in Ghana and in the Philippines. This will be done in an effort
to relate these oil palm industry outgrowers to other outgrowers used in other case
studies undertaken and presented in past literature. Additionally, the portrayal of the
outgrowers presented in this chapter will be necessary for the understanding of the next
three chapters which will introduce the topics of decision-making, employment and
technology transfer under contract. Towards this end, the chapter will first present a
profile of the outgrowers interviewed in Ghana and the Philippines in terms of their
social indicators such as age, gender and educational attainments. It will then present an
economic profile of the outgrowers in terms of years of exposure to and/or involvement
in agriculture, land ownership, total farm size and total hectarage cultivated in both oil
palm and other crops. A discussion of the outgrowers agricultural output in oil palm
will finally precede a presentation and analysis of on-farm and non-farm incomes of the
outgrowers included in the study.
6.2 The Outgrowers
The selection of outgrowers by Agumil in the Philippines and the Ghana Oil Palm
Development Corporation (GOPDC) in Ghana reflects the variance in their individual
technical methodologies as well as the political environment that prevailed in each of
the two countries at the local, regional and national levels at the time they recruited their
outgrower scheme participants. As outlined in the previous chapter, the origins of the
two business ventures were completely different. GOPDC was established as a state-
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owned and operated social and economic venture to absorb surplus rural labour as a
means of alleviating poverty and to assist the national economy through import
substitution and export earnings. Agumil’s entry into oil palm cultivation in the
Philippines, on the other hand, was of a purely commercial nature. It was a private
sector venture formed solely to generate profit for its investors. The commencement of
its outgrower program in 1999/2000 was driven not by social aspirations, but purely by
commercial reasons with the view of generating economies of scale for their processing
mill.
These differences between the economic orientations of these two firms have resulted in
the selection of two very different types of outgrowers for their nucleus oil palm estates.
In the Philippines, Agumil has made every effort to hand pick their outgrowers based
upon more than simple financial factors such as credit worthiness. They have
consciously sought out farmers and businesspersons who have larger landholdings or
access to larger tracks of land. They have also sought out those farmers who had the
‘right business attitudes’ (Narciso, 2003).65 The Agumil outgrower scheme had no loan
program beyond the financially limited loans extended to the outgrowers for the
purchase of the oil palm seedlings. The majority of the outgrowers selected between
1999 and 2004 were individuals known to the management of Agumil. This was an
attempt not only to reduce their transaction costs, but also an attempt to minimise the
risks associated with their outgrower operations.
In Ghana, the original GOPDC project limited the area that an outgrower could farm
under contract to 20 hectares. This was somewhat of a contradiction as the project’s
stated objective was to contract small farmers who normally had limited access to land.
In addition, the size of the outgrower oil palm holdings was limited to an amount of
land that the farmer and his immediate family could cultivate without having to resort to
the use of hired labour, usually eight hectares (Inkumsah, 2004). The final outgrower
selection criterion was based upon the GOPDC’s perceptions on whether the farmer
would be willing and able to repay loans extended throughout the life of the project.
Since GOPDC’s privatisation in 1995, there has been a shift away from the original
social orientation to one with a greater commercial bias. In the first instance, the 65 The ‘right business attitudes’ often simply meant that they were either mid to senior level managers in government or private sector service or that they were presently operating a commercial business or service enterprise, e.g. one Agumil outgrower is the local optometrist.
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production of GOPDC’s nucleus estate and the majority of its outgrowers have been
converted to organic palm oil.66 This has resulted in the demise of the estate’s loan
program for fertiliser and other agricultural inputs. With the commencement of the
Okumaning estate-planting program, GOPDC no longer has sufficient oil palm
seedlings and, as such, they no longer encourage new outgrower contracts. The only
contracts that are put in place are with existing outgrowers who have a favourable
record of shipments of fresh fruit bunches to the GOPDC mill. These outgrowers can
avail of GOPDC loans for the seedlings required for their oil palm farm expansions.
This is likely to be a temporary decision since once the new estate at Okumaning has
been fully planted, seedlings will once again become available for an expansion of the
outgrower program.
While the present research is not about the comparative aspects of outgrower farming in
the two countries, the historical differences of motivations between the two processors
have to be taken into account to understand their differences and similarities in terms of
socio-economic and demographic trends.
6.2.1 AGE PROFILE OF OUTGROWERS
It is useful at this point to return to the literature on contract farming. While the
subsumption of both land and labour are clearly evident in the Ghanaian situation, the
opposite, at least initially, is true in the case of the Philippines. While the literature is
silent on outgrower ages, implicitly it is a factor if your process is aimed at the selection
of large families. The Ghanaian outgrowers were recruited with the use of family
labour being a key determinant (Daddieh, 1994). As such, younger farmers were not
initially recruited. It was not a factor in the Filipino case (Chang, 2005).
During a focus group discussion in 2004 on a topic related to the difficulty of entering
oil palm farming in the Philippines, one farmer (Interviewee PH 006) expressed the
views of all members of the focus group quite succinctly when he stated, “The first
three years are very hard for us farmers. It is our agony! For those first three years, all
you have are expenses.” In the Philippines, the average cost for the first three years is
US$ 1,000 per hectare (Cinco, 2004). The participants in the focus group in the
66 The niche market for organic palm oil is very vibrant and attracts a premium price per ton. Given that the literature on contract farming often portrays contract farming as being environmentally insensitive, the conversion to organic farming is an interesting phenomenon.
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Philippines used the phrase ‘deep pockets’ over and over during the discussions on
capital and financing related to their start up in the industry. The Ghanaian outgrowers
interviewed and who took part in focus group discussions at GOPDC reflected similar
views. It is important to recall, however, that until its privatisation in 1995, GOPDC
had loans available for their outgrowers that were retired over time once FFB harvesting
commenced in year four.
The need by farmers to have adequate financial resources prior to entry into contract
farming in oil palm, while not being a total deterrent, is certainly a crucial aspect of
their consideration on whether to enter into contract or not. In support of this view,
interviews with the processors, in both the Philippines and in Ghana, reflected the fact
that the processors saw financial security on the part of prospective outgrowers as a
prerequisite for their entry into oil palm contracts with the firms (Inkumsah, 2004;
Chang, 2005). In the Philippines, for example, farmers were required to have pre-
approval of loans from financial institutions or other proof of financial security prior to
contract signature (Narciso, 2003).
The ability to secure loans, or to self-finance entry into oil palm, is reflected in the age
structure of the outgrowers. As Figure 6.1 and 6.2 illustrate, the majority of the oil
palm outgrowers in both study areas are older than 45 years of age. Sixty or 70.6 per
cent of the outgrowers in both countries fall into the age groupings 45–54, 55-64 and
>65. The distribution of the Ghanaian outgrowers, as indicated in Figure 6.2, however,
is unimodal with 47 per cent of their number falling into the 45-54 age group. In the
Philippines, the distribution is bi-modal with only 16 per cent falling into this category
while 27 per cent of the Filipino outgrowers fall into the 35-44 age group and 29 per
cent into the 55-64 age group.
It is only in the Philippines, where there are any outgrowers who are younger than 35
years of age. Five younger outgrowers, representing 10 per cent of the Filipino
outgrowers in Agusan del Sur, have between four and twelve hectares of oil palm under
cultivation. The age of Ghanaian outgrowers are not as evenly distributed throughout
the age groupings as their Filipino counterparts, with 81 per cent falling into age groups
> 45 as compared to the Philippines where the percentage is 65. The Vandebeeck 1998
study of 175 GOPDC outgrowers also found that 74.8 per cent of them were older than
40 years of age (Vandebeeck, 1999).
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29
1014
178
713
5
0 3 6 9 12 15 18
Number
25-34
35-44
45-54
55-64
>65
Age
Gro
ups
Figure 6.1 Age of Outgrowers in Ghana and in the Philippines, by Number
GhanaPhilippines
Figure 6.2 Age Distribution Curves: Outgrowers in Ghana and in the Philippines
0
8
16
24
32
40
48
56
25-34 35-44 45-54 55-64 >65
Years of Age
Perc
enta
ge
GhanaPhilippines
In terms of the relationship between age and the possession of sufficient resources to
enter into oil palm contracting, it is worth noting that the research was undertaken four
years after the Filipinos entered into contract and planted their first oil palms. The
Ghanaian data obtained from interviews and estate records was not reliable in terms of
the year in which the outgrower there actually entered into contract.67 Nonetheless, the
research suggested that many of the outgrowers have been under contract for a number
of years. The original developmental nature of the GOPDC project with its farmer-
67 In the Philippines, no outgrower was involved in oil palm cultivation until 1999/2000 so it was relatively easy to determine their age at entry into the program. In Ghana, the outgrower program commenced in the late 1970s and it is possible that some of the randomly selected outgrowers commenced oil palm cultivation when they were relatively quite young.
- 126 -
financing program would have made it easier for farmers to become involved in the
cultivation of oil palm as contracted outgrowers. The same does not hold true for new
entrants into the program in the decade since the privatisation of GOPDC in 1995, as
interested farmers must now arrange for their own financing. GOPDC discontinued the
practice of providing loans with the exception of very limited loans to cover the cost of
the oil palm seedlings.
6.2.2 YEARS ENGAGED IN AGRICULTURE
Another key factor used by the nucleus estates in their assessment of prospective
outgrowers is the individual’s prior exposure to agriculture, particularly in terms of the
number of years that they have been engaged in cash cropping of any other crop (e.g.
cocoa or coffee). The number of years of experience in agriculture is, to a certain
extent, directly related to the age of the research subjects, but there were a few
anomalies of particular interest. Overall, the age of outgrowers in the Philippines
compare well to that of the Ghanaian outgrowers but their years of previous
involvement in agriculture is notably less. Figure 6.3 illustrates the years that the
outgrowers in the two study areas have been engaged in agriculture as a per cent of the
total. In Ghana, 76 per cent of the outgrowers have had more than 20 years of
experience versus 62 per cent of the Filipino contract farmers. Conversely, 38 per cent
of the Filipino outgrowers had less than 20 years of exposure to agriculture as opposed
to only 24 per cent of their Ghanaian counterparts. The other noteworthy observation is
in the 1 to 9 year category where 11 per cent of the Filipino farmers fell as compared to
zero Ghanaian farmers in this category. This group, 11 per cent of Filipino outgrowers,
represented six outgrowers who had no experience in agriculture whatsoever prior to
their involvement as contracted oil palm outgrowers. During their interviews they
included the time they spent as contracted outgrowers as time exposed to agriculture.
6.2.3 RELATIONSHIP OF AGE TO FARM SIZE
Overall, there does not appear to be any significant relationship between the age of
outgrowers and the size of their total farmland holdings. As shown in Figure 6.4, there
is a virtual equality in the number of farmers with < 9 hectares for the three age groups
between 35 and 65 and again between the same age groups for the 10 to 19 hectares
holdings. Even younger farmers’ holdings are distributed between the less than nine
hectares category to the greater than 50 hectares categories.
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0
10
20
30
40
50
Perc
enta
ge
Figure 6.3 Number of Years in Agriculture for Farmers in Ghana and in the Philippines
Ghana 24 45 14 7 10
Philippines 12 26 23 25 8 6
1-9 10-19 20-29 30-39 40-49 > 50
4 4 1 1 1
11 9 2 1 1
8 8 4 1 1 2
8 7 3 2
1 1 2 1
0 5 10 15 20 25
Number
25-34
35-44
45-54
55-64
>65
Age
Gro
up
Figure 6.4 Total Farm Size by Age of Outgrowers in Ghana and in the Philippines
< 9 Ha.10 - 19 Ha.20 - 29 Ha.30 - 39 Ha.40 - 49 Ha.> 50 Ha.
6.2.4 GENDER OF OUTGROWERS
In total, 85 per cent of the outgrowers interviewed were males and 15 per cent of the
outgrowers were females. In Ghana, the GOPDC outgrower program did not
discriminate against female farmers during their selection process but they did indicate
that land tenure was an important consideration. In most cases in Ghana, it is the males
who have direct access to land or who are able to enter into the sharecropping
agreements with landowners (Kemeh-Mensah, 2004). For married couples, it is
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generally the male who assumes responsibility for tenurial agreements and cash
cropping arrangements (Doss, 2002). According to Doss, female outgrowers in Ghana
were generally single women who, in the absence of a male partner, frequently enter
into land tenure and outgrower agreements in their own names. As Figure 6.5 shows,
however, 90 per cent of the outgrowers interviewed at random were male. The 1998
study of GOPDC outgrowers undertaken by Helena Vandebeeck (1999) showed a ratio
of 84 per cent males to 16 per cent female outgrowers. In general, this compared to 82
per cent male and 18 per cent female in the non-contracted local farming community.
10.4
89.6
17.9
82.1
0102030405060708090
Perc
enta
ge
Ghana Philippines
Study Areas
Figure 6.5 Gender of Respondent Farmers in Ghana and in the Philippines
FemaleMale
In the Philippines, there are no social or cultural barriers to women entering into
outgrower contracts in the oil palm industry. The entry of women into contracts is only
restricted by their access to either titled or leased land and their access to credit
(Narciso, 2003). Nonetheless, while there are no ‘legal’ barriers to entry, the oil palm
industry remains largely male-dominated. This is due, in part, to the heavy physical
nature of the crop and, in part, to traditional values where the cultivation of cash tree
crops such as the oil palm is undertaken by males while the women cultivate lowland
crops such as rice or maize (Chang, 2005). Of the harvesting contracted outgrowers’
surveyed in 2004, 82 per cent were male and the balance of 18 per cent were female. In
terms of female outgrower performance, as measured by the production of FFB per
hectare and metric tons of palm oil per hectare, the female outgrowers were average to
above average achievers.
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6.2.5 EDUCATION LEVELS OF OUTGROWERS
There is a marked difference in the levels of education attained by the outgrowers in the
Philippines and the outgrowers in Ghana (see Figure 6.6). The latter’s level of
educational attainment is significantly lower than that of the Filipino outgrowers. In
Ghana, 28 per cent of the interviewed outgrowers indicated that they had received no
formal education; a further 17 per cent said that they had received only education up to
grade 6 (Primary School Leaver Level); and, finally, 48 per cent indicated that their
education had reached only up to grade ten (Junior High School Level). In other words,
93 per cent of the case study farmers had education at the Junior High School level or
below. The 1998 study of GOPDC outgrowers in Ghana undertaken by Vandebeeck
reported that of the 175 contracted farmers, 18 per cent had received no formal
education and a further 64 per cent did not attend school beyond grade 8 (Vandebeeck,
1999).
010203040506070
Perc
enta
ges
Figure 6.6 Education Levels Attained by Respondent Farmers in Ghana and in the Philippines
Philippines 0 14 13 39 29 5
Ghana 28 17 48 7 0 0
None 1-6 7-10 11-12 Ugrad. Grad.
In the Philippines, the combined percentage who achieved only up to grade ten was 27
per cent, as compared to 93 per cent in Ghana. There was a further 39 per cent who
finished up to grade 12 (senior high school) and an additional 29 per cent who attended
tertiary level training at either a college or a university. In addition, five per cent of the
interviewed outgrowers attended training at the postgraduate level.
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6.2.6 AGRICULTURAL TRAINING
The interviewed outgrowers were asked if they had received any prior formal or
informal training in agriculture other than in oil palm cultivation (see Figure 6.7).
Similar to the results concerning formal education, formal or informal education in
agriculture was more common in the Philippines where 50 per cent reported having
received some agricultural-specific or agricultural-related specialist training. This is a
high level of performance when compared to Ghana where only 17 per cent of the
outgrowers reported having received such training. Outgrowers in the Philippines who
had received specialised training in agriculture predominantly indicated that the training
they received was in ‘Integrated Pest Management Control’ or training related to other
crops such as rice, durian or citrus production. In Ghana, training relevant to the
cultivation of cocoa or citrus, from either the Cocoa Board or the Ministry of
Agriculture respectively, were frequently cited as the agricultural training that the
outgrowers had received.
83 17
50 50
0 10 20 30 40 50 60 70 80 90 100
Percentage
Ghana
Philippines
Figure 6.7 Agricultural Training Received by Outgrowers in Ghana and in the Philippines
No Agricultural Training Some Agricultural Training
6.3 The Outgrowers’ Agricultural Activities
This section will review some of the key variables associated with the agricultural
practices of outgrowers in Ghana and in the Philippines. With the exception of four oil
palm contracted farmers in the Philippines, all of the outgrowers interviewed in the two
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countries cultivated other crops including food crops for household or commercial sale
and other tree cash crops. In Ghana, all outgrowers reported that they cultivated food
crops for home consumption and/or sale in their local community markets. This was
less commonly the case for the Filipino outgrowers who, while producing food crops,
most often did it solely in commercial quantities. Crop diversification remains an
important element in prospective farmers’ decision to enter into an oil palm contract in
terms of their self-confidence both as farmers and in terms of their financial security and
financial liquidity.
6.3.1 LAND OWNERSHIP
Land ownership provides a clear differentiation between oil palm outgrowers in Ghana
and the Philippines and has a direct impact on ‘reported’ production based upon
deliveries to the processor’s mills on the nucleus estates. In the Philippines, fully 85 per
cent of the oil palm outgrowers in the Province of Agusan del Sur in Mindanao have
title to their land. In comparison, 79 per cent of their Ghanaian counterparts in
Kwaebibirem District in the Eastern Region of Ghana sharecrop their oil palm holdings
(Figure 6.8). Less than four per cent of the outgrowers in both countries leased their
land outright from landowners.
7911
44
1785
0 10 20 30 40 50 60 70 80 90Percentage
Share Cropped
Leased
Titled land
Figure 6.8 Land Tenure of Respondent Farmers in Ghana and in the Philippines
PhilippinesGhana
The land tenure arrangements in Ghana have had repercussions for land care, adherence
to the terms of the outgrower contracts and ultimately on outgrower scheme profitability
for both processor and outgrower. Based upon outgrower interview responses,
processor interviews with three of Ghana’s oil palm estate managers, a review of the
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literature, secondary data sources and anecdotal evidence, the land tenure system in
Ghana has and continues to influence the decision-making of both agri-business and
agriculturalists in the country. In the case of the oil palm industry, it is imperative that
the processors operate the palm oil extraction mills at or near full capacity in order to
justify the infusion of monetary capital resources into mill and ancillary equipment
(Addo, 2000). The business rationale for the establishment of oil palm outgrower
programs was necessitated by the fact that the nucleus estates, trying to achieve
maximum economies of scale in their palm oil processing operations and to supply their
external markets with the demanded quantities, built or upgraded their mills. This
expansion required a reliable supply of FFB in sufficient quantities to ensure that the
processor’s operational costs were held down to a reasonable level in order to improve
the profitability of their oil palm processing operations. In turn, higher economic
efficiencies at both the mill and its estate have resulted in higher returns to the
outgrowers for their production and supply of oil palm FFB.
The pricing of the FFB provided by the outgrowers under the terms of their contracts is
presently based upon a combination of FFB quality and world market pricing. While
this formula works well in Malaysia or the Philippines, it is problematic in Ghana where
it faces some unique local problems. The use of the oil palm by homemakers in Ghana
creates a local market for the fruit of the oil palm that is quite competitive and very
price sensitive to seasonal supply and demand. The local processing industry,
consisting of home, small and medium-sized palm oil mills, determines the local
purchase price structure based on the local demand for palm oil and on the seasonal
availability of supply from producers, contracted or otherwise. These two factors lead
to a purchase price for the FFB that very seldom is in line with prices determined by the
worldwide supply of FFB. Further exacerbating this situation are the foibles of the
variations in rainfall patterns, hours of sunlight and temperature, all of which affect the
production of oil palm anywhere in the world and which affect local pricing in West
Africa. On this basis alone, the Ghanaian contracted outgrower is frequently faced with
periods during the year when he/she can garner greater profits for his FFB at the local
mill than he/she can at the estate mill. Simply put, when supply of FFB is scarce,
during the cool dry season in the Northern Hemisphere the oil palm producer can obtain
higher prices at the local mills. Conversely, the outgrowers obtain higher prices at the
estate mill during the wet season when the FFB is in oversupply. These simple
economic realities form only part of the problem for the estate mill’s profitability.
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Returning to the question of land tenure, the temptation of the contracted outgrower to
divert production, in defiance of the contract, is exacerbated under the sharecropping
system.68 The GOPDC’s contract is a three party contract signed between GOPDC, the
outgrower and the landowner.69 The terms of the GOPDC sharecropping agreements
are more equitable than traditional share crop agreements used in Ghana, but the fact
remains that the outgrower must still share profits derived from their labour.
Furthermore, the outgrower remains responsible for the repayment of his/her loans that
were granted during the time when GOPDC was a state-owned enterprise. When
GOPDC was purchased by the private sector in 1995, it purchased all of its assets and
liabilities, including all of its outstanding loans.70 The land tenure system plus the
repayment of outstanding loans, therefore, has a considerable impact on the outgrower’s
natural economic tendency to divert, as noted above. Under the outgrower contract,
payments from GOPDC for FFB deliveries are made to the outgrower’s bank account
minus a one-third share sent to the landowner’s bank account and minus a scheduled
GOPDC loan repayment, should there be an outstanding loan. It should be noted,
however, with the passage of time with no further loans from GOPDC, debt repayment
is becoming less relevant to the GOPDC outgrowers.
The diversion of FFB away from the estate mills has resulted in a certain level of
disillusionment by the nucleus estates with outgrower programs, but their reactions to
‘diversion’ have been notably different. GOPDC has made every effort to reform their
outgrower program and has considerably improved the estate-outgrower relationship
since the era of government ownership. They have done this through a vastly improved
liaison system. Outgrower deliveries have improved somewhat because of the
improved relationship and the development of a greater atmosphere of trust between the
processor and the outgrowers. GOPDC’s new outgrower program system allows for:
• greater access of outgrowers to senior management;
68 Diversion is the shipment and illegal sale by outgrowers of FFB to local small mills instead of to the estate, in violation of their outgrower contract. Diversion is largely a response to higher prices paid by local small mills. 69 As noted above, 78 per cent of the Ghanaian outgrowers interviewed are tenant farmers who sign these three party outgrower contracts. The Vandebeeck (1999) study undertaken in 1988 found that 70 per cent of GOPDC oil palm outgrowers who were interviewed were tenant farmers. 70 In a similar situation, and as reported in Chapter 6, when the Twifo Oil Palm Plantation was privatised in 1998, a fire was deliberately started at TOPP’s administrative offices that burned all of the outgrower records, including the records of indebtedness of outgrowers to the nucleus estate. During a meeting with TOPP officials, there was a great deal of conjecture on the identity of the arsonists.
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• the introduction of a new and understandable accounting system that issues individual delivery information plus periodic printouts for outgrowers with information on their account with GOPDC in general;
• direct deposit banking schemes; • bonus schemes for outgrowers who meet their annual FFB delivery
targets; and, • community reward programs in the form of infrastructure grants or other
prizes to encourage communities to meet their “communal’ FFB delivery targets.
The Benso Oil Palm Plantation (BOPP), while never successful at establishing an
outgrower scheme, has initiated plans to do so under the Ghana- President’s Special
Initiative Program – Oil Palm (PSI-OP).71 The Twifo Oil Palm Plantation (TOPP),
while being understandably hesitant following the fire at their accounts office, has
virtually abandoned the outgrower scheme that they acquired upon privatisation. They
are, nevertheless, currently taking small forward movements in this direction under the
PSI-OP.
6.3.2 FARM SIZE One of the variables affected by land tenure arrangements is the total farm size,
inclusive of oil palm holdings, other cash crops and food crops for domestic
consumption or sale in the village markets. Table 6.1 offers some comparative figures
on these factors in both Ghana and in the Philippines. Total farm size in Ghana ranges
from 1.44 hectares to 26.81 hectares, but the majority of the outgrowers (61%) cultivate
less than 10 hectares, 80 per cent cultivate less than 15 hectares and 94 per cent farm
less than 20 hectares. The mean size of the total cultivated area by the interviewed
outgrowers in Ghana was 9.4 hectares with a standard deviation of 5.87 hectares. In the
Philippines, the total cultivated area ranged from 3.39 hectares to 149 hectares with a
mean size of cultivated land holdings of 22.8 hectares with a standard deviation of
23.18 hectares. There is an even distribution of holdings amongst the farm size
groupings with 44 per cent farming up to 15 hectares, 74 per cent up to 25 hectares and
the balance of 26 per cent beyond this point. The main difference between the two
study areas is the fact that only 6 per cent of the Ghanaian outgrowers farm more than
20 hectares, whereas 41 per cent of the outgrowers in the Philippines farm total
landholdings greater than 20 hectares. Only two per cent of the Filipino outgrowers
cultivate smallholdings in the 1 to 4 hectare range as compared to 22 per cent of their
Ghanaian counterparts. Figure 6.9 graphically depicts the data presented in Table 6.1 71 See Chapter 5, for a full description of the PSI-OP in Ghana.
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for total farm size by country with a single line representing the mean of the combined
totals.
Table 6.1 Hectares Farmed by Outgrowers in Ghana and the Philippines (2004)
Total OG
% Of Total
Oil Palm
% Of Total
Other Crops
% Of Total
Total OG
% Of Total
Oil Palm
% Of Total
Other Crops
% Of Total
1 - 4 8 22 26 72 17 53 1 2 7 15 14 365 - 9 14 39 6 17 10 31 10 21 17 36 10 2610 - 14 7 19 4 11 3 10 10 21 11 23 8 2015 - 19 5 14 0 0 2 6 7 15 3 6 2 520 - 24 1 3 0 0 0 0 7 15 2 4 4 1025 - 29 1 3 0 0 0 0 1 2 3 6 0 0> 30 0 0 0 0 0 0 11 24 4 10 1 3Totals 36 100 36 100 32 100 47 100 47 100 39 100
Farm Size (Ha.)
Ghanian Outgrowers (OG) Filipino Otgrowers (OG)
(Source: GOPDC and Agumil outgrower farmer interviews, P. Huddleston, 2004)
Figure 6.9 Total Hectares of Crops Farmed by Outgrowers in Ghana and in the Philippines
0.05.0
10.015.020.025.030.035.040.045.0
< 5 5 - 9 10 - 14 15 - 19 20 - 24 25 - 29 > 30
Total Hectares Farmed
Per
cent
age
PhilippinesGhanaCombined
6.3.3 HECTARES OF OIL PALM In Ghana, the areas cultivated by oil palm outgrowers ranged from 0.98 hectares to 12.7
hectares while in the Philippines the representative range was 2.0 hectares to 146
hectares. Table 6.2 shows that the mean number of hectares of contracted oil palm in
the Philippines is 11.82 hectares with a standard deviation of 21.98 as compared to
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Ghana where the mean is 3.89 hectares and a standard deviation of 3.34.72 This higher
mean size of farmers in the Philippines could be accounted for by the presence of a
private individual farmer cultivating a large landholding of 146 hectares of oil palm.
Figure 6.10 presents the total hectarage of oil palm cultivated by the outgrowers in
Ghana and in the Philippines connected by a line that reflects the mean combined
hectarage farmed by the outgrowers in the two study areas.
Table 6.2 Outgrower’s Oil Palm Farm Size in Ghana and the Philippines
Statistical Variable Philippines GhanaMean 15.3 4.295% Confidence -- Lower Bound 8.8 3.0 Interval for Mean -- Upper Bound 21.8 5.35% Trimmed Mean 11.8 3.9Median 9.9 2.9Std. Deviation 22.0 3.3Minimum 2.0 0.9Maximum 146.0 12.7Skewness 4.9 1.4Kurtosis 28.0 0.9
(Source: Agumil and GOPDC outgrower farmer interviews, P. Huddleston, 2004)
Figure 6.10 Hectares of Oil Palm Grown by Outgrowers in Ghana and in the Philippines
0.010.020.030.040.050.060.070.080.0
< 5 5 - 9 10 - 14 15 - 19 20 -24 25 - 29 > 30
Hectares of Oil Palm
Per
cent
age Philippines
GhanaCombined
Table 6.3 presents the data extremes or outliers and clearly depicts the reasons for the
wider range in data in the Philippines. Overall, the data indicates that not only is
72 A 5 per cent trimmed mean was utilised for the analysis in order to offset the presence of outliers. In addition, two outgrowers from the Philippines were removed from the calculation: an agricultural cooperative with 440 hectares of oil palm and an agricultural college with 125 hectares.
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absolute oil palm farm size in Ghana smaller; it is also more clustered around the mean
size in hectares than is the case in the Philippines.
Table 6.3 Outgrowers Deviating from the Mean Oil Palm Holdings
Outliers Interviewee Farm Size Interviewee Farm SizeHighest 1 PH016A 149.0 GH026A 12.7
2 PH009A 52.5 GH036S 12.03 PH001A 40.6 GH006A 11.44 PH021A 31.5 GH015A 10.85 PH005A 29.7 GH024A 9.7
Lowest 1 PH035B 2.0 GH018A 1.02 PH038B 3.0 GH019A 1.03 PH034B 3.4 GH029A 1.14 PH026A 3.6 GH020A 1.25 PH010A 4.0 GH033S 1.4
Philippines Ghana
(Source: Agumil and GOPDC outgrower farmer interviews, P. Huddleston, 2004)
6.3.4 OUTGROWER CULTIVATION OF OTHER CROPS Table 6.1 shows that the outgrowers in both Ghana and in the Philippines have
diversified their land holdings into crops other than oil palm. In both countries, the
production of food crops were frequently under-reported as the outgrowers tended to
only respond to questions on their agricultural production with details on other cash
crops that they cultivated. In part, this was because most respondents were males in
cultures where the cultivation of food crops, particularly vegetables, is undertaken by
females. In Ghana, other crops cultivated, as reported by the outgrowers and ranked by
total hectarage, were cocoa and citrus, followed by foodstuffs such as cassava,
cocoyam, vegetables and plantains. The mixture in the Philippines reflected most
outgrower’s access to lowland and well-irrigated farm plots with rice being the most
common alternative crop, on a total hectarage basis. Other crops cultivated by the
Filipino outgrower, as ranked by total hectarage, were coconut (copra), fruit trees and
commercial wood trees such as Gemelina or falcatta, foodstuffs, maize, rubber and
coffee.
All but four (11%) of the outgrowers in Ghana cultivate other crops as part of their
agricultural diversification efforts. Of those outgrowers who cultivate other crops, the
size of the hectarage that they devote to these other crops ranges from 0.41 hectares to
17.0 hectares but the majority of the outgrowers (50%) cultivate less than 5 hectares, 84
per cent cultivate less than 10 hectares and 97 per cent farm less than 15 hectares. The
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mean size of land used for other crops by the Ghanaian outgrowers is 5.9 hectares with
a standard deviation of 4.2 hectares. In the Philippines, eight (17%) outgrowers of oil
palm do not cultivate other crops. Of those who do, the hectarage they use ranges from
1.0 hectares to 43.0 hectares. The mean size of total land cultivated with other crops is
9.0 hectares with a standard deviation of 8.3 hectares. There is an even distribution of
land devoted to other crops by the Filipino outgrowers with 36 per cent farming up to 5
hectares, 62 per cent up to 10 hectares, 82 per cent up to 15 hectares and the balance of
18 per cent beyond this point.
The main difference between the two study areas is the fact that only 15 per cent of the
Ghanaian outgrowers farm more than 10 hectares of other crops, whereas 38 per cent of
the outgrowers in the Philippines farm other crop hectarage holdings greater than 10
hectares. Only 36 per cent of the Filipino outgrowers cultivate other crops in the < 5
hectare range as compared to 53 per cent for their Ghanaian counterparts. Once again,
this reflects the difference between the outgrowers in the two countries. The Ghanaian
predominantly grows food crops for subsistence purposes, selling any surplus in the
marketplace. On the other hand, the Filipino oil palm outgrower, whilst cultivating
food crops almost always does it on a commercial basis. Figure 6.11, graphically
depicts the data presented in Table 6.1 for total farm size by country with a single line
representing the mean of the combined totals.
Figure 6.11 Total Hectares of Other Crops Grown by Outgrowers in Ghana and in the Philippines
0.010.020.030.040.050.060.0
< 5 5 - 9 10 - 14 15 - 19 20 - 24 25 - 29 > 30
Total Hectares of Other Crops
Perc
enta
ge
PhilippinesGhanaCombined
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6.4 Oil Palm Production
6.4.1 OIL PALM YIELDS
The determination and comparison of overall oil palm production between outgrowers
in Ghana or in the Philippines or even between the Philippines and Ghana is made
difficult by the number of variables that affect production (Ghansah, 2004; Inkumsah,
2004; Chang, 2005).73 In the first instance, agricultural practices vary considerably in
spite of the uniformity of the technical advice given by the processors in the two case
study areas. Factors such as the quality of weed control, fertiliser use (organic or
inorganic), insecticide use and other technical practices specific to oil palm cultivation
such as proper pruning and harvesting of the FFB, just to mention a few, reflect directly
upon production output. Secondly, there are socio-economic factors that have a bearing
on production figures that would include diversification of the outgrower’s cropping
systems, level of education, farm and family size, business acumen, labour hiring
practices, and finally, the practice of diversion. Of these factors, diversion affects the
annual deliveries of FFB the most. While diversion has not been a significant problem
in the Philippines, it is a major problem facing the viability of outgrower contracts in
Ghana where palm oil is consumed in its raw state as part of the Ghanaian staple diet.
Virtually all outgrowers in Ghana divert FFB destined for the estate mill to local palm
oil presses for immediate money or palm oil or both. Finally, there are annual or
seasonal biological and climatological effects upon production. Variations in rainfall,
temperature, soil and nutrients and hours of sunlight have a direct impact upon yields.
The other factor that falls into this last group is the age of the oil palm trees. Oil palm
trees experience their most productive years between the ages of 8 and 20 years (Corley
and Tinker, 2003). Thus, comparability between the Philippines where the oldest
outgrower palms were only 5 years of age and Ghana where some outgrowers were
harvesting palms of up to 20 years in age made comparison difficult.
These phenomena are best depicted in Figure 6.12, adapted from Goh et al (1994), that
shows the variables involved in the transition from yield potential to actual yield. As
pointed out by Corley and Tinker (2003) the differences between environmental
conditions and agronomic factors are not always distinct. The yield potential is
constrained by both environmental and agronomic factors, with the former (soils,
73 As determined by actual deliveries of FFB to the oil palm mills in the two countries.
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rainfall, and sunlight) being altered with difficulty and resulting in what is referred to as
‘Site Yield Potential’. Further constraints are imposed by the agronomic factors that
can, however, be readily altered by the outgrower or farm manager when he/she makes
their decisions regarding fertiliser application, weed control, pruning system, ground
cover, etc. The test of management is whether the outgrower can manage these factors
in such a way as to result in actual yields that are as close to site yield potential as
possible (Corley and Tinker, 2003:320).
Figure 6.12 Factors Affecting Projected vs. Actual Palm Oil Yields
YIELD POTENTIAL
Environmental ConditionsPlanting MaterialLight Distribution
SoilsClimate
SITE YIELD POTENTIAL
Agronomic InterventionsAgronomic Practices
Management PracticesEconomic Factors
Social and Environmental Factors
ACTUAL YIELDS
(Source: adapted from Goh et al, 1994 in Corley and Tinker, 2003:319)
However, there are still some general observations, on a country basis, that can be made
in terms of both the overall production of FFB and more importantly in terms of yields
per hectare. It is important to note, however, that the Philippines, as compared to
Ghana, experiences favourable climatological conditions for oil palm resulting in little
fluctuation in yields over ten months of the year. The remaining two months are the
‘dry season’ but a period when adequate harvesting of FFB still takes place. The
researcher also observed that there was greater adherence to recommended oil palm
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farming practices in the Philippines as compared to Ghana where a more relaxed
approach seemed to prevail. In addition, outgrowers in the Philippines were virtually all
involved in oil palm as a business and their entry into its production was a manifestation
of their desire to diversify their agricultural business. Finally, as noted above, there is a
lack of the practice of diversion in the Philippines.74
Figure 6.13 shows absolute metric tons of FFB that were produced in 2004 broken
down into groups and reported in percentage terms. In spite of the observation above
on palm age and yields, tonnage production as measured in metric tons in the
Philippines was more evenly distributed amongst the seven production groupings. This
probably reflects the factors outlined in the previous paragraph resulting in 100 per cent
of the outgrower production being shipped to the mills and reported in the outgrower
program statistics. The chart also reflects palm tree age (1 to 5 years) amongst the
Filipino outgrowers and to a certain degree the reluctance of some outgrowers to use the
prescribed amounts of fertiliser (Narciso, 2003).75
Figure 6.13 Oil Palm Production (2004) in Metric Tons from Outgrowers in Ghana and in the Philippines
-5.0
10.0
25.0
40.0
55.0
70.0
Per
cent
age
Philippines 14.8 3.7 7.4 11.2 14.8 14.8 33.3
Ghana 63.8 25.0 2.8 5.6 0.0 2.8 0.0
Combined 42.9 15.9 4.8 7.9 6.3 7.9 14.3
1-24 25-49 50-74 75-99 100-124 125-149 >150
74 Agumil filed a case against one outgrower who diverted his production from Agumil as a result of a slightly higher premium per ton of FFB paid by a competitor (FPPI). At the end of 2004, the outgrower was still under a restraining order that prohibited him from selling his crop to the other processor in Agusan del Sur. His case for breach of contract was before the courts at that time and his crop remained unharvested. The case has ‘encouraged’ other outgrowers to respect their outgrower contracts. 75 Fully one-third of the outgrowers interviewed in the Philippines indicated that, from their experience as farmers, Agumil prescribed a level of fertiliser use that was too high and as such, they applied less than the recommended amount on their oil palm farms. Agumil’s response has been that the level of fertilisation recommended has been time tested both on their nucleus estate and in the oil palm production areas of Indonesia and Malaysia. Not following the prescription will result in reduced production, hence reduced profits, according to Agumil’s Director of Outgrower Operations.
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In spite of these two factors, the graph also shows that 33 per cent of the Filipino
outgrowers achieved output level greater than 150 metric tons. This compares to Ghana
where 64 per cent reported yields of less than 25 metric tons. Generally, the yields of
the Ghanaian outgrowers were skewed to the lower end of the graph with 97 per cent of
the outgrower farmers having yields of less than 100 metric tons. This compares to 63
per cent of their Filipino counterparts who had recorded yields greater than 100 metric
tons. In terms of combined statistics, the outgrowers individually produced a minimum
of 0.77 metric tons of FFB up to a maximum of 1114.74 MT/FFB with a mean of 85.92
MT/.FFB. In Ghana, the range extended from a minimum of 0.77 MT/FFB up to a
maximum of 143.23 MT/FFB with a mean of 25.17 MT/FFB. The range in the
Philippines was 2.02 MT/FFB to 1114.74 MT/FFB with a higher mean than Ghana of
173.41 MT/FFB.
A better measure of productivity can be determined by looking at yield per hectare as
opposed to overall farm production. As noted earlier in this section, there are a number
of environmental and management factors that influence actual yields. In Ghana, the
environmental conditions are not as beneficial for the production of oil palm as it is in
the Philippines. The elongated periods where rainfall is well below the basic needs of
the oil palms combined with reduced periods of sunlight during both the dry and wet
seasons seriously affect the annual yield of both the quality and quantity of FFB in
Ghana.76 In addition, agronomic practices are not as rigorous or refined as they are in
the Philippines. Finally, because the GOPDC has switched to the production of organic
palm oil, the use of inorganic fertiliser has been discontinued on both the estate and on
their outgrower plots. While the outgrowers have been encouraged to purchase and
apply organic fertiliser to their palms, only a few outgrowers have done so. The nucleus
estate (GOPDC) produces the organic fertiliser that is offered for purchase by the
outgrowers. However, loan funds to purchase this organic fertiliser or transport to get it
moved to the outgrowers’ fields is no longer available. Both of these services were
removed from the outgrower program when the application of inorganic fertiliser on the
oil palms ceased. In summary, these factors explain why yields from the more mature
Ghanaian oil palms are lower than yields in the Philippines from their immature palms.
76 The harmattan period that can last up to three months, by itself, seriously affects fruit production on the estates and on outgrowers farming plots, as the air is filled with heavy dust and the plants are covered in the fine grit that settles out from it.
- 143 -
Figure 6.14 presents data obtained from estate mill records, based upon annual
deliveries of FFB, in the two case study areas divided by the total hectares of oil palms
for each of the outgrowers included in the study. While respecting the constraints to
commercial outgrower production in Ghana and the immaturity of the oil palms in
Ghana, the overall results for expected yield potential in 2004 in both locations were
less than satisfactory. The combined results indicate that 97 per cent of all outgrowers
included in the study failed to achieve even 50 per cent of the normally expected mean
of 25 metric tons (MT) per hectare (HA) of FFB. The minimum value was 0.2 MT/HA
and the maximum was only 15.78 MT/HA. The mean value was 6.9 MT/HA or 28 per
cent of the expected yield (MT/HA), quite a low productivity value.
Figure 6.14 Oil Palm Production (2004) by Outgrowers in Ghana and in the Philippines (MT/HA)
0
10
20
30
40
50
Perc
enta
ge
Philippines 20 40 32 8
Ghana 44 44 12 0
Combined 34 43 20.0 3
< 5 5 - 9 10 - 14 >15
A histogram of this same data only for Ghana is presented in Figure 6.15. On average,
an outgrower should realise 25 metric tons of FFB per hectare. At the mill, this roughly
translates into 5 metric tons of crude palm oil per hectare following the processing
operation. As can be seen in Figure 6.15, the Ghanaian outgrowers fall far below
expected output of 25 MT/HA with a mean of only 5.7 MT/HA. Twenty out of 36 of
the outgrowers produce below 6 MT/HA. This low throughput, as explained above,
results from poor environmental and management conditions on outgrowers’ farms plus
the widespread practice of diversion. In spite of increased trust between the outgrowers
and management coupled with GOPDC’s communal incentive programs, the GOPDC
management was relatively less successful in their attempts to increase outgrower FFB
deliveries to their mill.
- 144 -
0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00
Yield (MT/HA)
0
2
4
6
8
10
12
14
Mean = 5.6961
Std. Dev. = 3.24378
N = 36
Figure 6.15 Outgrower Yields (MT/HA) in Ghana (2004)
In the Philippines, the deliveries of FFB per hectare were also well below what one
would expect to be the average but it must be noted that at the time of the survey
(2004), all but one of the outgrowers were harvesting from very immature trees of 3 to 4
years of age.77 While oil palms often begin producing commercial levels of FFB at age
three, the maximum productivity period of oil palms is between the ages of 8 to 20
years after which their production tends to drop off rapidly (Corley and Tinker,
2003:320). Therefore, deliveries made by the Filipino outgrowers in 2004 reflected the
very first harvest year for most of their palms. Nevertheless, as shown on Figure 7.16,
the Filipino outgrowers three to four-year-old palms produced a mean of 8.61 metric
tons of FFB per hectare. In 2004, 56 per cent of the Filipino outgrowers are producing
above the mean, half of whom were producing well above 12 MT of FFB/HA.
Production overall ranged from a minimum of 0.20 MT/HA to 15.78 MT/HA.
77 The only exception was interviewee PH006 who was Agumil’s first ‘experimental’ outgrower who was harvesting from seven-year-old trees in 2004. This outgrower remains a model oil palm outgrower to the present and is very active in the National Outgrowers’ Association.
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0.00 5.00 10.00 15.00 20.00
Yield (MT/HA)
0
1
2
3
4
5
Mean = 8.6116
Std. Dev. = 4.53174
N = 25
Figure 6.16 Outgrower Yields (MT/HA) in the Philippines (2004)
6.5 The Outgrowers’ Income The literature seldom contests the fact that contract farming can lead to increases in
farmer incomes (Glover and Kusterer, 1990b; Glover, 1994; Little, 1994b; Key and
Runsten, 1999; Baumann, 2000; Kirsten and Sartorius, 2002). At issue is the equity and
sustainability of contract farming systems along with the potential social differentiation
that can be created in contract farming areas (Buch-Hansen and Marcussen, 1982;
Glover and Ghee, 1992; Carney, 1994; Daddieh, 1994; Singh, 2000a; Dileep et al.,
2002; Chang, 2005; Simmons et al., 2005). Little (1994b:221) argues that contract
farming seldom provides sufficient income to achieve household subsistence and that it
is necessary for outgrowers to supplement contract farming income with either other
farm income, off-farm income or both (see also Daddieh, 1994; Jackson and Cheater,
1994). The research undertaken for this study, in both Ghana and in the Philippines,
agrees with this assessment. In both cases, the outgrowers saw oil palm farming as a
means of diversifying their sources of income from pre-existing agricultural and non-
agricultural activities. Profits generated from contract farming in the oil palm industry,
moreover, has allowed the outgrowers in both countries to diversify further into either
- 146 -
additional agriculture or community based enterprises. The question of social
differentiation will be addressed in chapter 8.
In terms of sustainability, the oil palm industry in the Philippines has proven to be
sustainable and it has adjusted to the transition imposed by the Comprehensive Land
Reform Program by initiating outgrower programs either indirectly, as in the case of
Kenram working with the farmer cooperatives, or directly, as in the case of Agumil’s
establishment of their outgrower program in the late 1990s. In Ghana, there has been
mixed successes largely as a result of what Eaton and Sheppard (2001) and Echánove
(2005) refer to as being critically important - good contractual relations between the
outgrower and the processor. While GOPDC survived the acrimonious relationships
between their management (government appointed) and the outgrowers in the 1980s and
early 1990s, the BOPP outgrower program has virtually ceased to exist in the Western
Region. Presently, GOPDC, as a private sector run operation, benefits from the good
relations that they maintain with their outgrowers. A considerable number of farmers
are awaiting the opportunity to become outgrowers at GOPDC.
6.5.1 AGRICULTURAL INCOME AS A PROPORTION OF TOTAL INCOME
Almost 50 per cent of the outgrowers interviewed derived all of their income from
agriculture (see Tables 6.4 and 6.5) with the remaining outgrowers declaring that
agriculture contributed between 6.0 per cent and 98.0 per cent of their overall income.
In Ghana, sixty-nine per cent of the Ghanaian outgrowers obtain their income solely
from agriculture. The remaining 31 per cent include seven outgrowers who are
employed full time by GOPDC and six others who run small businesses, e.g.
seamstress, trader or bar owner, but who also cultivate oil palm as a business to earn
extra money. It is interesting to note that, if the GOPDC employees were removed from
the analysis, 95 per cent of the Ghanaian outgrowers would then obtain 100 per cent of
their living from agriculture. This group’s income would mainly come from oil palm
(56 %) with 32 per cent coming from other agricultural crops. Sixty eight per cent of
the Filipino outgrowers have other sources of income and, therefore, do not rely on
agriculture as their only source of income. The remaining 68 per cent work as teachers,
civil servants, optometrist (1) or run small business enterprises. Oil palm cultivation,
for them, is simply a diversification of their financial portfolios. The outgrowers in
Ghana had a mean total reported income of US$ 1,798 but ranged from a low of US$
121 to a high of US$ 6,374. In the Philippines, the mean was much higher at US$
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11,668 with a range from US$ 977 to US$ 41,018 that reflects the higher number of
outgrowers in the Philippines who pursue other income generation activities outside
agriculture.
As indicated in Table 6.4 and as depicted in Figure 6.17, the Ghanaian outgrowers’
share of their total income from agriculture alone is nearly 76 per cent made up of
income from the oil palm (60%); other crops (33%); and the remainder made up of
related agricultural business. In the case of Ghana, this high percentage (76%) indicated
that the outgrowers, with few exceptions, had limited sources of income outside
agriculture. The mean income from oil palm, based on deliveries, was US$ 823 in
2004; US$ 449 for other crops; and, US$ 102 from agricultural related business. One
fourth of the interviewed outgrowers reported that they did not cultivate crops other
than oil palm but these outgrowers consisted mainly of those who worked full time with
GOPDC. Nearly 80 per cent of the interviewed outgrowers indicated that they were not
engaged in any agricultural support business activity. While outgrower reports of their
income from oil palm could be and were verified through FFB delivery accounts at
GOPDC, the researcher suspected that considerable under reporting took place in terms
of the outgrowers other agricultural pursuits. Income from non-agricultural sources
made up 24 per cent of the Ghanaian outgrowers income. This figure consisted of
mainly the incomes of the seven outgrowers who work on the nucleus estate on a full
time basis. Sixty nine per cent of the interviewed outgrowers did not have non-
agricultural income sources. Finally, 83 per cent of the outgrowers reported that their
family did not benefit from spousal income derived from the formal economy.
Figure 6.17 Ghanaian Outgrower Income Sources (2004)
24%45%
25%
6%
75%
Non-Agric
Oil PalmOther Crops
Agric Business
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Table 6.4 Declared Income of Interviewed Outgrowers in Ghana (2004)
Interview Oil Other Agric. Sub-Total Other Total PercentNumber Palm Crops Business Agric. Income Income from Agric.
GH001 $1,913 $214 $0 $2,127 $0 $2,127 100GH002 $1,099 $55 $0 $1,154 $22 $1,176 98GH003 $211 $503 $440 $1,154 $0 $1,154 100GH004 $549 $495 $0 $1,044 $0 $1,044 100GH005 $659 $242 $0 $901 $0 $901 100GH006 $989 $0 $0 $989 $0 $989 100GH007 $879 $55 $0 $934 $0 $934 100GH008 $659 $165 $220 $1,044 $0 $1,044 100GH009 $1,209 $725 $330 $2,264 $549 $2,813 80GH010 $440 $1,209 $0 $1,648 $0 $1,648 100GH011 $242 $1,264 $0 $1,505 $0 $1,505 100GH012 $714 $0 $385 $1,099 $1,055 $2,154 51GH013 $220 $0 $0 $220 $0 $220 100GH014 $220 $659 $0 $879 $0 $879 100GH015 $4,396 $1,956 $0 $6,352 $0 $6,352 100GH016 $1,099 $2,198 $879 $4,176 $1,099 $5,275 79GH017 $66 $55 $0 $121 $0 $121 100GH018 $110 $220 $0 $330 $0 $330 100GH019 $879 $549 $0 $1,429 $0 $1,429 100GH020 $659 $440 $527 $1,626 $0 $1,626 100GH021 $505 $304 $549 $1,359 $0 $1,359 100GH022 $220 $769 $330 $1,319 $0 $1,319 100GH023 $1,099 $549 $0 $1,648 $0 $1,648 100GH024 $1,099 $659 $0 $1,758 $0 $1,758 100GH025 $549 $374 $0 $923 $0 $923 100GH026 $5,495 $879 $0 $6,374 $0 $6,374 100GH027 $659 $0 $0 $659 $0 $659 100GH028 $330 $152 $0 $481 $0 $481 100GH029 $385 $930 $0 $1,314 $0 $1,314 100GH030 $112 $0 $0 $112 $1,846 $1,958 6GH031 $159 $0 $0 $159 $2,110 $2,269 7GH032 $192 $0 $0 $192 $1,846 $2,038 9GH033 $209 $0 $0 $209 $1,703 $1,912 11GH034 $352 $231 $0 $583 $1,758 $2,341 25GH035 $385 $330 $0 $714 $1,451 $2,165 33GH036 $659 $0 $0 $659 $1,846 $2,505 26
(Source: GOPDC outgrower farmer interviews, P. Huddleston, 2004)
Figure 6.18 and Table 6.5 presents the same representative data for outgrowers in the
Philippines where 71 per cent of their income originates from agriculture. To a certain
degree this high percentage (71%), while being similar to the figure for Ghana,
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indicated the fact that the Filipino outgrower was shipping more FFB to the mill in
absolute terms than their Ghanaian counterpart, thereby earning greater income from the
crop. In addition, Filipino outgrowers also cultivated other cash crops on a commercial
basis. This is supported in the reported incomes from agriculture where 32 per cent of
the agricultural income is derived from oil palm and 36 per cent from other agricultural
crops.
Table 6.5 Declared Income of Interviewed Outgrowers in the Philippines (2004)
Interview Oil Other Agric. Agric. Other Total PercentNumber Palm Crops Business Income Income Income from AgricPH001A $2,444 $0 $0 $2,444 $2,618 $5,062 48PH002A $2,727 $327 $0 $3,055 $2,618 $5,673 54PH003A $2,487 $0 $1,090 $3,577 $0 $3,577 100PH004A $2,000 $2,061 $0 $4,061 $0 $4,061 100PH006A $17,135 $1,309 $0 $18,444 $5,727 $24,171 76PH007A $1,424 $0 $0 $1,424 $0 $1,424 100PH008A $1,000 $0 $0 $1,000 $0 $1,000 100PH009A $250 $0 $0 $250 $727 $977 26PH010A $14,223 $0 $0 $14,223 $0 $14,223 100PH011A $2,836 $0 $7,364 $10,200 $369 $10,569 97PH012A $7,273 $12,436 $0 $19,709 $0 $19,709 100PH015A $1,527 $20,509 $0 $22,036 $18,982 $41,018 54PH016A $2,727 $4,576 $0 $7,304 $0 $7,304 100PH017A $1,346 $1,883 $0 $3,229 $6,982 $10,211 32PH018A $2,618 $5,873 $0 $8,491 $0 $8,491 100PH019A $455 $16,455 $0 $16,909 $1,455 $18,364 92PH020A $2,836 $8,673 $0 $11,509 $12,218 $23,727 49PH021A $2,400 $0 $0 $2,400 $0 $2,400 100PH022A $8,727 $11,150 $0 $19,877 $982 $20,859 95PH023A $1,364 $22,300 $0 $23,664 $9,091 $32,755 72PH024A $2,613 $0 $0 $2,613 $2,492 $5,106 51PH025A $2,727 $0 $0 $2,727 $5,455 $8,182 33PH027A $2,182 $0 $0 $2,182 $5,273 $7,455 29PH028A $2,836 $1,091 $1,455 $5,382 $0 $5,382 100PH029A $2,727 $0 $0 $2,727 $7,273 $10,000 27
(Source: Agumil outgrower farmer interviews, P. Huddleston, 2004)
The mean income from oil palm, based on deliveries, was US$ 3,635 in 2004; US$ 4,
346 for other crops; and, US$ 396 from agricultural related business. One-half of the
interviewed outgrowers in the Philippines reported that they did not cultivate crops
other than oil palm but these outgrowers also had other full time employment (civil
servants or teachers) or full time occupations totally unrelated to agriculture (e.g.
optometrist). Most (88%) of the Filipino outgrowers were not involved in any related
agricultural business activity. As in the case of Ghana, outgrower income from oil palm
could be verified through FFB delivery accounts at Agumil but the researcher, once
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again, had a sense that there was considerable under reporting in terms of income from
the outgrowers other agricultural activities. Income from non-agricultural activities
made up 29 per cent of the Filipino outgrowers income. Forty per cent of the
interviewed outgrowers did not have non-agricultural income sources. Finally, 96 per
cent of the outgrowers reported that their family did not benefit from spousal income
obtained in the formal economy. This was significantly higher that in Ghana where the
figure, although still being significant, was 13 percentage points lower.
Figure 6.18 Filipino Outgrower Income Sources (2004)
29%
32%
36%
3%
71%
Other IncomeOil PalmOther CropsAgric. Business
6.6 Summary of Key Findings
The key findings of the data collected on the outgrowers’ social and economic situation,
their production and their incomes are as follows:
6.6.1 RELATIONSHIP TO AGE
A crucial aspect of the farmers consideration on whether to enter into contract or not is
the adequacy of their financial resources prior to entry into oil palm contract farming.
The average cost to the outgrower per hectare for the first three years is US$ 1,000 at a
time when the oil palms are too immature to produce any fruits, and consequently can
not generate any income. The outgrowers in both the Philippines and in Ghana agreed
that ‘deep pockets’ are required for an outgrower to enter into the oil palm industry. It
is, therefore, not surprising that the processors, in both the Philippines and in Ghana,
consider financial security on the part of prospective outgrowers to be a prerequisite for
their entry into oil palm contracts with the firms. All this is to say that age can and in
fact does play a crucial role in the makeup of an outgrower. The ability to secure loans
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or to self-finance entry into oil palm is reflected in the age structure of the outgrowers
interviewed during the field research with the majority of the oil palm outgrowers in
both study areas being more than 45 years of age. Overall, there was no significant
correlation between the age of outgrowers and the size of their total land holdings or oil
palm hectarage.
6.6.2 OUTGROWERS’ EXPOSURE TO FARMING
Prior exposure to agriculture is another key factor used by the nucleus estates in their
assessment of prospective outgrowers. This was assessed in terms of the number of
years that they have been engaged in cash cropping. The numbers of years of
experience in agriculture is, to a certain extent, directly correlated to the age of the
research subjects, but while the Filipino outgrowers in terms of age generally compared
to that of their Ghanaian counterparts; their previous involvement in agriculture is
notably less. In fact, there were six Filipino outgrowers who had no experience at all in
agriculture prior to their involvement as contracted oil palm outgrowers. Any
shortcomings that these outgrowers may have in terms of experience are adequately
compensated for by the more intense agricultural advisory services provided by Agumil.
6.6.3 GENDER AND OUTGROWER SELECTION AND SUCCESS
There was no overt gender bias in the selection of outgrowers. In Ghana, the outgrower
program did not discriminate against female farmers during their selection process, with
land tenure given a considerably more important consideration. It was ascertained that
it is the males who have access to land and who, therefore, could enter into tripartite
agreements with the landowners and the processor. In the Philippines, there are no
social or cultural barriers to women entering into outgrower contracts in the oil palm
industry. The entry of women into contracts was only restricted by their access to either
titled or leased land and their access to credit. Overall, the research samples from the
two countries indicated that 15 per cent of the outgrowers were females and that they
were in the top cohort as measured by the production of FFB per hectare and metric
tons of palm oil per hectare. Interviews with the female outgrowers and anecdotal
discussions with women in the communities indicated that while access to land and
credit imposed certain limits on their abilities to enter into contract farming in the oil
palm industry, the heavy physical demands of the crop also discouraged many women
from entering into the industry.
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6.6.4 EDUCATION AND TRAINING LEVELS OF THE OUTGROWERS
The data indicated that there was a marked difference in the levels of education attained
by the outgrowers in the Philippines and the outgrowers in Ghana. The latter’s level of
educational attainment was found to be significantly lower than that of the Filipino
outgrowers. Information obtained during interviews with both the outgrowers and the
processors as well as during the focus group discussions highlighted three main impacts
of education levels. In the first instance, outgrowers with lower levels of education
were at a comparative disadvantage in terms of fully understanding the contracts they
were entering into to become outgrowers. This was acknowledged by both the
processors and the outgrowers during discussions with them. Second, while the level of
technology involved in the cultivation of oil palm is relatively basic, higher levels of
education became more pertinent to understanding group and individual demonstrations
organised by the processors through their agricultural extension programs. Outgrower
understanding in areas such as the application of fertiliser (quantity, formula and
timing), the use of fungicides and insecticides, land conservation and basic oil palm
farm accounting, to name just a few areas, was found to be significantly enhanced by
the level of the outgrowers education and literacy. Finally, the level of issues or
difficulties in the relationship between the outgrower and the processor were found to
be inversely proportional to the outgrower’s level of education and training. In this
sense, the Filipino outgrower enjoyed a more comfortable business relationship with
Agumil than did the Ghanaian outgrower with GOPDC, in spite of all the positive steps
that the privatised GOPDC has put in place to improve the relationship they have with
their outgrowers.
As was found in the case of formal education, specific short course training in
agriculture received by outgrowers was more common in the Philippines where 50 per
cent reported having received some specialist training as compared to Ghana where only
17 per cent of the outgrowers reported having received such training.
6.6.5 THE IMPACT OF LAND OWNERSHIP ON OUTGROWER PROGRAMS
The land tenure arrangements in Ghana have had repercussions on land care, adherence
to the terms of the outgrower contracts and ultimately on outgrower scheme profitability
for both processor and outgrower. Land ownership provides one clear differentiation
between oil palm outgrowers in Ghana (79% share cropped land) and the Philippines
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(85% titled land) and has a direct impact on oil palm FFB deliveries. The research
indicated that the land tenure system in Ghana has influenced, and continues to affect,
decision-making by both agri-business and individual farmers in the country. The
relationships between land tenure, mill efficiencies, pricing of products and outgrower
deliveries of FFB are complex. The overall result of their inter-relationship, in the
Ghanaian context, is a significant drain of FFB deliveries away from the processor’s
mill even though this is in violation of the outgrowers’ contracts. The temptation to the
contracted outgrower to divert his production, in defiance of his contract, is exacerbated
under the sharecropping system where shipments of FFB to the mill mean that the
outgrower must immediately share one-third of his sale price with the landowner and
also remain responsible for the repayment of his/her loans with GOPDC. Shipments to
the local mills allow the outgrower to retain the entire sale price. There is no short or
even medium-term solution to the problem of diversion under the sharecrop system
prevalent in the Ghanaian oil palm industry. In the longer term, the President’s Special
Initiative - Oil Palm program that calls for the establishment of farmer owned estates
and mills is expected to provide sufficient incentive for farmers to transport their entire
harvest to their mills (see Chapter 5.2.5).
6.6.6 LAND AREAS DEVOTED TO AGRICULTURE
In terms of total farm size, few Ghanaian outgrowers (6%) farm more than 20 hectares,
whereas 41 per cent of the outgrowers in the Philippines farm total landholdings greater
than 20 hectares. This is a clear indication of land availability in the two areas. In
respect of hectarage of oil palm, the mean land holding in the Philippines is twelve
hectares as compared to the mean land holding in Ghana of four hectares. Again, this
reflects the operational parameters adopted by the two nucleus estates with Agumil
targeting larger landowners and GOPDC targeting small farmers with small land
holdings, often sharecroppers.
Both groups of outgrowers, however, have consciously diversified their farming into
crops other than oil palm. All but four of the outgrowers in Ghana cultivate other crops
as part of their agricultural diversification efforts. Of those outgrowers who do cultivate
other crops, the mean size of their ‘other crop’ land holdings was 6 hectares. In the
Philippines, 30 per cent of the outgrowers do not cultivate other crops. Of those who
do, the farmed area has a mean size of 9 hectares. The main difference between the two
study areas is the fact that only 15 per cent of the Ghanaian outgrowers farm more than
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10 hectares of other crops, whereas 38 per cent of the outgrowers in the Philippines
farm other crop hectarage holdings greater than 10 hectares. Only 36 per cent of the
Filipino outgrowers cultivate other crops in the < 5 hectare range as compared to 53 per
cent for their Ghanaian counterparts. Once again, this reflects the difference between
the land tenure systems and the socio-economic and demographic characteristics of the
outgrowers in the two countries.
The Ghanaian outgrower frequently grows food crops for subsistence purposes but
seldom in commercial quantities, while the Filipino oil palm outgrower seldom grows
food crops on anything but a commercial basis. In both countries, however, the
production of food crops were frequently under-reported as the outgrowers had a
tendency to only respond to land use questions related to cash crops. In part, this was
because most respondents were males in cultures where it is the women’s responsibility
to cultivate food crops, particularly vegetables. In Ghana, other crops cultivated, as
reported by the outgrowers and ranked by total hectarage, were cocoa and citrus,
followed by foodstuffs such as cassava, cocoyam, vegetables and plantains. The
mixture in the Philippines reflected most outgrower’s access to lowland, well irrigated,
farm plots with rice being the most common alternative crop, on a total hectarage basis.
Other crops cultivated by the Filipino outgrower, as ranked by total hectarage, were
coconut (copra), fruit trees, trees such as Gemelina or falcatta (construction or pulp),
foodstuffs, maize, rubber and coffee.
6.6.7 OIL PALM PRODUCTION AS MEASURED BY MILL DELIVERIES
The determination and comparison of oil palm production between outgrowers in the
Philippines and Ghana is difficult because of a number of variables that effect actual
deliveries of FFB to the oil palm mills in the two countries. These variables provide an
explanation of the lower yields from the more mature Ghanaian oil palms than the
yields in the Philippines from their younger palms. They can be grouped into three
headings:
• Agricultural Practices: The methodologies utilised in the production of oil palm vary considerably in spite of the uniformity of the technical advice given by the processors in the two case study areas. Agronomic practices are not as rigorously applied or refined in Ghana as they are in the Philippines.
• Socio-Economic Factors: This group would include factor differentials such as diversification of the outgrower’s cropping systems, level of
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education, farm and family size, business acumen, labour hiring practices, and finally, the extent of the diversion of FFB that takes place.
• Environmental Factors: This group includes annual or seasonal biological and climatological factors that affect production, including variations in rainfall, temperature, soil and nutrients, hours of sunlight and the age of the oil palms themselves. In Ghana, the environmental conditions are not as beneficial for the production of oil palm as it is in the Philippines.
6.6.8 INCOMES OF THE OUTGROWERS
Half of all of the outgrowers interviewed derived all of their income from agriculture.
In Ghana, sixty-nine per cent of the Ghanaian outgrowers have no income sources
outside agriculture. If the seven GOPDC employees who are also outgrowers were
excluded from the dataset, fully 95 per cent of the Ghanaian outgrowers would make
their living from agriculture alone. Only 32 per cent of the Filipino outgrowers rely on
agriculture as their only source of income. The remaining 68 per cent are employed as
teachers, civil servants, optometrists or run small business enterprises. In both of these
cases, the findings are significant in terms of the type of outgrower that each
organisation sought to recruit into the outgrower program. One other observation of
note is the fact that three elements that effect production (as noted in 6.4.7) have a direct
causal relationship to outgrower oil palm incomes in both countries. Incomes reported
from other sources, including other crops, were believed to be under reported.
6.7 Conclusion
This chapter has presented the socio-economic and demographic data on the outgrowers
that was collected from a number of primary and secondary sources during the course of
the field research. The primary data are mostly drawn from the outgrower and
processor interviews, focus group discussions and anecdotal and observational
information gathered at the community level. This primary data made it possible to
draw certain conclusions on the characteristics of the outgrower as a vital component in
the two nucleus estate’s outgrower programs. The data was presented with the objective
of allowing the reader to understand the nature of the outgrowers and how they relate to
outgrowers in other developing countries, particularly those who produce crops other
than oil palm. The research indicates that, if land tenure was taken out of the equation,
outgrowers of oil palm in Ghana and in the Philippines were very similar inspite of their
economic and educational backgrounds. The prevailing socio-economic environment
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influenced the overall success of the outgrower program and ultimately the outgrowers’
own economic well being.
There are a number of implications of the findings from the study that relate directly to
the study of contract farming, in general. The literature on contract farming frequently
contends that small farmers are excluded from contract farming schemes. This
argument finds its basis primarily in research undertaken in the period from 1980 to
1990 as presented by a number of researchers (Buch-Hansen and Marcussen, 1982;
Daddieh, 1994; Glover, 1994; Watts, 1994a; Porter and Phillips-Howard, 1997a) More
recent authors have indicated that there is a greater degree of inclusiveness of small
farmer in outgrower schemes (White and Bhatia, 1998; Weatherspoon et al., 2001;
Narayanan and Gulati, 2002; Vellema, 2002; Warning et al., 2002; Patrick, 2004;
Simmons et al., 2005), although Reardon and Barrett (2000) still maintain that
smallholders are marginalised and excluded in the case of high value crops. The data
collected in the present research concerning oil palm contract farming indicates that in
neither case study area was there any overt attempt to avoid contracting with
smallholder farmers. In fact, it was quite the opposite in Ghana at the commencement
of the GOPDC project in 1975. The planning documents prepared for the GOPDC
project called for the specific targeting of small farmers (World Bank, 1975). The only
limiting criteria for farmer selection were that outgrowers should be mature enough to
have more extensive farming experience; to have large immediate and extended families
for labour purposes; and, finally, to have some capital accumulated as there are high
costs involved in the cultivation of oil palm with no immediate financial returns in the
first three to four years.78 In the Philippines, there was, initially, an attempt to select
outgrowers who possessed capital, larger land holdings and who possessed a
recognisable degree of business acumen. This was done ostensibly to ensure the
successful start-up of the scheme and outgrowers who were selected during the second
and subsequent phases of the outgrower program were largely small farmers (Chang,
2005). Interestingly, as a result of the criteria utilised, some of the first phase farmers
had no prior experience in agriculture at all. As the transaction cost would be high
under these circumstances, the avoidance of smaller farmers was not motivated by
transactional cost savings.
78 The oil palm, depending upon local rainfall, sunshine and temperature regimes, doesn’t start producing fruits until year three or four after being planted and only start to produce at peak levels between years five and eight.
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There is limited literature on the issues involved with outgrower education and training
in agriculture although Minot (1986) and Kirsten and Sartorius (2002) argued that
education levels directly influenced contract clarity, adherence and enforcement.
Uneducated farmers, often smallholders, were at a greater disadvantage under contract
because there was a greater propensity for them to not understand the contract very
well, particularly those sections relating to product quality. In addition, these farmers
would have greater trouble in absorbing and understanding the training sessions offered
by the contract farming sponsor than would other farmers with greater levels of
education. Because of these two factors, contractual relations between this group of
outgrowers and the sponsor are frequently poorer. Under government management in
Ghana, this was certainly the case and relations between the two parties generally were
difficult, at best (Aeschliman, 2001). In the Philippines, the mainstream outgrowers,
possessing higher levels of education, feel confident to raise any issues they might have
directly with Agumil management. Resolutions to perceived or real problems that have
arisen, therefore, were quickly arrived at and conflict avoided.
Most of the literature on contract farming raises gender issues, household relations, the
abuse of family labour and food security as some of the most significant negative
potential outcomes of being under contract (see for example Bülow and Sørensen,
1993; Carney, 1994; Clapp, 1994; Little, 1994b; Watts, 1994c; Porter and Phillips-
Howard, 1996; Runsten and Key, 1996; Coulter et al., 1999; Magdoff et al., 2000;
Singh, 2001; Dolan, 2001b; Doss, 2002; Kirsten and Sartorius, 2002; Narayanan and
Gulati, 2002; Raynolds, 2002). Chapter 8 will discuss these issues in detail but the
present chapter presented data concerning the participation of females in the outgrower
programs. As indicated above, there was no overt gender bias in the selection of
outgrowers by the processors, although there was systemic societal gender bias, i.e.
restrictions on female access to land and agricultural credit. Interviews with the female
outgrowers and anecdotal discussions with women in the communities indicated that
while access to land and credit imposed certain limits on their abilities to enter into
contract farming in the oil palm industry, the heavy physical demands of the crop also
discouraged many women. On the question of child labour, with greater and more
reliable income, in part due to their efforts in oil palm, outgrowers increasingly sent
their children to school and financed business ventures in the villages for their spouses.
The interviews undertaken with the outgrowers indicated little discord within the
household as a result of contract farming and food security never became an issue in
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Ghana as all of the outgrowers indicated that they continued to grow food crops for their
households and for sale in the local community markets. In the Philippines, oil palm
occupies a land zone not previously used for the production of food crops, particularly
rice, and the lack of access to food crops was not reported as a problem by the
outgrowers.
In summary, the selection of outgrowers by Agumil in the Philippines and the GOPDC
in Ghana reflects the variance in their individual methodologies as well as the political
context within which they operated. The establishment of their respective outgrower
programs and their selection criteria for outgrowers were also influenced by the original
rationale for their establishment – on the one hand a social engineering project and on
the other, a purely profit-motivated business venture. As one might expect, the
historical differences of motivations between the two processors would have a
contextual impact on the socio-economic development of their respective contract
farming (outgrower) schemes. In turn, this socio-economic environment will play its
own part in determining the role of contract farming in development.
These differences in the philosophical motivations of the two oil palm processors
became very evident in the resultant outgrowers selected by the two different nucleus
estates. In the Philippines, outgrowers who were selected were credit worthy, possessed
a discernable degree of business acumen, and have larger landholdings or access to
larger tracks of land. In Ghana, those selected had limited access to land, usually under
tenant farming arrangements, and their immediate family could be relied upon to work
as labourers on the farm without having to resort to the use of hired labour. As Chapter
8 will indicate, however, the requirements for labour were so great in oil palm farming
that even the Ghanaian farmer had to resort to engaging labour outside of their families.
The understanding of the basic socio-economic and demographic characteristics of the
outgrowers in Ghana and in the Philippines is a necessary foundation for the next four
chapters. These chapters will consider specific topical subjects relevant to the study of
contract farming: decision-making under contract; employment and farm labour under
contract; technology transfer and training under contract; and, the overall benefits to
both the outgrower and the community from contract farming in the oil palm industry.
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7.0 DECISION-MAKING AND CONTROL UNDER CONTRACT 7.1 Introduction
The trend toward a market-oriented economy, following multilateral trade liberalisation
and structural adjustment and economic reforms implemented in the developing world
in the 1990s, has led to increased integration of world markets (Reardon and Barrett,
2000). The overall result of these changes has been the increasing linkages between
farmers in the developing world and consumers and corporations in the developed
countries. These changes in food and agricultural markets, frequently called the
‘Industrialisation of Agriculture’, have far reaching implications for agricultural
development efforts in developing regions (Kirsten and Sartorius, 2002). They have
also provided the impetus for the development of contract farming systems in
developing countries, particularly for industrial and other cash crops, as governmental
expenditures in the agricultural sector have waned under the pressures of structural
adjustment (Key and Runsten, 1999).
The industrialisation of agriculture in developing countries is often shaped by a
different set of opportunities and threats than those faced by the agricultural sector in
developed countries, leading to notable differences in the institutional arrangements in
the two areas (Kirsten and Sartorius, 2002). The response to the industrialisation of
agriculture in both areas has resulted in a growth of contract farming that increasingly is
coordinating modern agricultural supply chains. The exact nature of the process,
however, can vary widely according to situation-specific variables. Kirsten and
Sartorius (2002:507) suggest that “… contracting, modified to suit country-specific
conditions, can be used as a vehicle to overcome transaction cost barriers, technology,
competition, low prices, the inelasticity of demand and the inherent instability of
agriculture ….”
Over the last 20 years, contract farming in developing countries has been considered as
one system that has considerable potential for providing a way to integrate smallholders
into the export and processing markets of the modern economy (Kirsten and Sartorius,
2002). It is also seen as a means of introducing smallholders to new technology and
new markets while at the same time providing them with secured inputs and prices and
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a self-sustaining developmental environment (Glover, 1987; Vellema, 2002). It has also
been held up as a farming system that offers smallholders yet another form of
exploitation; a system that offers limited equity impact and increased differentiation
within the household and the community (Clapp, 1994; Watts, 1994a).
Contract farming can be seen in terms of vertical coordination; it provides the linkage
between the adjacent stages of the commodity marketing chain in respect of the
quantity, quality, timing and location of supply and demand. The relationship between
the outgrower and the contractor is a valid alternative to the open (spot) market or
vertical integration, as exemplified by a closed plantation-processing operation (Minot,
1986; Key and Runsten, 1999). While contract farming can encompass a great variety
of crops, it is frequently found in association with crops that require at least some
degree of processing or preparation prior to reaching the consumer. Contracts can be
simple or complex in nature, largely determined by the level of supply and services
involved in the contract, land tenure systems and agricultural credit arrangements.
Contracts are also influenced by the type, nature and number of ‘actors’ involved in the
contractual procedure including processors, land owners, outgrowers, financial
institutions and government agencies (Goodman, 1990; Glover, 1990a). The overall
contractual environment, therefore, is created by the specific crop, the region, the level
of service and supply inherent in the processor-outgrower contract arrangements, the
land tenure system, the processing technology, the policy environment and the
interactions between the actors, all graphically presented in Figure 7.1.
The great variations in contract provisions, outgrower farm size, levels of education, the
degree and type of services provided, supplies and technical assistance provided to the
outgrowers and the resultant bargaining relationship between the processors and the
outgrowers all determine the potential degree to which farmer’s control and decision-
making authority over their own factors of production are affected. Due to this
complexity, Minot (1986:72) indicated that it was more useful to examine the patterns
of contract farming by commodity than by any other means.
This chapter will examine the perceptions of the oil palm outgrowers in Ghana and in
the Philippines on the questions of decision-making and control over their farming
operations. This will be done by reviewing the data within the context of the prevailing
position that has dominated much of the literature, namely, that contract farming leads
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outgrowers into a dependency relationship with the contractual system and that it
hastens the exploitation of the outgrower due to unequal power relationships with the
contractor (processor).
Figure 7.1 Contract Farming: A Conceptual Framework
(Source: Adapted from Eaton, 1997; Eaton and Shepherd, 2001)
Project Preconditions: Political Stability Stable Market Demand Conducive Physical,
Cultural & Social Environment
Security of Food Supply
Access to Land Suitable Land Tenure
System Access to Farm Credit Good Infrastructure Adequate Labour and
Access to other Agricultural Inputs
Access to appropriate Technology & Training
Feedback Via: Outgrower Forums Training Venues Extension Systems Farmer Field Days CF Info Systems Farmer and Community
Associations Industrial Associations Government Agencies
Governmental and Institutional Support:
Political Support – Federal, Regional & Local
Legislative & Regulatory Framework
Crop Research, Development, Extension
Crop Info Systems Public Infrastructure Community Services Plant Protection Controls Environmental Control Land Tenure or Land
Lease Security Access to Farm Credit
Project Components: Farmer Selection Field Selection Farmer Training Staff Training Pricing Formulas Contract Formulas Activity Schedules Extension Services Technical Inputs &
Technology Transfer Contract Enforcement Farmer Credit Agricultural Inputs Research and Trials
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7.2 Outgrower Autonomy under Contract As with virtually all discussions pertaining to contract farming, the literature is sharply
divided on the questions relating to the apportionment of risk, control and decision-
making authority under contract. One aspect that is central to this debate, a key theme
of this chapter, is the widely held belief that outgrowers are simply labourers on their
own land, having lost their decision-making power upon entry into the outgrower
contract (Clapp, 1994). The two most common views on the subject focus mainly on
trade liberalisation being the panacea for development versus those who postulate that
there is little to be gained by farmers in developing countries from any form of
globalisation in agriculture.
The proponents of contract farming present the case that contract farming is a means to
ensure agricultural modernisation through the transfer of technology and capital on risk
free terms. They contend that outgrower contracts are freely entered into and serve to
insulate the farmer from the market; allow the farmer to make use of their endowments
in imperfect markets; and arrive at appropriate combinations of income, risk and effort
that reflect their resources and preferences (Minot, 1986; Baumann, 2000).
Minot (1986:73) found that while the literature, of that time, clearly indicated the
presence of conflicts between contract farmers and buyers, they were often related to
issues of product quality control and grading and not directly related to decision-making
and control. He observed that: contract farmers growing annual crops would quickly
withdraw from the contract farming scheme if they find returns to be insufficient; that
where a parallel market existed for the product, leakage or diversion would become a
serious problem unless the processor paid a superior price; and, that in schemes with
long-term contracts, such as oil palm, processors made deliberate attempts to develop
mutual trust between themselves and their outgrowers. Minot’s research concluded that
adverse relationship issues that developed over quality control and grading would be
sorted out in the first few years of a scheme as two things occurred: a) growers became
more conversant in the acceptable product standards, and, b) the processor would
‘refine’ quality and/or grading standards or be forced out of business as growers become
disenchanted with the outgrower scheme.
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In terms of the outgrowers’ sense of a losing control or decision-making power, time
frequently sorted this out as well. In their initial years as contract farmers,
inexperienced outgrowers require more detailed instructions and more frequent
supervision visits from the scheme’s extension program. After a few seasons,
outgrowers have a better understanding of their obligations under the contract (Minot,
1986). Ironically, during the course of the present research, when asked questions on
whether they lost decision-making power or had problems with the contract, evidence
from farmer interviews indicated that the outgrowers were unhappy about the reduction
of visits by the scheme’s extension staff after the first 24 months.
Finally, few would argue against the fact that, historically, public sector agricultural
programs in developing countries have had mixed results in their attempts to
incorporate low income or peasant farmers into the modern agricultural sector (CDC,
1989; Glover and Kusterer, 1990b; Glover and Ghee, 1992; Dorward et al., 2005).
Private sector outgrower programs, on the other hand, have been shown to have the
capacity to provide the necessary technology, farm credit and agricultural inputs
required by small farmers to cultivate and market non-traditional cash crops
(Goldsmith, 1985; Williams and Karen, 1985; Glover, 1986b).
Glover and Lim (1992) acknowledged that contracts could lend themselves to being
exploitative in nature, but they pointed out that outgrower contracts can also bring about
increases in living standards. In addition to raising the incomes of contracted farmers,
contract farming can, under the right circumstances, have positive multiplier effects on
local and sub-regional employment along with infrastructural and market development
(Dirven and Ortega, 1996; Schejtman, 1996). In this sense, Kirsten and Sartorius (2002)
argued that the changing nature of global agriculture itself reinforces contract farming
as an important institution for empowering smallholders in developing countries.
Opponents of contract farming systems emphasise the potentially exploitative
relationships in contract farming and that it is simply a tool of international capital with
little socio-economic value for rural populations and their communities (Vellema,
2002). These critical perspectives of contract farming indicate that it creates
monopsony power ties between processors and outgrowers (Buch-Hansen and
Marcussen, 1982; Clapp, 1988). Some recent studies support this latter perspective and
have indicated that rural populations in general have been directly or indirectly
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disadvantaged through the introduction of contract farming while realising only limited
gains (Glover and Kusterer, 1990b; Clapp, 1994; Daddieh, 1994; Little and Watts,
1994a; Watts, 1994a; Porter and Phillips-Howard, 1997c; Collins and Wingard, 2000).
The introduction of contract farming, according to this body of research, is seen to be a
means by which processors, often National Corporations and Trans-National
Corporations, control the raw material inputs and the prices they pay farmers on the
basis of unequal power relationships (Glover, 1990a; Little and Watts, 1994a).
The introduction of neo-liberal economic policies as part of structural adjustment
programs in recent decades has forced a reduction in public expenditures on farm credit
programs, research and extension programs and the provision of price supports for
staple crops and agricultural inputs (Dirven and Ortega, 1996; Schejtman, 1996). It is
argued that smallholder farmers without access to traditional or modern credit facilities
will be excluded from transforming their mode of agricultural production from a
subsistence level to a more financially secure combination of basic food production and
cash cropping. Indeed, a fair number of case studies identified credit, above expertise,
technology and market access, as the main bottleneck restricting the expansion of non-
traditional crops (Dirven and Ortega, 1996). For the smallholder farmer, mostly peasant
farmers, adjustment policies have had negative effects through the elimination of
subsidised credit and the closure of institutions that were involved in agricultural
support services. Improved export prices, decreased taxation and other adjustment-
related incentives for producers does not always compensate for the effects of state
withdrawal from the rural agricultural sector (Spoor, 2000).
In arguing that neither state ownership nor market liberalisation held the successful
formula for alleviating rural poverty, Dorward et al. (2005:81)indicated that, “While
few would argue that the pre-liberalisation situation could or should have been
sustained, it is widely recognised that liberalisation has not delivered the substantial
agricultural growth needed to drive rural poverty reduction…” Indeed, the results of
market liberalisation and structural adjustment policies have been varied with uneven
results from region to region and even uneven economic benefits within regions. Areas
with high population densities, good rural infrastructure and pre-existing diversified
agriculture and rural economies have fared better than those with less organised rural
economies (Dorward et al., 2005). The former areas can be found mainly in South East
Asia while Sub-Saharan Africa fits well within the latter group. Most studies continue
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to indicate that there is a persistent scope for increased land tenure problems, economic
disequilibrium within communities and disruptions in relationships within households
under liberalised agriculture and contract farming (Carney, 1994; Little and Watts,
1994a; Runsten and Key, 1996; Key and Runsten, 1999). Furthermore, the literature is
dominated by questions related to the outgrowers’ dependency on the contractual
system of agriculture that will ultimately lead to their marginalisation under unequal
power relationships with contractors (Key and Runsten, 1999).
Grosh (1994), in her application of new institutional economics using African case
studies, does not totally accept the arguments of the critics of contract farming. She
presents situations where contract farming becomes a new form of governance that can
adequately deal with market failures, such as imperfect information, low investment
levels and unstable price structures. In her analysis of contract farming, which she
defines as an agro-industrial system located between the spot market and full vertical
integration, Grosh (cf. Vellema, 2002:187) allows for questions such as:
• Does contract farming generate efficiency gains of contract farmers? • Does contract farming provide rewards for the efforts of contract farmers? • Does contract farming facilitate the transfer of technology?
In Vellema’s (2002:187) view, Grosh presented a more “… essentialist picture of
contract farming…” by taking a more centrist position between the advocates (income
generation) and critics (potential exploitation) of contract farming. In the context of the
present chapter, we might also add one further question: Does contract farming affect
the control and decision-making powers of contract farmers and eventually lead to their
subsumption under grower contracts? Any response to this question must recognise that
there are potentially many partners or actors involved in contract farming, all with
different motives; that there are differences brought about by the variety of food or cash
crops being studied; and, that there are also varying local, regional and national
responses to contract farming as an agricultural system. Contract farming, therefore,
had to be judged on both a crop and scheme basis in order to understand its potential as
a means for achieving rural development.
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7.3 Control Over On-farm Production Processes and Decisions
As noted, contract farming has been criticised as being a tool whereby contractors
exploit their outgrowers after the outgrower has invested time and resources into the
cultivation of a particular cash crop. This can certainly be true in the case of tree crops
such as citrus, coffee, tea, rubber or oil palm where the outgrower faces limited exit
options and reduced power in their dealings with the contracting firm. This situation
could lead to their being forced to accept less favourable contractual terms, frequently
with monopsonist entities (Key and Runsten, 1999). More centrally, the critics of
contract farming propose that farmers lose their autonomy because most contracts allow
for the contractor (processor) to control most production decisions while at the same
time shedding risk but increasing their profit margins (Weatherspoon et al., 2001).
Clapp (1994:81), probably one of the most ardent critics of contract farming, portrays it
as “… a form of proletarianisation: it secures the farmer’s land and labour, while
leaving him with formal title to both. The control exercised by the company is indirect
but effective; the farmer’s control is legal but illusory.” It is within this context that
Clapp indicates that contracted farmers are reduced to little more than ‘hired hands on
their own lands’. On the other hand, it can also be argued that heavily indebted
subsistence farmers have much the same status (Watts, 1994b; Kirsten and Sartorius,
2002).
Kirsten and Sartorius (2002) postulate that farmers in both developed and developing
economies are prepared to accept reduced autonomy in order to expand or diversify
their agricultural production. Contract farming allows outgrowers entry into cash crop
sectors that would frequently be beyond their productive scopes. Through contract
farming, growers can also reduce costs while gaining access inter alia to information,
markets, technology, and managerial skills (Clapp, 1994; Glover, 1994; Little, 1994b;
Vellema, 2002). In the context of developing countries, contract farming can also
provide access to agricultural capital and/or credit (Baumann, 2000; Hudson, 2000).
Contracted farmers frequently report that under contract they experience reduced
marketing risks and higher and more stable incomes and, therefore, a greater sense of
economic security (Jackson and Cheater, 1994; Watts, 1994b; Runsten and Key, 1996).
Contracts may also simplify production and marketing decisions, improving farmer’s
effectiveness (Hudson, 2000). In developing countries, improved income opportunities
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can result from a diversification away from traditional crops into high value crops
leading to higher absolute incomes (Williams and Karen, 1985; Korovkin, 1992;
Glover, 1994; Coulter et al., 1999). Kirsten and Sartorius (2002:516) indicated that, in
summary, contract farming in developing countries provided farmers with “the means to
journey from subsistence farming to commercial farming within a more protected
environment.”
Notwithstanding the views of the proponents and opponents of contract farming, there
remains the real possibility that, without due diligence, farmer’s decision-making
authority under contract can be reduced to such a degree that farmers are turned into
quasi-employees (Kirsten and Sartorius, 2002). The greater the degree of involvement
in the productive processes by the processor, the greater the propensity for a breakdown
in contractual relations unless extreme care is exercised. During the course of the
present research, the involvement of the processor in the productive process ranged
from very instructive, in the case of the Philippines, to minimal involvement, in the case
of Ghana. In part, this reflects the respective ages of the outgrower schemes in the two
study areas and, in part, the preoccupation with deliveries of FFB in Ghana where the
practice of diversion remains a serious problem.
The development of oil palm on the GOPDC nucleus estate and the outgrower scheme’s
areas in the Eastern Region of Ghana in 1975 was the not the first cash tree crop
introduced into the area. Cocoa and rubber farms had previously been established in the
area but neither on a contract farming basis (Addo, 2000). The outgrower scheme
introduced by GOPDC involved production contracts wherein outgrowers were
provided with oil palm seedlings, fertiliser and other chemicals, as required, on a loan
basis. Instructions were periodically issued to the outgrowers by GOPDC concerning
the timing and extent of weeding, pruning and harvesting. Extension agents provided
either group or on-farm instructions to the outgrowers and their farm labourers on how
exactly to undertake weeding, pruning, the harvesting of the FFB and how to prevent
soil erosion and degradation (Amoh-Otu, 2004).
As Figure 7.2 and 7.3 indicate, there was a considerable change in the manner that
farmers went about their farming business. Prior to this time, farming was largely a
family operation with experience passed down from one generation to another. Advice
was mainly sought from their extended family members. Figure 7.2 indicates that 85
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per cent of the respondent outgrowers conducted their agricultural business in this
manner. Only 15 per cent reported that their farming decisions were based on training
they had received or based on professional advice from governmental bodies.
Figure 7.2 Decision-Making by GOPDC Outgrowers: Before Contract
15.0
85.0
0.0
20.0
40.0
60.0
80.0
100.0
Experience/Family Consultation Training/Advice
Responses
Perc
enta
ge
Figure 7.3 Decision-Making by GOPDC Outgrowers: Under Contract
11.1
88.9
0.010.020.030.040.050.060.070.080.090.0
100.0
Follows GOPDC Advice Fully Listens GOPDC/Makes Own DecisionResponses
Perc
enta
ges
The introduction of the oil palm contract farming scheme brought about a considerable
change in the way the Ghanaian farmers made their farming decisions. The production
contracts that were introduced were considerably interventionist as there remained few
areas where the outgrowers held decision-making powers. Under contract, (see Figure
7.3) nearly 89 per cent of the farmers completely followed the advice of GOPDC for
their oil palm farming activities. Eleven per cent of the respondent outgrowers
indicated that, while they listened to the advice of GOPDC extension agents, they made
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their own decisions concerning their oil palm farms based upon their own experience or
advice from other sources.
The prevailing opinion of the responding outgrowers was that, since oil palm was a new
crop to them, it was best to follow the advice of GOPDC. As Interviewee AS-002
(Outgrower Interviews, 2004) related, “GOPDC tells me how to plant and what the
correct way of doing things is, when to weed, and how to prune. The extension agent
informs me of the scheduled weeding twice per year. I am happy to just follow their
lead.” Another Interviewee (AS-003) had a rather insightful way of dealing with his
loss of autonomy under contract when he said, “GOPDC extension agents inform me of
what needs to be done. They [GOPDC] are somewhat overbearing at times but,
generally, I am okay with following them.” Interviewee AS-006 added, “Everything I
do is based on GOPDC instructions. While this is worrisome, I realise that it will be
helpful to me in the future to earn more income, so I just follow them.” These
sentiments were indicative of the comments expressed by the majority of the Ghanaian
outgrowers on this topic.
While they clearly understand that GOPDC has taken away some of their freedom in
terms of decision-making, they have rationalised their situation, often by way of their
increased incomes. Most of the outgrowers have diversified their agriculture base and
they are producing other tree crops such as cocoa, citrus and/or rubber. On this basis,
some of the outgrowers have declared that their loss of autonomy, in terms of oil palm,
was acceptable because they still had full authority over their other crops. It is worth
noting, however, that virtually all of the outgrowers reported that they have applied
much of the oil palm technology, such as weed control or land conservation techniques,
in the cultivation of their other tree crops and have increased their income in these areas
as well.
In a similar fashion, 68 per cent of the responding Filipino outgrowers, prior to entering
into contract, indicated that they relied upon their own or their families’ farming
experience when making on-farm decisions (Figure 7.4). Twelve per cent indicated that
they based their decision-making on agricultural training that they received or advice
from relevant governmental officials. Twenty per cent cited other means by which they
were assisted in the decision-making process.
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Figure 7.4 Decision-Making by Agumil Outgrowers: Before Contract
12.020.0
68.0
0
20
40
60
80
Experience/FamilyConsultation
Training/Advice Other Factors
Responses
Perc
tent
age
Unlike their Ghanaian counterparts, however, the Filipino outgrowers were
considerably less subservient to their outgrower contracts. As indicated in Figure 7.5,
only 53 per cent of the outgrowers reported that they completely followed the direction
and advice of the Agumil extension agents while a further 33 per cent said that they
listened to the advice provided but then made operational decisions based upon their
own farming experience. The weak faith in Agumil’s technical system results from the
prevailing belief by the outgrower community that Agumil’s recommended fertiliser
rates were excessive. With this and other reservations, a further 13 per cent of the
outgrowers reported that they made all of their own farming decisions. This does not
necessarily mean, however, that Agumil’s advice was not considered in their decision-
making process.
Figure 7.5 Decision-Making by Agumil Outgrowers: Under Contract
13.3
33.3
53.4
0
20
40
60
Follow s Agumil Advice Fully Listens to Agumil/Makes Ow nDecision
Makes Ow n Decisions
Responses
Per
cent
age
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7.3.1 INITIAL PERCEPTIONS ON AUTONOMY CONCERNING DECISION-MAKING
In spite of these findings, responses to a related question on whether the outgrowers felt
that their relative decision-making power from before to after being an outgrower had
changed were contrary to what might have been expected. As indicated in Figure 7.6,
sixty nine per cent of the Ghanaian outgrowers reported that they had not experienced
any change in their power (autonomy) after entering into contract in spite of the fact that
89 per cent of them fully adhered to the farming instructions given to them by the
scheme’s extension agents. Clearly they did not view the scheme’s high levels of initial
intervention as something that reduced their autonomy. In contrast, only 40 per cent of
the Filipino outgrowers felt that there had been no decrease in their decision-making
autonomy subsequent to entering into their outgrower contracts. Thus, 60 per cent
indicated that they had lost power in spite of the fact that only 53 per cent of their
number followed the scheme’s prescriptions without question. In terms of combined
total numbers, roughly 50 per cent of the outgrowers in both countries felt that they had
lost power and 50 per cent felt that they had not. In the final analysis of this question it
is important to realise that differences in the cultural and political environments would
also flavour the responses of the two groups of outgrowers.
0.0
20.0
40.0
60.0
80.0
Percentage
Figure 7.6 Do you think that your decision-making power has changed since you became an outgrower?
No 68.8 40.5 52.7
Yes 31.2 59.5 47.3
Ghana Philippines Combined
7.3.2 PERCEIVED CHANGE AFTER BEING AN OUTGROWER FOR SOME TIME
As indicated in Figure 7.7, fifty-five per cent of the outgrowers in the two outgrower
schemes felt that their power had remained the same in terms of long term decision-
making and autonomy. The percentages making up this combined figure were 54 per
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cent for Ghana and 56 per cent for the Philippines. Under contract, 31 per cent of the
Filipino farmers believed that they had gained power under contract against 21 per cent
of the Ghanaian outgrowers. Conversely, the percentage of Filipinos who felt they had
lost power was only 13 per cent against the Ghanaian value of 25 per cent.
0.0
20.0
40.0
60.0
Percentage
Figure 7.7 As an outgrower, have you gained or lost decision-making power or has it remained the same?
Gained Power 21.0 31.0 28.0
Lost Power 25.0 13.0 17.0
Same Power 54.0 56.0 55.0
Ghana Philippines Combined
7.3.3 PERCEIVED BENEFITS OF LIVING UNDER CONTRACT
The most tangible benefit of being under contract was reported to be ‘the experience
and training gained’ from the technology transferred under the outgrower scheme
(Figure 7.8). In the Philippines, 36 per cent of the outgrowers cited this as the key
benefit. In Ghana, 23 per cent reported this item as a benefit but, unpredictably, 77 per
cent of the Ghanaian outgrowers indicated no benefits other than they liked the
contractual system. In the Philippines, 37 per cent also took this view with a further 27
per cent indicating miscellaneous benefits. Combining the two study areas resulted in
nearly 50 per cent reporting no benefits other than they appreciated the outgrower
contract system.
7.4 Contractual Terms and Conditions
7.4.1 OUTGROWER CONTRACTUAL PROBLEMS
The incidence of reported problems with their respective contracts varied little between
Ghana and the Philippines. As can be noted in Figure 7.9, sixty per cent of the
combined outgrowers report that they are not experiencing any difficulties with their
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contracts. In Ghana 42 per cent reported having difficulties against 39 per cent in the
Philippines.
0.0
20.0
40.0
60.0
80.0
Percentage
Figure 7.8 How do you feel that you have benefited from being an outgrower?
Gained from theexperience/training.
23.5 36.0 32.0
No Change but Like NewSystem
76.5 37.0 48.0
Other Perceived Benefits 0 27.0 20.0
Ghana Philippines Combined
0.0
20.0
40.0
60.0
80.0
Percentage
Figure 7.9 Do you have any problems with your outgrower contract?
No 58.3 61.2 60.0
Yes 41.7 38.8 40.0
Ghana Philippines Combined
In Ghana, the primary contractual problem reported by 22 per cent of the respondent
outgrowers was the length of the contract that, at 25 years, was seen to be too long
(Figure 7.10). The issue is three-fold. In the first instance, the oil palm reaches its
maximum production levels at the age of 18 to 20 years. Second, the oil palm at this
age becomes very difficult to manually harvest because of its height. Finally, in Ghana
palm wine is produced in the fallen trunk of the oil palm and, given its social and
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cultural uses, it is highly sought after and is a source of income for farmers in palm oil
producing areas of Ghana. Thus, there is considerable agitation by the Ghanaian
outgrowers to have the length of the contract reduced to 18 and even 15 years.
0.0
20.0
40.0
60.0
Percentage
Figure 7.10 What problems are you having with your outgrower contract?
Ghana 11.1 22.2 5.6 2.8 58.3
Philippines 28.6 0 2.0 4.1 65.3
Pricing-Grading
Contract Length
Harvest-Fertilizer
Transport Costs
No Problems
The second issue of note concerns the pricing and/or grading systems. This was
reported by 11 per cent and 29 per cent of the outgrowers in Ghana and the Philippines,
respectively. In both study areas, world market prices are paid for the FFB, adjusted for
the quality of the fruit. Ostensibly, the issue in Ghana is one of the care and
maintenance of the oil palms coupled with their productive age. The outgrower
program, while having increased since 1995 both in size and in terms of replanting, is
quite mature as are a large number of the palm trees. This affects not only their output
but also the quality of their oil. Thus, a number of managerial and environmental
factors influence yield (Corley and Tinker, 2003). In the Philippines, the issue is one of
transparency in the grading of the FFB’s oil content. Most of the outgrowers agree that
this issue is being addressed by Agumil. Agumil has acknowledged that they will have
to provide for greater openness in both the weighing of FFB deliveries and in the
grading of oil content, two areas of concern to the outgrowers. The outgrowers for their
part also realise that their trees are not mature and therefore, the payments that they
receive reflect this as the pricing formula is determined, at least in part, by oil content.79
The other areas of concern that were cited by the outgrowers were the frequency of
harvest, the quantity of fertiliser use being recommended and the high cost of
79 Focus Group Discussions in Agusan del Sur, Mindanao, Philippines, February 2004.
- 175 -
transportation of FFB to the mill. In the Philippines, the Agumil outgrower scheme has
recommended harvesting three times per month. Many of the outgrowers have
contested this on the basis that their trees are still immature and a third monthly harvest
will involve increased expenditures for additional part-time labour. In addition to this, a
number of the Filipino outgrowers feel that the level of fertiliser use is excessive and
have unilaterally reduced the amount that they had been applying. Finally, the
outgrowers in Agusan del Sur have also raised the issue of the high cost of
transportation of their FFB to the estate mill at Trento. Agumil has made the decision
that outgrowers within the Province do not require assistance because they are
geographically closer to the mill compared to some of their outgrowers outside of the
Province who are farther away from the estate and its processing mill.
In Ghana, the issue concerning the fertiliser relates to the fact that, since 1995, the
privatised GOPDC no longer provides soft interest loans to the outgrowers to purchase
fertiliser. This has also applied to the organic fertiliser that is now produced on the
estate since the firm has gone into organic production. Without the loans, the
outgrowers infrequently use fertiliser and their overall production has been declining
along with their incomes. While the FFB are purchased at a number of sites in the
twelve outgrower districts, it is still contingent upon the outgrower to get his/her harvest
to the collection sites. Many outgrowers complained about this system that came about
with the privatisation of the company, because they are effectively at the mercy of local
transporters who service the farmers.
7.5 Relationships with the Processor
Contrary to much of the literature that suggests that there will always be a class struggle
between the contractor and outgrower, the outgrowers who took part in the present
research reported that they maintained good relations with the processors, both of whom
are trans-national corporations, in their respective countries (Figure 7.11). In Ghana, 64
per cent of the interviewed outgrowers reported that they had good relations with
GOPDC and had no concerns about their relationship. The remaining outgrowers
indicated that, while they considered that they had a good relationship with the
processor, 22 per cent wanted to see the fertiliser loan program re-activated; 6 per cent
wanted to see more feeder roads to their farms constructed by GOPDC and 8 per cent
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wanted to see higher prices being paid for their FFB deliveries to GOPDC. None of the
outgrowers interviewed indicated that they had bad relation with the processor.
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Percentage
Figure 7.11 Outgrowers Relationship with the Processor in Ghana and in the Philippines
Ghana 63.9 22.2 5.6 8.3 0.0
Philippines 67.4 0 4.1 24.5 4.0
GR - No Concerns.
GR - wants fertilizer loans
GR - wants feeder roads
GR - wants better price Bad Relations
In the Philippines, 67 per cent of the outgrowers indicated that they had good relations
with Agumil and that they had no concerns of any importance. Four per cent of the
Filipino outgrowers stated that while they maintained good relations with the processor,
they were having difficulties in convincing Agumil to construct feeder roads to their
property. Finally, while maintaining that they had good relations with Agumil, 25 per
cent of the Agusan del Sur outgrowers reported that they wanted higher prices for their
production. The issue of prices was raised repeatedly during the research. This relates,
in part, to the question of oil content in the FFB from the immature palms of the
outgrowers in 2004. For the most part, the oil palms were 2 to 3 years old and the
quantity and quality of their production did not attract premium prices. Admittedly,
there is no process under which the tests for oil content and quality done at Agumil’s
mill are verified by an independent expert. As the literature on contract farming quite
aptly points out, ‘herein lays the problem’. The other source of disquiet in the Province
relates to the estate mill at the Filipinas Oil Palm Plantation Incorporated (FPPI). In
2004, FPPI offered US$ 10 per ton of FFB more than Agumil and, while the Agumil
outgrowers were contractually obligated to sell their production to Agumil, the price
variation did not sit well with the contracted outgrowers. In 2005, FPPI implemented
an outgrower scheme and the price differential will likely disappear. It must also be
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noted that Agumil, quite fairly, charges their outgrowers for part of the costs of
operating the outgrower extension program, which in turn impacts upon the outgrower’s
receipts.
7.5.1 GOVERNMENT VERSUS PRIVATE SECTOR CONTRACTING
An additional question was asked of the outgrowers in Ghana relating to any changes in
the relationship between themselves and the GOPDC when it was formally a
government-owned entity and now that it has become a private sector-owned entity.80
As shown in Figure 7.12, 62 per cent of the respondents reported that their relationship
with the private sector trans-national corporation who now own GOPDC is much better
than their previous relationship with the government-owned parastatal. Thirteen per
cent reported no change but 25 per cent reported that they were worse off following the
sale of GOPDC to the private sector. The reasons most often cited for this were: the
end of the fertiliser loan program; the end of government-donated Wellington boots and
cutlasses; and the collection of their FFB at the farm gate. In the minds of these
outgrowers, the higher prices paid within days of FFB deliveries, does not compensate
for these changes.
Figure 7.12 How would you rate your relationship with the privately-owned GOPDC compared to the previously
Government-owned GOPDC?
62%
25%13%
Better Worse Same
80 The questions relating to the changeover at GOPDC in Ghana from government ownership to private sector ownership was an interesting aspect of the research, one that could be explored to a greater depth in future research. Based on the literature of Daddieh, C. K. (1987), Gyasi, E. A. (1996) and Aeschliman, C. (2001), the government mishandled the establishment and operation of the GOPDC to such an extent that government’s (GOPDC’s) relationship with both the community and the local farmers was poisoned to such a degree that even the rent free allocation of oil palm estate lands for the ‘smallholder’ farmers and the creation of the outgrower scheme were not able to overcome the animosities that existed. These ‘hard feelings’ even existed up to 2001, six years after the GOPDC was taken over by private sector interests, whose main focus in the early years was to rectify the history of animosity between the firm and its outgrowers. It was apparent from outgrower responses that by 2004, this goal had been largely reached. The questions on ownership were not directed to the Filipino outgrowers since Agumil had always been a private sector initiative. Agumil established its plantation in 1983 and ostensibly did not start its outgrower program until 1999. Governmental involvement was quite miniscule with even relatively little regulatory oversight during this period.
- 178 -
7.6 Conclusion
There was a considerable change in the manner in which Ghanaian farmers went about
their farming business under contract farming. Since farming was largely a family
operation with experience passed down from one generation to another, advice was
mainly sought from family members. This time tested system remained true to the
present with 85 per cent of the respondent outgrowers indicating that they still
conducted their agricultural business in this manner. Nonetheless, in reference to their
oil palm farming activities, these same outgrowers indicated that they follow the advice
of GOPDC on all aspects of its production. They rationalised this by saying that they
felt it was in their best interests as oil palm has increased their income. Furthermore,
they have applied much of the oil palm technology, such as weed control or land
conservation techniques, in the cultivation of their other tree crops and in so doing, have
increased their income from these crops as well.
The situation was somewhat similar in the case of the Filipino outgrowers. Prior to
entering into oil palm outgrower contracts, 68 per cent of the respondent outgrowers
indicated that they relied upon their own or their families’ farming experience when
making on-farm decisions. But unlike their Ghanaian counterparts, Filipino outgrowers
were considerably less rigorous in observing the terms of their outgrower contracts,
particularly when it came to the application of technology. Only 53 per cent of the
outgrowers reported that they completely followed the direction and advice of the
Agumil extension agents while a further 33 per cent said that they listened to the advice
provided but then made operational decisions based upon their own farming experience.
In terms of farmer autonomy, the majority of the Ghanaian outgrowers reported that
they had not experienced any change in their power (autonomy) after entering into
contract inspite of the fact that 89 per cent of them fully adhered to the farming
instructions given to them by the scheme’s extension agents. Conversely, sixty per cent
of the Filipino outgrowers felt that they had surrendered some of their autonomy and
felt that the relationship that they had with Agumil was much more dependant than they
felt in the case of their other crops. However, as noted by Kirsten and Sartorius (2002),
entry into the oil palm industry by individual farmers would not be as easily facilitated
without the technological and financial support that the processors provide. It should
also be noted that the Filipino outgrowers, while previously producing commercial
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crops, had done so for an existing spot market and not for the export and processing
market. The relationships that they would develop would be quite different.
In terms of benefit of being under contract, the outgrowers in both the Philippines and
in Ghana reported that the primary benefit of being an outgrower was the value they
placed in ‘the experience and training gained’ from the technology transfer under the
terms and conditions of their contracts. This perspective supports Vellema’s (2002)
argument that contract farming is a legitimate means of introducing farmers in
developing countries to both new technology and markets within a self-sustaining
developmental environment.
The incidence of problems with their respective contracts varied little between Ghana
and the Philippines. The primary contractual problem reported by Ghanaian outgrowers
related to the length of the contract that the Ghanaian outgrower wants to see reduced
from 25 years to 18-20 years. For the Ghanaian outgrower, the issue relates to the care
and maintenance of the oil palms coupled with their productive age. This problem was
not raised by the Filipino outgrower. The second issue of note was common in the case
of both groups of outgrowers, namely, the pricing and/or grading systems. In the
Philippines, the issue is one of transparency in the grading of the FFB’s oil content. In
recent years, GOPDC, recognising the limited understanding by their outgrowers on
how prices for palm oil are determined, have spent considerable efforts to explain to the
outgrowers how world market prices for the crop are determined and how they are
influenced by the quality of the palm oil. While their efforts have been successful to a
certain degree, the outgrower survey indicates that much more needs to be done in this
area.
Other areas of concern that were cited by the outgrowers were the frequency of harvest
(three times per month in the Philippines), the quantity of fertiliser use being
recommended (many of the Filipino outgrowers believe that Agumil is recommending
an over-application of chemical fertiliser) and the high cost of transportation of FFB to
the mill. This latter point was cited by the outgrowers in both Ghana and in the
Philippines.
The responses generated from the semi-structured interviews of outgrowers in both the
Philippines and Ghana support the arguments presented by Minot (1986) that conflicts
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between contract farmers and buyers often relates not to decision-making and control,
but on issues relating to product quality control and grading. The findings also support
Minot’s view that adverse relationship issues that develop over quality control and
grading issues would be sorted out as growers become more conversant in the
acceptable product standards and as quality and/or grading standards are refined by the
processors. The findings also support Grosh’s (1994) views that there are varying local,
regional and national responses to contract farming as an agricultural system and as
such, contract farming had to be judged on a case-by-case basis. As noted by Glover
and Kusterer and Goodman (1990; , 1990b), the composure of the contracting
environment is created by and influenced by a great number of factors, including the
crop, the political and economic environment, the level of complexity of the contract,
technology and the relations between the ‘actors’, amongst other aspects inherent in
farming contracts. This was, generally, found to be the case in both Ghana and in the
Philippines.
The next chapter will present an analysis of the data collected during the course of the
research on employment creation and the use of family farm labour. As part of the
review of employment creation an analysis will be undertaken on the level of
employment created by the growers themselves in their communities. The chapter will
also assess the level of impact that the entry into contract farming in the oil palm
industry has on both family labour and family relationships. The implications of the
research findings in these labour related areas will be analysed in terms of the key
conceptual debates that arise in the literature.
- 181 -
8.0 Employment and Farm Labour under Contract
“The misery of being exploited by capitalists is nothing compared with the
misery of not being exploited at all.” 81
8.1 Introduction
As noted at various points in preceding chapters, while responding to the question of
‘whether contract farming contributes to development’, the reactive response is that the
variables involved in outgrower schemes are much too complex to arrive at any holistic
pronouncements on the matter. After further consideration, however, certain
generalities can be arrived at through a scrutiny of the key variables involved in contract
farming. This is particularly true if the application of the research findings are applied
to the immediate geographic proximity of the outgrower scheme. This chapter will
focus on one of these key variables that relates to the processes of employment creation.
It also involves the use of family labour, an assessment of the quantity and quality of
labour and the creation of ancillary employment opportunities in direct response to the
establishment of the oil palm industry in the Eastern Region of Ghana and on the island
of Mindanao in the Philippines.
In the oil palm industry, employment creation has been one of the key economic
justifications used by both government and private industry for the establishment of
industrial estates and, since the mid-1960s, their expansion into outgrower or contract
farming systems. Such was the case when the World Bank financed, in 1975, the first
oil palm project at Kwae in the Eastern Region (Ghana Oil Palm Development
Corporation) with the Government of Ghana after years of project planning. The
Bank’s appraisal document cited three main benefits from an investment into the
government’s proposed oil palm venture: import substitution, wealth creation and
absorption of surplus rural labour. Thus, a key reason for the multi-million US dollar
investment by the Government of Ghana with loans from the World Bank was
predicated at least in part on the perceived need for employment generation as a means
of achieving economic development (Gyasi, 2004). The World Bank (1975:22)
approval document stated in part, “At full maturity, the project would provide
81 Joan Robinson (1962), Economic Philosophy: An Essay on the Progress of Economic Thought, Doubleday Anchor, Chicago, Pg. 45.
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employment for about 250 farmers and 600 staff and labourers at GOPDC headquarters
and on the plantation.” 82
The rationale in the Philippines was similar, the motivations being reversed with export
promotion as the first priority, followed by import substitution and then employment
creation (Government of the Philippines, 2000a; Government of the Philippines, 2000b;
Callano, 2004). It is important to note that the first oil palm plantations established in
the Philippines in the 1960s were private sector initiatives. It was not until 1981, with
the establishment of the government-private sector initiative in Agusan del Sur (FPPI),
that any real governmental encouragement of the oil palm sector took place, inclusive of
economic development objectives (Dy, 2004; Grino Jr., 2004). Outgrower programs in
the Philippines were not seen as an appropriate vehicle for the development of the oil
palm industry until the 1980s when the impacts of the Comprehensive Agrarian Reform
Program (CARP) began to be felt on the plantation farming systems in Mindanao (Dy,
2004; Chang, 2005).83 In effect, the creation of an outgrower scheme was seen as a
legitimate mechanism for compliance with the Land Reform Laws while at the same
time ensuring that oil palm production was maintained and even increased (Dy, 2004).
Notwithstanding this, the absorption of surplus labour in Mindanao has always been an
important result obtained from the oil palm industry, with the labour force on the
nucleus estates being primarily engaged on a full-time basis (Cinco, 2004; Chang, 2005;
Cinco, 2005). Indeed, labour demands in Agusan del Sur have been so robust in recent
years that the province has experienced an influx of unemployed labour from other parts
of the Philippines such as the Visayas Region in central Philippines. This in-migration
has created considerable pressure on the Provincial Government of Agusan del Sur to
provide additional services and infrastructure for the growing population while at the
same time receiving relatively stable budget allocations from Manila during these same
years (NEDA, 2003; Provincial Planning and Development Office, 2004).
82 These targets were not overly ambitious. The estate employed over 600 workers and staff and by the time the project’s first phase ended in 1985, 202 smallholders on 800 hectares and 116 outgrowers on 552 hectares were producing FFB for the estate’s mill. This represented the equivalent of 6,400 direct beneficiaries of the project when the supported family members have been taken into consideration (World Bank, 1984a). 83 The CARP was enacted in 1988 as a means of achieving a more equitable distribution of farmland in the Philippines. Although primarily directed at large non-functioning farming estates, it proved easier for government to show progress in the implementation of the CARP through its application on industrial estates (plantations). The implementation of the CARP on the land holdings of the ‘landed gentry’ in the Philippines, then and still, remains an intractable problem facing successive national governments.
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The present research in Ghana and the Philippines, undertaken in an effort to ascertain
the role of contract farming plays in agricultural development, looked beyond the
nucleus estate and the processing mill to the broader question of what employment was
created by the outgrower schemes themselves and under what conditions this
employment was created. Following on from the debate in the literature on labour
issues, and within the context of local and regional development, this chapter will
present data collected during direct farmer and processor interviews along with the
outputs from focus group discussions with farmers and other interest groups. Through
oil palm contract farming, employment creation in the two study areas will be viewed in
terms of the jobs created by the outgrowers themselves and indirectly through the
introduction of oil palm cultivation and outgrower schemes into the local community.
As part of the review of employment creation in this chapter, three main questions will
be addressed: a) While acknowledging that the oil palm estates and their processing
mills created verifiable employment and outgrowers were engaged in the production of
FFB from their farms, what employment was created by the growers themselves in their
communities?84 b) What impact has the outgrowers entry into contract farming had on
‘family labour’ and family relationships? c) What has been the impact of the nucleus
estate-outgrower scheme on the availability of labour and its quality?
Finally, this chapter will analyse the outcomes of the field research, review the
conclusions and implications of the research in terms of the key conceptual debates that
arise in the literature and present the implications of employment generation on rural
development through the establishment of the oil palm industry in the two study areas.
8.2 Employment Creation and Development
8.2.1 EMPLOYMENT CREATION AND CONTRACT FARMING A fair amount of attention has been devoted in the literature to labour-related issues in
contract farming. Of these, the most frequently discussed issues have included: unpaid
family labour, including child and spousal labour; gender and familial relations;
company/scheme staff/farmer relations; control of the farmer’s two factors of
84 The focus was on the engagement of farm labour by outgrowers and on additional economic impacts of the outgrower’s purchase of goods and services in their local communities. Future research on this latter point would provide an interesting addition into the present research.
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production - land and labour; farmer marginalisation, dependency and
proletarianisation; and, the general impacts upon non-scheme farmers and the
community (see, for example, Goldsmith, 1985; Bülow and Sørensen, 1988a; Watts,
1994a; Porter and Phillips-Howard, 1997a; Grossman, 1998; Baumann, 2000; Singh,
2001; Dolan, 2001b; Raynolds, 2002; Warning and Key, 2002; Singh, 2002a). Central
to much of the recent research on the impact of contract farming is the question of
whether it contributes to development. Far less attention has been given to the question
of employment generation per se, and its relationship to rural development, in spite of it
being frequently cited in the literature as a justification for outgrower schemes (Ellman,
1986). Literature pertaining to the relationships between employment creation and the
specific parameters pertinent to local and regional development has also been very
limited.
As stated earlier (see Chapter 2), much of the earlier commentary on contract farming
was highly polarised and represented differing yet absolute verdicts on contract farming.
These polarised positions have been described as emanating from either the food first
school or the business first school (Little and Watts, 1994a; Baumann, 2000; Magdoff et
al., 2000; Vellema, 2002). The food first theorists see contract farming simply as an
exploitative extension of international capital, while the business first school sees
contract farming as an opportunity for the transfer of technology to smallholders and the
means by which they can enter the market with minimal risk (Glover and Kusterer,
1990b; Little, 1994b). These polarised debates are most evident in research that focused
on labour considerations.
There is, however, a body of literature that is more centrist in its assessment of the
issues involved in contract farming, particularly in its relationship to economic
development. The questions of employment generation and family farm labour have
increasingly been presented and discussed within the context of a developmental
perspective. Interestingly, these ‘more objective’ reviewers of contract farming as a
tool for development have all pointed out that very few opponents or proponents of
outgrower schemes have produced viable comparative research data on contract farming
(Williams and Karen, 1985; Baumann, 2000).
Addressing this particular gap in the literature, Glover and Kusterer (1990a), Glover and
Ghee (1992) and Little and Watts (1994a) all attempted cross-country or regional
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comparative studies of contract farming. The Commonwealth Development
Corporation (1989) also undertook an earlier study focused on CDC’s own projects in
East and Southern Africa. All four of these studies attempted to address and identify
the conditions under which contract farming can bring about rural development. They
also all addressed the dual questions of employment generation and family labour.
Porter and Howard (1997a:227) observed that “… Glover [with Kusterer and Ghee] is
more positive, overall, in his perceptions of contract farming arrangements than are
Little and Watts.” Notwithstanding this assessment of their overall views, both sets of
authors have strongly expressed the view that care must be taken in the extrapolation of
conclusions from individual projects or even combined regional studies onto other
outgrower schemes or regions.
This hesitancy to extrapolate from individual projects results from the belief that “…
the diversity of contract farming is so great that it is better to focus on the motives and
power relationships of contracting parties than on the generic institution” (Little,
1994b:217).85 Singh (2000b:284) supported this view and added, “There is so much
diversity in the type of firms, farmers, nature of contracts, crops and the socio-economic
environment that it is better to focus on the specific situation than the generic institution
of contract farming.” Singh (2000b:283) went on to argue that, “… it is the context of
the contract which influences the workings and outcomes of contracts.” In addition, the
way farmers perceive contract farming, and define their relationships with agro-
processing firms differs considerably across cultures and space (Asano-Tamanoi, 1988).
These observations on the multiple facets of contract farming across cultures, regions
and crops will become apparent during the discussion of labour issues in the oil palm
industry arising from the present research. The broader conceptual debates that arise
from the literature, of necessity, will have to be analysed in terms of these differences at
a later point in the chapter.
8.2.2 REFLECTIONS ON THE USE OF HIRED LABOUR
Little (1991:18) observed that scarce attention has been devoted to the question of hired
labour in contract farming studies. His observation (Little, 1991:22) was a prelude to 85 Following the field work undertaken by the author, there is a greater appreciation of why so little comparative analysis has taken place across regions, crops, etc. After reviewing the literature available and then embarking upon specific crop and region-bound field research, the researcher quickly became dissuaded from any belief that the political, economic, geographic, biological and cultural playing fields are level enough to make anything but generalisations on the pros and cons of contract farming.
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the proposition that “Analysis that includes contract labourers and neighbouring farmers
provides a more accurate assessment of the effects of contract farming on rural
differentiation than does a focus on growers only.” Magistro (1999:2) summed up
Little’s argument to say, “What happens on the farm under contract, may or may not be
positive off the farm, and may have ancillary effects on a broad range of actors beyond
the immediate purview of the contract.” Little’s position in this regard is quite valid
and research into the role contract farming plays in regional and even area development
does and should go well beyond the immediate benefits derived by a contract farming
schemes actors. Little (1994b:228-229) cites the example of the International Food
Policy Research Institute (IFPRI) study, undertaken by Kennedy and Cogill (1987), of
an outgrower scheme in Kenya that suggested that contract farming does not cause food
security problems. While Little avoided making negative comments on this earlier
document, he did point out that the Kennedy and Cogill study was based solely upon
outgrower interviews and lacked any consideration of the views of local non-scheme
farmers and labour (Porter and Phillips-Howard, 1997a:234).
Little (1994b), in his paper ‘Contract Farming and the Developmental Question’,
presents his views on the potential inequities of contract farming on the broader
community. While he made a comprehensive review of the issues involved, his
selection of a limited number of case studies might have hampered his ability to present
some of the potential positive impacts that outgrower schemes could have in terms of
job creation in rural areas. The creation of employment can be quite significant not only
on the estates, in the processing plants and for the outgrowers personally; but it can also
be significant in terms of the employment created by the outgrowers themselves.
Contract farming, subject to the vagaries imposed by differences in both crop type and
outgrower scheme type, can frequently address local unemployment and/or
underemployment, with subsequent impacts upon the local and regional economy. It is
important to note that employment in itself may not have a very positive impact upon
the local economy. Wage rates can and do influence the degree of benefit, and rates for
part-time hired labour are frequently considerably lower than other wage rates in a
region (Glover, 1987:445; Baumann, 2000:33). As Ponte (2000:1021) determined in
his 1996 study in Tanzania, rates are also influenced by increasing inflows of
unemployed labour, often poorer, from neighbouring districts, provinces or regions as
well as unemployed local villagers and town workers who require cash to meet basic
household expenditures.
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Minot (1986:72) felt that the frequently stated premise that “contract farming was
simply a method of obtaining cheap labour” was over-simplistic and unnecessarily
pessimistic. His premise was based on the rationale that processors benefited from the
increased labour productivity of outgrowers and that cultivation became dispersed into
smaller production zones that translate into a benefit in terms of a reduction in the
spread of crop diseases and a reduction in investment risk. Minot also viewed lower
wage rates, should they exist, as a benefit as they would tend to have a greater equity
impact. This is because the firm, via the outgrower, is employing precisely those
workers who have the least alternative employment opportunities. Minot argued that
contract farming improves labour productivity through the introduction of new
technology and production practices. He postulated that if labour productivity
improved for anyone working on the farm, it would result in a growth in benefits for
hired labour, who are generally landless in any case, in terms of greater employment
and transfer of skills (Minot, 1986:72-75).
In the case of labour, empirical evidence does exist, on a scheme by scheme basis, to
support the view that contract farming has a positive or negative impact. Unfortunately,
there is no uniformity in the combined results of this research. If the subset of wages
and benefits are added to the equation, drawing conclusions from the results of the cross
scheme analysis becomes even more difficult. For example, Porter and Howard (1997a)
reviewed contract farming in Transkei, South Africa, in part from a labour perspective,
and presented two examples pertaining to the conditions of hired labour. In the first
instance, the North Pondoland Sugar Project in Transkei, South Africa, Porter and
Howard reported (1997a:234) that the level of pay for labour engaged on the nucleus
estate and the associated sugar mills was “…appallingly low …” , consisting in part of a
‘payment’ of “… food rations” a vestige of the colonial past in Southern Africa. On
the smallholder (outgrower) plots, they reported that “… wages are even lower (at about
two-thirds) …” In the second instance, on the Magwa Tea Estates in Transkei, Porter
and Howard (1997a:234) reported, “… estate labourers earn roughly four times their
counterparts on outgrower plots and men and women are paid the same rates!” The two
contrary examples, located in a small geographic area, are indicative of the difficulties
arrived at in drawing absolute conclusions and attempting to extrapolate them globally
to all outgrower schemes. Porter and Howard’s other research in KwaZulu-Natal,
Nigeria and elsewhere in Transkei, lends credence to this argument (Porter and Phillips-
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Howard, 1994; Porter and Phillips-Howard, 1996; Porter and Phillips-Howard, 1997a;
Porter and Phillips-Howard, 1997b; Porter and Phillips-Howard, 1997c).
Glover and Kusterer (1990b) pointed out, in his multi-scheme study in Eastern and
Southern Africa, that workers employed by the schemes proponents generally enjoyed
greater stability of employment. They did not refer to comparisons between the scheme
proponents and the outgrowers in terms of wage rates paid to labourers. It should be
acknowledged, however, that wages on nucleus estates and in processing mills are, in
general, superior to those paid by outgrowers to their hired farm workers (Glover and
Kusterer, 1990b:139). Goldsmith (1985:1126) pointed out, however, that plantations
“… serve the rural community primarily by providing jobs, not by transferring skills
and technology.” Casual labour hired by the outgrowers, however, do pass along skills
and technology to their workers.
There are exceptions to this general rule and the present research shows that estate
workers on the Agumil nucleus estate in the Philippines earn a smaller daily wage than
what the outgrowers generally pay to their part-time hired workers, principally due to
the shortage of skilled oil palm workers available to them.86 Agumil’s workers still are
better off, however, as they are engaged on a full-time basis and, therefore, enjoy
greater job security. In Ghana, the Ghana Oil Palm Development Corporation
(GOPDC) and its outgrowers now pay their part-time workers the same daily or piece
rate (hill, hectare, etc.) that, ironically, is set by the workers themselves. GOPDC’s full-
time workers, however, do enjoy higher wages and other benefits including housing and
access to education and health care facilities. This was not always the universal case for
contract farming schemes. Earlier studies of the GOPDC outgrower scheme indicate
that, historically, outgrower hired labour was paid considerably less than labour on the
nucleus estate itself (Daddieh, 1994; World Bank, 1994; Addo, 2000; Aeschliman,
2001; Inkumsah, 2004; Poku, 2004).
Glover and Kusterer (1990b:138), in their book Small Farmers, Big Business: Contract
Farming and Rural Development, proposed, “One of the principal effects of agri-
business growth [in rural areas] is increased employment, direct or indirect, in
processing plants and in agriculture.” Using five case studies, Glover and Kusterer 86 In the Philippines, outgrowers indicated that because of labour shortages there is considerable ‘poaching’ of skilled harvesters from each other by offering higher wages and/or better remuneration packages. This has resulted in increasing wages rates for casual labour in the region.
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found that outgrower schemes created employment opportunities in rural areas, where
the poorest people live. They postulated that the ‘developmental quality’ of the
employment created from outgrower schemes were affected by questions such as:
• Whether the outgrower scheme was producing a traditional or a non-traditional crop;
• What level of technology was being used in the crop processing; • Who the proponent of the outgrower scheme was; and, • Whether the employment created was in processing functions or in the
cultivation side of the process (nucleus estate and/or outgrower fields).
Glover and Kusterer determined (1990b:138) that traditional crops and processing
technologies usually involved the unstructured engagement of primarily male workers,
while non-traditional crops and processing technologies predominantly involved the
engagement of women, “… organised to work in more ‘modern’ and thus locally
innovative ways.” In terms of the proponents of outgrower schemes, they found that
trans-national corporations paid better wages and fringe benefits than national
corporations, who in turn paid better than the local employers. Finally, the results of
their study indicated that workers in processing plants were much better off than other
agricultural workers, with the exception of mechanical equipment operators who
received the highest wage rates. With the exception of the reference to women, these
propositions apply equally well in the oil palm industry in both Ghana and the
Philippines.
8.2.3 OUTGROWER SCHEMES AND THE FAMILY HOUSEHOLD
Ponte (2000:1020) indicated that contract farmers obtain labour in one of three ways in
developing countries. The first, and probably the more traditional means, is the
recruitment of labour through social networks. Under this methodology, groups of
farmers would jointly share the workload on each other’s farms. The second means,
and as discussed in section 8.2.1 above, is the engagement of labour from the local or
sub-regional area that perform farming activities on the basis of a daily wage or by
payment in cash or kind for piecework, i.e. by the hectare or unit (bag or tree, etc). The
third means, noted by Ponte, is the ‘engagement’ of labour within the family household
(or extended family). The results of the present research also indicate that there is a
fourth means by which outgrowers obtain labour services – through outsourcing to
contractors who employ teams of workers to undertake specific tasks associated with
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the crop.87 While the engagement of contracted teams may be more common than
suspected in the two study areas of this research, it would be highly dependent upon the
crop in question and the scale of outgrower operations in terms of overall hectarage.
The focus of the discussion in this section is on the third means – the use of household
labour in contract farming.
Doss (2002:1987) makes note of the fact that the definitions of what constitutes ‘men’s
crops’ versus ‘women’s crops’ are predominantly based upon cultural norms. From the
onset of her discourse on gender-based patterns of cropping in Ghana, Doss alerts the
reader to the fact that it is important to note that gender roles in agriculture have been
changing and women have been increasingly producing crops that have traditionally
been viewed as ‘men’s crops’ (Von Braun and Webb, 1989; Spurling et al., 1994;
Ezumah and Domenico, 1995; Doss, 2002). The conclusions of Doss’s (2002:1998)
research in Ghana concluded with a statement to the effect that, “the data presented in
this paper suggests that one (we) cannot divide crops in Ghana into those grown by men
and those grown by women.” Her conclusion is important in terms of the present
research that explores, amongst other things, women as outgrowers and the use of
family labour in oil palm production, generally considered a ‘men’s crop’, in Ghana and
the Philippines. No gender differentiation was found in either Ghana or in the
Philippines in terms of contract ‘ownership’. While this does not mean that there is no
gender bias on the part of the processors during their selection of outgrowers, women
were selected and became successful outgrowers. These women were not generally
single heads of households, as was found to be the case in Doss’s research (Doss,
2002:1998).
Returning to the question of the use of family labour resources in contract farming,
Raynolds (2002:783) noted that, “The particular conditions of a contract may vary, but
what is unique about this form of agriculture is that it commits family land, labour and
other resources to the production of a commodity controlled by an agro-industry.”
Raynolds study of the tomato industry in the Dominican Republic focused on a sample
of male outgrowers and analysed the intra-household resource and labour dynamics.
Her study determined that although contract farming increased the demand for women’s
labour, it simultaneously provided them with new opportunities to place boundaries on
87 See section 9.3.2 for further discussion on the Pakyaw or Lump Sum systems in use in Ghana and in the Philippines.
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the appropriation of their labour. In her conclusions, Raynolds (2002:794) states,
“Domestic and production relations become entwined and gender roles re-negotiated in
contract farming. Contract production fuels household resource struggles, as Watts
(1994a) suggests which in this case centre on the appropriation of women’s unpaid
labour.”
Clapp (1988:11) saw that one of the benefits of contract farming for the processors was
the de facto access to “a hidden peasant labour market” consisting of household
members, such as women and children. Despite the advent of plantation agriculture and
other forms of agri-business, family farms remain as the dominant organisation of
agricultural production in the developing nations of tropical Asia and Africa (Hayami,
2002). Hayami (2002:3) argues that the benefit of continued reliance on the family
farm is their strong incentive to ensure conscientious work efforts for the overall well-
being of the entire family. Hayami, like Clapp, pointed out that the family farming unit
is able to benefit from the utilisation of the low-opportunity-cost labour of women,
children and aged family members whose off-farm employment opportunities are
limited. Watts (1994a:65) would argue that this was not a benefit but rather a blatant
capitalistic agenda whereby, “Contract production among peasants and smallholder
growers aims to exploit non-wage household labour through dense networks of
dependence and subordination.” Grossman (1998:6) added the valid point that
smallholder farmers were not blindly complacent or used by processors but in fact “…
exhibit the well known capacity for ‘self exploitation’ of household labour.”
Watts (1994a:67) also indicated that contract farming has the potential to act as a
catalyst for gender and broader conflict within the household. In the present context,
contract farming with smallholder peasant farmers can open the door to considerable
abuse of household members, who are forced to trade other activities, such as basic food
production or education, for unpaid labour on outgrower plots. Literature on the
relationships between the extensive labour requirements imposed by most outgrower
schemes and gender relations within the household is limited (Buch-Hansen and
Marcussen, 1982; Bülow and Sørensen, 1993; Carney, 1994; Dolan, 2001b; Raynolds,
2002). Women are often seen as particularly vulnerable in outgrower schemes, in part
because they are frequently already responsible for staple food crop production, and
labour demands imposed from outgrower schemes simply add to demands upon their
time (Fan, 1981; Porter and Phillips-Howard, 1997a).
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Most often, contracts are signed by the males even though they may not benefit
financially from the cash crop. In general, gender tensions can emerge following a
family’s entry into contract farming. Disagreements among family members can result
in a possible reduction in production, both in terms of quantity and quality (Carney,
1988; Bülow and Sørensen, 1993; Singh, 2001). Following from this, therefore, it is
important to bear in mind that:
It is particularly in regard to labour-intensive crops … that the gender division of labour and gender relations of production play an essential role in the adoption of a new production system and its integration into the farming system (Bülow and Sørensen, 1993:39).
Once again, caution must be exercised as research results will vary significantly and
will reflect the crop, the region and the cultural aspects of location. The results of the
present research into oil palm cultivation in Ghana and in the Philippines indicates that
the role of the family (women and children) cannot be treated in the same manner as the
schemes researched by Carney, Bülow and Sørensen and other researchers noted above.
In all of these cases, the crops used were annual or semi-annual in duration and the bulk
of the farming operations were well within the physical capacity of women and children
to undertake. While women do work on oil palm outgrower schemes, the work they do
is relatively limited. In addition, the role of women declines with increasing hectarage
to the point where machinery is introduced (Bolivar and Cuellar-Mejia, 2003). A
further significant cause of variation is the application of cultural norms that, while
being elastic to a certain degree, often dictate the roles played by women and children
in agriculture and more specifically in cash cropping (Narciso, 2003). As noted above,
while some of the benefits from contract farming can cause growth in the aggregate
economy, the net benefits to the outgrowers themselves has been the source of some
debate (Bracking, 2003:1).
Research undertaken by Koczberski and Curry (2005) in Papua New Guinea on oil palm
smallholders addressed the issue of women’s participation in rural development from a
different perspective. Their main argument (Koczberski and Curry, 2005:324) is that
“economic diversification amongst smallholders creates new opportunities for the oil
palm industry to formulate a more innovative and sustainable policies that strengthen
the oil palm industry in Papua New Guinea while facilitating broad-based rural
development.” While the role of women in actual oil palm farming could be limited,
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the increasing role of women in the pursuit of innovative livelihood strategies such as
garden food production and small business enterprises (including marketing of local
produce) is considered as an important strategy for the long-term development of the oil
palm regions of PNG.
Finally, one would be remiss in not making note of the fact that the positive and
negative impacts of contract farming in terms of labour in general and specifically,
household differentiation, have to be added to the assessment matrix to determine the
role that contract farming plays in rural development (Key and Runsten, 1999). This
assessment must weigh the social and economic tradeoffs at the local employment and
household levels as much as any other factor. The manner in which the benefits of
contract farming are distributed within the household and the larger community can
have profound implications for social and economic differentiation within that
community (Korovkin, 1992). Contract farming, in this regard, has the greatest
developmental impact when it does not completely displace home food production and
when intra-household distribution of labour is equitable (Minot, 1986:76).
8.3 Employment Creation by the Outgrower
In general, the socio-economic impact of palm oil production is most evident in its
impact upon employment and underemployment in the study areas. In the case of the
nucleus-outgrower arrangement, full-time employment is created on the nucleus estate
for its management, supervision and administration, its various farm operations such as
the nursery and, finally, in the processing mill operations that produces the final
products. Most nucleus estates also engage part-time employees to undertake routine
but spaced activities such as re-planting, weeding (brush and circle), pruning and road
repair on the estate (Chang, 2004; Inkumsah, 2004).
The farmers interviewed during the course of the study were asked a number of
questions concerning their use of both full and part-time labour on their oil palm farms.
Specifically, they were asked to indicate the employment they created for each of the
eight main activities associated with the cultivation of oil palm. What became clear at
the onset was that outgrowers seldom, if ever, employ full-time labour on their oil palm
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farms and while the question was asked, the results were not significant.88 In Ghana,
only one farmer indicated that he engaged a full-time labourer, mainly with supervisory
responsibilities, and in the Philippines, only three farmers reported using full-time
labour. In all cases, the farms were large and the full-time worker was used for a
combination of farm management and security. A 1998 survey of GOPDC outgrowers
(Vandebeeck, 1999) indicated that only eight of the 175 farmers interviewed reported
that they engaged a hired worker on a full-time basis.89 While the definition used in the
survey was inclusive of family labour, the resultant percentage is consistent with the
findings of the present survey. The 1998 survey indicated that 94 per cent of the
interviewed outgrowers engaged hired workers in their oil palm farming operations, as
compared to 61.4 per cent for their other non-oil palm farming activities (Vandebeeck,
1999).
8.3.1 FARM SIZE AND EMPLOYMENT
Employment creation tends to be directly proportional to the size of the oil palm farm as
illustrated in Figure 8.1 below. Smaller farms with less than 5 hectares hire fewer
workers. A higher number of those who reported they hired workers for their farms
were farmers with more than 10 hectares of palms under cultivation. This can be
largely attributed to the fact that farmers with a larger number of hectares under
cultivation with oil palm have engaged in its cultivation as a commercial venture while
smaller farmers view oil palm as simple diversification of their subsistence farming
activities. An interesting feature of the employment patterns found in Ghana and the
Philippines is the fact that more workers are employed in medium-sized farms of 15 to
19 hectares, demonstrating the employment-intensive nature of oil palm during the
preparatory stages of land clearing and planting.
88 Only four of the 85 farmers reported engaging a full-time employee and in all cases, they were caretakers/security personnel on farms owned by professionals engaged in full-time non-agricultural occupations. 89 Helena Vandebeeck, in her unpublished thesis, utilised GOPDC’s agricultural extension staff to conduct structured interviews with 175 GOPDC outgrowers and 175 non-contracted oil palm producers on a range of topics including labour utilisation, land ownership, farm practices, farm finances, relations with GOPDC, benefits and consumption patterns.
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Figure 8.1 Grouped Frequencies of Oil Palm Farms and Oil Palm Farm Workers in Ghana and in the Philippines
05
101520253035
< 5 5 - 9 10 - 14 15 - 19 20 -24 > 25
Num
ber o
f Far
ms
05101520253035
Num
ber O
f Wor
kers
Hectares of Oil Palm Employment of Workers
Figure 8.2 presents the same data, disaggregated into the individual characteristics of
the two study areas. In Ghana, the majority (26) of the farmers cultivate oil palm on
less than 5 hectares and engage little, if any, labour outside of their immediate family
for the various on-farm tasks associated with oil palm cultivation. Even on the 5 to 9
hectare sized farm, the Ghanaian farmer hires considerably less labour than does his
Filipino counterpart with the same hectarage but, if they do, they tend to hire more
workers on average than does the Filipino farmer (see 15 to 19 employee grouping).
Filipino farmers, on the other hand, operating mainly medium to large farms, tend to
hire greater number of workers in the 15 to 19 hectares farm size. This may be
attributable to the fact that the farmers who are encouraged to enter into oil palm
cultivation in the Philippines are more frequently investors as compared to Ghana where
they tend to be subsistence growers.
About a third of all farmers interviewed in the two case study areas employ between 15
and 19 workers on their oil palm farms. Of the sample farmers, 19 per cent and 18 per
cent employ 10 to 14 workers and more than 25 workers respectively, and only 5 per
cent of all farms employ less than five workers on their properties (Figure 8.3). In
Ghana, there is a unimodal distribution of employment per farm grouping with fully 59
per cent of all part-time workers employed on farms ranging from 10 hectares to 20
hectares (Figure 8.4). The distribution is more bi-modal in the case of the Philippines,
where most of the employment takes place on farms in the 5 to 9 hectare group and then
again in the 15 to 19 hectare group (Figure 8.5). There is no discernable reason for this
distribution in the Philippines. In the Philippines, a 100 per cent sample of all farmers
harvesting FFBs was interviewed so that the bi-modal distribution was not a result of
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sampling biases. The three graphs do indicate, however, that the farm size group that
hires the most part-time labour in both countries is the 15 to 19 hectare group.
0 2 4 6 8 10 12 14 16 18 20 22 24 26
Number
< 5
5 - 9
10 - 14
15 - 19
20 -24
> 25Gro
uped
Far
m W
orke
rs
and
Farm
Siz
e
Figure 8.2 Grouped Oil Palm Farm Size (Ha.) by Grouped Part-Time Employment
OP HA - Philippines Workers employed - PhilippinesOP HA - Ghana Workers employed - Ghana
Figure 8.3 Percentage of Part-Time Workers Employed by Oil Palm Farms in Ghana and in the Philippines
5% 15%
19%
33%
10%
18%< 55 - 910 - 1415 - 1920 - 24> 25
- 197 -
Figure 8.4 Number of Ghanaians Employed per Oil Palm Farm
0123456789
< 5 5 - 9 10 - 14 15 - 19 20 - 24 >25Farm Size
Num
ber
Figure 8.5 Number of Filipinos Employed per Oil Palm Farm
0
5
10
15
20
25
< 5 5 - 9 10 - 14 15 - 19 20 - 24 >25Farm Size
Num
ber
8.3.2 ON-FARM ACTIVITIES
Small farmers who cultivate less than 5 hectares of oil palm employ less labour outside
of the immediate family or, as was reported in Ghana by a number of farmers, tended to
help other small subsistence farmers at peak periods when additional help was required
for activities such as planting and brush weeding. The use of mechanisation by
outgrowers in both Ghana and in the Philippines was minimal. The only notable
exceptions were the use of chain saws for land clearance and some minimal use of
mechanised carts for hauling the FFB from the palms to the roadside. The use of the
mechanised cart was observed more in Ghana than in the Philippines where the bullock
cart was the norm (see Plate 8.1).
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Plate 8.1 Bullock Cart Used for Hauling FFB to the Roadside in Agusan de Sur
(Source: Paul Huddleston, 2004)
As the hectarage cultivated increased from five to twenty hectares the use of casual
labour also increased, peaking at 20 hectares. While farms with a size beyond 20
hectares show a reduction in labour use (see Figure 8.1), it is important to note that most
oil palm farms of this size engaged their labour under contract – Pakyaw or Lump Sum.
Under these circumstances, farmers were not able to indicate the actual number of
workers used as they paid a flat fee per hectare or palm (hill) and were, therefore not
concerned with the number of workers that the contractor used.
As noted earlier, following the one-off activities of land clearance, preparation and the
planting of the oil palm seedlings, the two peaks in terms of the engagement of part-
time labour were for the weeding process and for the harvest of the FFB. Casual
labourers in the oil palm areas in both the case study areas frequently work
simultaneously for multiple outgrower farmers. In addition to this, FFBs do not mature
in a clockwork fashion and there is a tendency for the actual harvest to extend beyond
the normal two-day period, two or three times per month. Both of these factors
combined can result in labour being engaged virtually full-time during the peak growth
periods of the oil palm.
Table 8.1 outlines the number of workers engaged in individual on-farm activities. It is
important to observe that land preparation and the planting of the oil palm seedlings
takes place only once in every 20 to 25 years. Land clearing and preparation, when not
done by the farmer, is most frequently undertaken on a contract basis by a team of
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workers employed by a contractor with a flat payment per hectare.90 This was found to
be the case in both Ghana and in the Philippines. The low number of workers (121)
shown in Table 8.1 only reflects those workers individually engaged by case study
farmers to undertake land clearance and preparation. It does not reflect the
indeterminate number of workers engaged under Pakyaw or Lump Sum labour
contracting systems. The actual impact of oil palm cultivation on part-time employment
is, therefore, under-reported. On the other hand, over-reporting can occur where the
same worker is reported as being engaged by multiple outgrowers. The 1998
Vandebeeck (1999) survey indicated that of those who hired labour to work on their oil
palm plots (94%), 84 per cent reported that weeding was a key activity that they hired
labour for, followed by the haulage of fruits from the farm to the roadside (77%),
harvesting (75%) and pruning (57%).
Farm Workers
Land Prep
Plant OP
Weed OP
Prune OP
Fertilize OP
Harvest OP
Carry OP
Transport OP
Total Workers
1 1 1 2 6 0 2 2 11 262 38 8 14 18 4 24 6 6 1183 12 36 36 3 0 21 3 9 1204 20 52 52 0 4 60 0 0 1885 24 40 30 5 5 15 0 0 1196 18 30 36 0 0 36 6 0 1267 0 21 0 0 0 21 0 0 428 8 32 72 0 0 16 0 0 1289 0 0 9 0 0 35 0 0 44
10 0 60 130 0 0 0 0 0 19011 0 11 11 0 0 22 0 0 4412 0 12 0 0 0 12 0 0 2415 0 30 45 0 0 0 0 0 7516 0 0 16 0 0 0 0 0 1620 0 100 0 0 0 0 0 0 10030 0 30 0 0 0 0 0 0 30
Total 121 463 453 32 13 264 17 26 1390
Table 8.1 Number of Workers Engaged by Activity in Ghana and the Philippines
(Source: GOPDC and Agumil outgrower farmer interviews, P. Huddleston (2004))
The planting of the oil palm seedling is a labour intensive activity but, once again, it
only takes place every 20 to 25 years with the exception of replanting due to crop
failures caused by insects, disease or neglect. While some planting was reported to be
undertaken under contract, the majority of farmers were personally engaged in this
crucial activity and, as such, hired individual workers to do the actual planting. The
planting of oil palm is done in a triangular pattern with three metres distance between
90 The system is called ‘Pakyaw’ in the Philippines and simply ‘lump-sum’ in Ghana.
- 200 -
plants. In the Philippines, 123 plants are normally planted per hectare while in Ghana
this number can increase up to 145 palms per hectare (see Figure 8.6). Workers, for the
most part, were paid on a per plant or hill basis with each worker being able to plant up
to 50 hills per day. In total, the surveyed Ghanaian and Filipino outgrowers indicated
that they hired a total of 121 workers for land preparation and 463 workers for the
planting of the oil palm seedlings. However, 55 per cent of those surveyed indicated
that they did not hire any workers for land preparation and 22 per cent planted their own
seedlings.
Oil palm cultivation involves two types of weeding. The first, frequently referred to as
Brush Weeding, takes place once or twice a year and involves the overall clearance or
reduction in round cover across the entire hectarage devoted to the palms. This annual
or semi-annual weeding is frequently undertaken on a contractual basis on Pakyaw or
Lump-sum terms of payment. Farmers using the contractual system to undertake
weeding activities were seldom able to indicate the actual numbers of workers involved
and this should be taken into account when interpreting the number of workers engaged
in the various activities related to oil palm farms presented in Table 8.1.
Figure 8.6 Required Spacing for the Planting of Oil Palm Seedlings
3 Metres 3 Metres 3 Metres 3 Metres 3 Metres
3 Metres 3 Metres 3 Metres 3 Metres
3 Metres 3 Metres 3 Metres 3 Metres 3 Metres
The second type of weeding, frequently referred to as Circle or Ring Weeding, takes
place on a quarterly basis (see Plate 8.2).91 Farmers who hire workers to undertake this
91 Brush weeding is ordinarily done on an annual basis (or more frequently in areas with young and less mature palms) and refers to the clearance of all weed or other ground cover from the entire area planted with oil palm. The main reason for Brush Weeding is to allow the palms to take full advantage of soil nutrients, etc. Circle or ring wedding is the elimination of ground cover for a radius of one (1) metre circumference around the base of the palm, increasing with the size and age of the palm. During the early years of the palm, it prevents the loss of the benefits of soil nutrients and/or fertiliser to the weeds or other ground cover and it also clears an area for harvesting and the collection of any loose fruitlets.
- 201 -
activity normally pay on a hill basis or based on the number of oil palms weeded. One
worker can usually circle weed up to sixty immature palms per day or up to eighty
mature palms per day, representing 0.5 hectare and 0.7 hectare respectively (Corley and
Tinker, 2003). Table 8.1 indicates that the farmers interviewed in Ghana and the
Philippines hired 453 workers or an average of 5 workers per farm. This activity is
significant to this research because it is not only a recurring activity, but it is one that
employs a large number of part-time workers, most of whom are women (Figure 8.7).
In neither country was any significant utilisation of machinery involved in the
cultivation of oil palm. Again, it should be noted that in view of the different work
done by men and women in the agricultural sector, women are more often employed in
fruit collection given their traditional role in growing food crops for the family.
Plate 8.2 Circle or Ring Weeding in Kwaebibirem, Eastern Region
(Source: Laurie Steer, Ghana 2004) The pruning of oil palms was historically undertaken on an annual basis and involves
the removal of fronds beneath ripening fresh fruit bunches (FFBs) (see Plate 8.3). This
allows for more timely harvest as the harvester can clearly see when to harvest each
FFB. The oil palm fruit are highly sensitive to being harvested at the correct time to
maximise oil quantity and quality. A more recent practice is for the harvester to
‘progressively prune’ on an as-required basis during the normal harvesting rounds. This
more recent practice is felt to be more effective than undertaking pruning as a discrete
- 202 -
activity since the latter frequently results in over-pruning (Corley and Tinker, 2003). In
addition, the integration of this activity into the harvesting of oil palms reduces
operational costs as one worker can only prune 25 palms on average depending upon
their size and maturity (0.20 hectare/person day). Table 8.1 would seem to indicate that
most farmers follow the most modern practice as they report having engaged only 32
workers in total over 85 farms to undertake pruning as a discrete activity.
0 50 100 150 200 250 300 350 400 450 500
Number
Land PrepPlantingWeedingPruningFertilizeHarvestHauling
Transport
Figure 8.7 Numbers of Workers Hired to Undertake Oil Palm Farming Activities in Ghana and in the Philippines
Plate 8.3 Pruning Oil Palm in Kwaebibirem
(Source: Laurie Steer, Ghana 2004)
- 203 -
Very few workers (13) were hired to undertake the fertilisation of oil palms. There are
two reasons for this. In Ghana, the production of the GOPDC has become almost
totally organic and the application of chemical fertiliser has been prohibited on the
nucleus estate and on the fields of GOPDC’s outgrowers. While the GOPDC produces,
sells and encourages the use of organic fertiliser, very few of the interviewed farmers
use it on their oil palms. The main reasons given were that it was more expensive to
purchase than chemical fertiliser and it was far more problematic for them to transport
because of its bulk. In the Philippines, the majority of the farmers in the sample
reported that they preferred to do the fertilisation themselves to ensure that it was not
over-applied. The majority of the farmers indicated that the dosage called for by
Agumil was far greater than was required to boost the productivity of the palms. This
perception may be influenced by the views of the more outspoken outgrowers who feel
that the fertiliser dosage is in excess of what is required, in their experience as farmers.
The final significant activity is the actual harvest of FFB and their transport to either a
collection point or to the mill for processing. Like weeding, harvesting is a major
employer of part-time workers (Figure 8.7), but unlike weeding, these workers are
virtually all male due to the physical requirements involved (see Plate 8.4). The notable
exception to this involves the collection of loose fruitlets that fall off of the FFB to the
ground around the base of the palms (see Plate 8.5). This is an activity where women
are almost exclusively hired. In total, 307 workers were engaged for the harvest, loose
fruit collection, hauling and transportation to either collection point (Ghana) or the
processing mill (Philippines). This gender differentiation in the type of work
undertaken reflects the fact that in Ghana, women and men have distinctly different
work such that “in agriculture, women usually grow food while men grow cash crops”
(Lalonde, 2002:11). In the Philippines, the same case is worth noting since “in rural
areas, farming and similar enterprises are largely considered as male tasks and women
are viewed as supplementary workers (Government of the Philippines, 2005a:21).
According to Corley and Tinker (2003), the three harvest activities noted in Table 8.1
will involve 7.5 workers per hectare per day producing up to 3.5 metric tons of FFB and
loose fruits. Given the need for the ongoing harvest of the FFBs as they ripen, it was
found that in the Philippines this translated to virtually full-time employment for 7.5
persons for the harvest functions alone. This compared to 3.3 persons for Corn (Maize)
and 5.0 persons for rice (Jaquias, 2004). One has to exercise caution or care in the use
- 204 -
of these figures in other regions as the numbers of harvests per month vary considerably
with rainfall, temperature, sunlight and other factors. In the Philippines, harvesting
takes place three times per month for ten months with little, if any, harvests taking place
in the remaining two months. In Ghana, this lean season extends from four to six
months of the year in most oil palm producing zones due to low rainfall and lower
temperatures and sunlight penetration during the Harmattan season.92
Plate 8.4 Harvester with Basket for Carrying FFB
(Source: Paul Huddleston, Agusan del Sur 2004)
Plate 8.5 Women Collecting Loose Fruitlets, Kwaebibirem
(Source: Laurie Steer, Ghana 2004)
92 The Harmattan is a dry and dusty wind blowing south-west and west off the Sahara Desert of Northern Africa into the Gulf of Guinea from November to March. On its passage over the desert it picks up fine dust particles obscuring the penetration of sunlight required for the growth of the oil palm. When the Harmattan blows hard, it can push dust and sand all the way to South America. It is said that humans and animals become increasingly irritable when this wind has been blowing for a while, giving it a bad reputation. However, the cool wind brings relief from the oppressive heat of West Africa, which is why the Harmattan has earned the nickname "The Doctor".
- 205 -
8.3.3 GENDER, EMPLOYMENT AND FARM SIZE
Figure 8.8 indicates that 52 per cent of the oil palm farms hired only male part-time
workers. This reflects the physically heavy nature of most of the work involved with oil
palm cultivation. The mature oil palm fresh fruit bunch (FFB) weighs between 25 and
30 kilograms, and, therefore, males are used almost exclusively for the harvesting of the
FFB and for the carrying, loading and transporting of the FFBs to the mill or collection
points.93 Male workers are also primarily used for land clearing, land preparation and
for the digging of the holes for planting the oil palm seedlings, again due to the heavy
nature of these tasks and cultural practices that dictate the delineation of farm work
between the sexes. Women are, however, engaged in the ‘lighter’ activities such as
brush weeding, circle or ring weeding and in the collection of fallen fruitlets.94 This
differentiation in tasks is again influenced by culturally-accepted norms in the
agricultural sector.
0
7
14
21
28
35
42
49
Perc
enta
ge
0 1 - 4 5 - 9 10 - 14 15 - 19 20 -24 >25
Farm Size
Figure 8.8 Percentage of Male and Female Workers Employed by Farm Size in the Study Areas
FemalesMales
By comparison, there are more females employed by the outgrowers in Ghana in
absolute terms (176) and per farm (6.07) than in the Philippines where the outgrower
hires 5.13 females per farm for an absolute total of 77 women. In the Philippines, 69.4
93 The harvesting of mature oil palms takes place two or three times per month, depending on seasonal fluctuations in rainfall, temperature and sunlight. 94 Brush weeding is ordinarily done on an annual basis (or more frequently in areas with young and less mature palms) and refers to the clearance of all weed or other ground cover from the entire area planted with oil palm. The main reason for brush weeding is to allow the palms to take full advantage of soil nutrients, etc. Circle or ring wedding is the elimination of ground cover for a radius of one metre around the base of the palm, increasing with the size of the palm. During the early years of the palm, it prevents the loss of the benefits of soil nutrients and/or fertiliser to the weeds or other ground cover and it also clears an area for harvesting and the collection of any loose FFB fruitlets, also termed ‘loose fruits’.
- 206 -
per cent of the oil palm outgrowers do not hire any females while in Ghana; this amount
is reduced to only 19.4 per cent of the outgrowers who do not hire females at all. As
indicated in Figure 8.9, the Filipino outgrower who does hire females tends to do so at
any farm size while his corresponding member in Ghana tends to hire females on farms
less than 14 hectares, with the majority of those being hired are done so on farms of less
than 9 hectares.
Figure 8.9 Percentage of Female Workers by Farm Size in Ghana and in the Philippines
27
7 7
20
7 6 6
2017
38
31
7 7
0
10
20
30
40
50
< 5 5 - 9 10 - 14 15 - 19 20 - 24 25 > 45 - 49 50 - 54 > 55
Farm Size
Perc
enta
ge
PhilippinesGhana
The field research data indicates that women are mainly hired on farms below 15
hectares in size and most frequently on farms that are 9 hectares or less (see Figure
8.10). As indicated earlier, 48 per cent of the farms reported that they chose not to hire
women at all. Of all the women who were engaged to work on oil palm farms, 84 per
cent worked on farms with less than 10 hectares and more than a third of these worked
on farms with less than 5 hectares.95 Male workers, on the other hand, were less
frequently (4%) engaged by farmers cultivating less than 5 hectares of oil palm. Of all
the males working part-time on oil palm farms, 51 per cent worked on farms with 5 to 9
hectares and 10 to 14 hectares, representing 27 per cent and 24 per cent of the group of
males respectively. If the 15 to 19 hectare farms were included with 31 per cent of the
male workers, the combined 5 to 20 hectare farms were seen to engage 82 per cent of all
males hired by the oil palm farmers.
95 Farmers owning small farms (less than 5 hectares and to a lesser extent the 5 to 9 hectares group) tend to do more work on their own farms. Since they were predominantly male, they undertook the more physically demanding tasks (land clearing and preparation, planting and harvesting) themselves, hiring females to do lighter tasks on their farms.
- 207 -
0
2
4
6
8
10
12
14
Num
ber
0 Females
< 5 Males
<5 Females
5-9 Males
5-9 Females
10-14 Males
10-14 Females
15-19 Males
20-24 Males
> 25 Males
Figure 8.10 Number of Part-Time Workers by Gender and by Oil Palm Farm Size in Ghana and in the
Philippines< 5 Hectares5 - 9 Hectares10 - 14 Hectares15 - 19 Hectares20 - 24 Hectares> 25 Hectares
8.3.4 WORKER BENEFITS AND FARMER VIEWS ON LABOUR
The field research indicated that while the provision of worker benefits was not very
sophisticated, most of the outgrower farmers in the two countries (72%) indicated that
they do provide some benefits to their part-time workers (Figure 8.11). In virtually all
cases, this group indicated that while they did not provide universal health coverage, a
luxury of more economically advanced countries, they did cover all of the medical
expenses for workers who were injured on their farms in the course of carrying out their
work. This group also reported that they provided mid-day meals for their workers as
well as the provision of ‘tea’ breaks in the morning and afternoon. In a few cases, some
workers had access to housing at the farm but it was normally provided as quid pro quo
for security services. The percentage of farmers who provided benefits to workers was
higher in the Philippines than it was in Ghana.
Farmers interviewed during the course of the research were asked a number of questions
concerning the adequacy, quality and cost of labour in their regions. Fully 79 per cent
of the farmers interviewed felt that there was adequate labour to be hired in there areas
(Figure 8.12). In fact, in the cases of both Agusan del Sur and in Kwaebibirem District,
the success of the oil palm outgrower program and the nucleus estates have acted as
magnets for unemployed labour from surrounding regions. At the country level,
however, farmers in Ghana expressed less optimism at finding labour in their area
(73%) than in the Philippines, where 86 per cent expressed that they found the
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availability of labour to be acceptable. This may reflect the fact that, in Ghana,
outgrowers were more concerned with locating skilled oil palm labourers while in the
Philippines, as indicated earlier, labourers may be available but not yet skilled in oil
palm cultivation because the industry there is relatively new.
28
72
0 10 20 30 40 50 60 70 80
Percentage of Respondents
No
Yes
Ben
efits
Figure 8.11 Percentage of Farmers Who Provide Benefits to their Farm Workers in Ghana and in the Philippines
21
79
0 10 20 30 40 50 60 70 80
Percentage of Respondents
No
Yes
Ade
quat
e La
bour
Figure 8.12 Farmer's Views on the Availability of Labour in Ghana and in the Philippines
During the focus group discussions that took place in the Philippines in February 2004,
the farmers indicated that hiring a competent team of workers is important so that
harvesting is finished on time. In this regard, they indicated that there are no shortages
of labour in the Province and that labourers can be hired at a relatively lower wage
rates. They did recognise, however, that there is a need to develop a specialised group
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of permanent and mobile workers who will work on farm-to-farm on a scheduled basis
to ensure that all outgrowers are adequately serviced at harvest time.
Finally, the focus group in Agusan del Sur indicated that the cultivation of oil palm is
not as time-consuming as it follows a set program of activities and therefore farmers can
easily schedule their other agriculture or non-agriculture activities around oil palm-
related activities. Most of the group indicated that oil palm outgrowers are able to
manage taking care of their oil palm farms together with other business endeavours or
other farming enterprises.
Figure 8.13 indicates the level of farmer satisfaction with the quality of the services
provided by workers. The integrated data shows that nearly 76 per cent of the farmers
rated labour’s efforts as good as compared to bad, very good and excellent. 17 per cent
of the farmers rated the labours of their workers as bad against the same percentage for
very good and excellent combined. Farmers in the Philippines were less impressed with
the quality of their part-time labour and rated 25 per cent of them as being bad and 75
per cent as good. In Ghana, 77 per cent rated their workers as good, 11 per cent as very
good, 4 per cent as excellent and only 8 per cent as bad.
Figure 8.13 Farmers' Views on the Quality of Labour in Ghana and in the Philippines
0
30
60
90
Perceived Quality of Labour
Perc
enta
ge
Ghana 8 77 11 4
Philippines 25 75
Bad Good Very Good Excellent
The relationship between the outgrowers of Kwaebibirem District in Ghana and their
part-time workers was stronger than the corresponding relationship between outgrowers
and their workers in the Philippines. In part, this stronger relationship results from the
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fact that both the outgrowers and their workers in Ghana are both small landholding
farmers. The other reason for the stronger relationship is that the daily wage rate that
part-time workers charge the outgrowers in Ghana is set by the workers themselves.
The workers meet annually to set the wage rate that they will all charge farmers for the
year. While some of the farmers interviewed indicated that they thought the rates set by
labour were too high, the Ghanaian oil palm outgrowers on the whole appear to accept
the wage rate in a rather stoic fashion.
In the Philippines, wages are a point of friction between the relatively wealthy
landowners and the landless peasants who are predominantly daily wage earners. The
Filipino outgrowers, generally but not universally, pay the wage rates set by
government for part-time agricultural workers, Pesos 100/day or approximately US
$2/day. On an integrated basis, 49 per cent of the farmers feel that the wages they pay
to labour is just right, 33 per cent feel that they are too high and, interestingly, 18 per
cent feel that they are too low (figure 8.14). In the Philippines, 48 per cent agree that
the wages are set correctly but 39 per cent indicated that they feel that the wages are too
high and 13 per cent indicated that they were too low. In Ghana, on the other hand, 23
per cent felt that wages were set too low, 27 per cent too high and 50 per cent correctly.
0 5 10 15 20 25 30 35 40 45 50
Percentage
Low
Just Right
Too High
Figure 8.14 Farmers' Perceptions on the Cost of Labour in Ghana and in the Philippines
Philippines 13 48 39
Ghana 23 50 27
Low Just Right Too High
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8.3.5 SPOUSAL AND CHILD EMPLOYMENT AND FAMILY RELATIONSHIPS
Contrary to what might be indicated in the literature on contract farming, the
employment of spouses and children by outgrowers is highly dependent upon a great
number of factors. Foremost amongst these are farm size, education, alternative
employment of the farmer-owner, availability of the spouse to work, etc. Farmers in
Ghana and the Philippines were asked a number of questions related to the contributions
that their spouse and children make to their oil palm farming operations.
Overall, as indicated in Figure 8.15, only 67 per cent of farmers in Ghana and the
Philippines reported that their spouses contributed labour to their oil palm operations,
with 33 per cent reporting that their spouses were not involved in any way. It is
important to note, however, that 10 per cent of these respondents were spouses who
ostensibly ran their husband’s farms for them while the husband worked elsewhere. In
Ghana, where the average oil palm farm size is smaller than the Philippines, 86 per cent
of the interviewed farmers reported that their spouses worked on their oil palm holdings
while in the Philippines the percentage was only 59 per cent. In terms of ownership, it
is noteworthy to report that in the Philippines five of the oil palm farm owners were
females and in Ghana, three were female owners. Of these eight female owners, only
two reported that their husbands assisted them with their farming activities while the
others quite proudly noted that they ran the farms on their own.
33
67
NO
YES
Sous
es W
ork
on F
arm
Figure 8.15 Farmers Whose Spouses Also Work on the Farm in Ghana and in the Philippines
0 10 20 30 40 50 60 70
Percentage of Respondents
As shown in Figure 8.16, the time that spouses allocated to assisting their partners in
their farming activities varied considerably. Of those spouses who did work on their
partner’s farms, 20 per cent worked for eight hours per day at the farm but 24 per cent
worked for less than a half a day. Differentials between Ghana and the Philippines were
- 212 -
not computed because of inconsistencies in the data. On balance, however, anecdotal
information indicated that the mean number of hours worked per day by spouses who
did assist farmers in the Philippines was considerably less than in Ghana.
Figure 8.16 Working Hours of Farmer's Spouses inGhana and in the Philippines
4%
12%
8%
9%
8%
6%
20%33%
67%
Non-working2 Hours3 hours4 Hours5 Hours6 hours7 Hours8 Hours
An open-ended question that asked farmers exactly what their spouses did on the farms
yielded some rich data that highlighted the differences and similarities between Ghana
and the Philippines. The individual farmer responses were grouped into obvious
categories based upon all of the individual responses following the completion of the
field work. Figure 8.17 portrays the initial, secondary and tertiary responses to the same
question – ‘What does your spouse do on the farm?’ As can be noted, assistance with
the harvest was the primary function that spouses engaged in. Given that the majority
of spouses were females, it can be assumed that they collected loose fruitlets fallen from
the harvested FFBs. This is certainly the case in Ghana, where women are responsible
for providing food for the family table. The supervision of part-time farm workers was
the second highest response in the ‘First Response’ category that reflected, when
looking at the individual case country data, the high number of spouses in the
Philippines who effectively ran their husbands farms. As could be expected, the third
highest function was weeding, undertaken by spouses in Ghana at a higher rate than in
the Philippines. Finally, farm administration functions was closely behind weeding as a
major activity and was largely accounted for by Filipino spouses who engaged in
supplies procurement and basic business accountancy. At the second response level,
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weeding was chosen above other activities as the activity spouses engaged in. There
was no significant choice at the third response level.
Figure 8.17 Activities Undertaken by Spouses in Ghana and in the Philippines
0
5
10
15
20N
umbe
r of S
pous
es
1st Response 19 9 3 11 8 7
2nd Response 5 8 3 3 5 3
3d Response 3 2 2 0 0 6
Harvest Weeding Food-Prep Supervise Workers
Admin Other
Generally, farmers reported that they preferred not to have their children work on the
farm in both Ghana and the Philippines. They all expressed the desire for their children
to go to school in order to obtain the necessary skills and qualifications that will enable
them to get better and higher-paying jobs. As Figure 8.18 indicates, 68 per cent of the
surveyed farmers reported that their children do not work on their oil palm farms.
While farmers in both countries see the value in education, the Ghanaian farmer used
more child labour on his oil palm farm (56 %) than did his Filipino counterpart at 14 per
cent. While the data collected on the hours the children worked was inadequate for
analysis, anecdotal evidence collected during the field work indicated that most children
who did assist their families on the farm did so after school hours, on weekends and
during school holidays. This limited exposure to farming at early ages is not a negative
aspect, particularly as it could encourage the children to follow their parents into
agriculture.
Finally, farmers were asked two questions that relate to how, if at all, contract farming
affects relationships within the family (Figure 8.19). The Ghanaian farmer was much
more consultative in that he/she professed to share decision-making related to his
cultivation of oil palm (72 %) than was the Filipino farmer (59 %.). Forty one per cent
of the Filipino farmers surveyed indicated that they did not consult their spouses against
28 per cent for their Ghanaian counterpart. Disagreements in the home, related to either
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decision-making related to oil palm cultivation itself or how to spend its profits, were
rather rare. Only eight per cent of the Filipino farmers reported that they had had family
disputes related to the oil palm and fewer in Ghana at only three per cent. Looking at
the aggregate data, 59 per cent of all surveyed farmers reported that they shared
decisions related to the cultivation of oil palm with their spouses and only 6 per cent
had any resultant related household discord. The majority of this discord involved
disagreements over the use of oil palm profits – back into agriculture or alternative uses.
0 10 20 30 40 50 60 70 80 90
Percentage
NO
YES
Res
pons
e
Figure 8.18 Farmers Who Indicated that their Children Work on the Farm in Ghana and in the Philippines
Philippines
Ghana
Both Countries
Figure 8.19 Spousal Decision Making and Family Disputes in Ghana and in the Philippines
0
25
50
75
100
Perc
enta
ge
Ghana 72 28 3 97
Philippines 59 41 8 92
Both Countries 65 35 6 94
yes no yes noShare Decisions Have Disagreements
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8.3.6 OTHER EMPLOYMENT CREATION FROM THE OIL PALM
Considerable employment is created directly on the outgrower farms. Employment is
also created by the oil palm business generally on the nucleus estates, the processing
mills, the tank farms where the palm oil is stored and within the local communities
during the construction of roads, storage sheds, etc. One aspect of employment
generation that is frequently overlooked is the employment generated for local
tradespersons and artisans related to the presence of the oil palm industry. As noted in
Chapter 4, there are a myriad of uses for the oil palm itself beyond the oil that is derived
from the plant.
Surveyed farmers were asked if they were aware of any small handicraft business or
small business in general that used the by-products of the oil palm. Figure 8.20
indicates that, in general, 38 per cent of all surveyed farmers were not aware of any
business in their regions that has been created using the oil palm. The awareness of
such industry was higher in the Philippines where 78 per cent of all those surveyed
indicated their awareness of small businesses that have been set up because of the start-
up of the oil palm industry in their region. In Ghana, this awareness fell to 39 per cent
in spite of the fact that one by-product Ghanaians produce is palm wine from the trunk
of the oil palm, a product that has been produced in their region for millennia.96
01020304050607080
Perc
ent
Yes No
Awareness
Figure 8.20 Awareness of Other Uses of the Oil Palm Tree in Ghana and in the Philippines
Both CountriesGhanaPhilippines
96 Palm wine is an alcoholic beverage created from the sap of various species of the oil palm tree. The sap is collected by cutting between the kernels of the tree. A container, such as a gourd, is left to collect the draining sap for a day or two. The sap begins fermenting immediately after collection due to natural micro organisms in the air (this is often spurred by residual yeast left in the collecting container). Within two hours, fermentation yields an aromatic wine of up to four per cent alcohol content, mildly intoxicating and sweet. The wine may be allowed to ferment longer, up to a day, to yield a stronger, more sour and acidic taste, which some people prefer. Palm wine may be distilled to create a stronger drink, which goes by different names depending on the region, e.g. arrack, village gin, or village whiskey.
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In Ghana, 32 per cent of the farmers identified short handled brooms as being produced
in the villages from the oil palm tree. These brooms are commonly used by households
to maintain the cleanliness of individual compounds (Figure 8.21). Traditionally these
were produced by individual family compounds for home use but increasingly their
production has become a cottage industry in the villages within the oil palm production
areas. The brooms are then sold along the main road arteries leading to Accra in the
south and Kumasi in the north. While mats and baskets are also produced in Ghana as a
by-product of the oil palm, fewer farmers (7 %) cited them as products that are being
produced in the Kwaebibirem District.
0 10 20 30 40 50 60 70
Percentage
Brooms
Floor/Wall Mats
Baskets
Not Aware
Figure 8.21 Products identified by Farmers as being Produced from the Oil Palm
PhilippinesGhanaBoth Countries
In the Philippines, on the other hand, the production of floor and wall mats from the
fronds of the oil palm is a major cottage industry in Agusan del Sur (see Plate 8.6).
Seventy nine per cent of the farmers surveyed identified them as the major by-product
of the oil palm tree in their Province followed by 13 per cent who identified baskets as
being commercially produced (see Plate 8.7). Both of these products are part of the
formal agricultural market in Agusan del Sur and truckers, functioning as middlemen,
collect both of these products along the main roads for shipment to Butuan City in the
north and as far south as Davao City. There are no cultural traditions amongst the
Filipinos to produce palm wine, although palm vinegar is produced from the oil palm
tree.
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Plate 8.6 'Weaving' Wall Mats in Bunawan
(Source: Paul Huddleston, Agusan del Sur 2004)
Plate 8.7 Making Fishing Baskets in Rosario
(Source: Paul Huddleston, Agusan del Sur 2004)
8.4 Conclusion
8.4.1 EMPLOYMENT CREATION
The findings of the research in both countries provide evidence that the oil palm
industry creates employment and, as such, it is an industry that should be encouraged as
a means of promoting economic development. At a minimum, the findings lend support
to the contention in recent literature on contract farming that there is an urgent need for
increased research on how contract farming can be harnessed to achieve accelerated
rural development (see Goldsmith, 1985; Glover, 1989b; Glover, 1990a; Glover and
Kusterer, 1990b; Glover and Ghee, 1992; Little, 1994b; Porter and Phillips-Howard,
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1995; Porter and Phillips-Howard, 1997a; Singh, 2000a; Singh, 2001; Gereffi and
Sturgeon, 2004).
Specifically, the results of the research support the argument postulated by Glover and
Kusterer that outgrower schemes create employment opportunities in the rural areas of
developing nations, where the poorest people live. The results reveal that the
cultivation of oil palm using the combination nucleus estate and outgrower scheme has
created quantifiable employment in the rural areas that were part of this research. The
outgrowers themselves, small farmer or otherwise, form part of the employment created
through the outgrower scheme but, because of the high labour requirements of the oil
palm, create a great deal more part-time labour in their local communities. Some of this
labour, i.e. harvest labour, by its very nature, is virtually de facto full-time, not only
because of the rotational nature of oil palm harvesting but because many of these
harvest ‘teams’ work for more than one outgrower. This is also true of labourers who
undertake brush and circle weeding.
Information from the interviews with farmers indicated that about a third employ
between 15 and 19 part-time workers on their oil palm farms, mostly during activities
such as weeding and harvesting. This research data, if extrapolated to the 7,000
outgrowers at GOPDC would indicate that 107,500 related part-time jobs were created
in Ghana from the development of the outgrower program at GOPDC. In the
Philippines the more modest number of Agumil outgrowers (305) would have created
5,200 part-time jobs across nine separate Provinces in Mindanao with 1,780 part-time
worker jobs in Agusan del Sur alone. One must consider, however, that most of these
workers perform their services on more than one outgrower farm and, as such, there is a
resultant built in over-reporting on new part-time job creation. Nonetheless, it is also
evident from the research results that there can be considerable under-reporting of hired
labour use by many outgrowers who have or still use contracted labour groups through
the Pakyaw or Lump sum systems.
The positive effect of oil palm farming on employment creation has also resulted in
positive spin-offs to the local community, firstly in terms of available cash amongst the
population through payments to the outgrowers and wages to the labourers and
secondly, in terms of cottage industry development and ancillary employment
generation. Asked about the benefits of oil palm contract farming to themselves and
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their families, most respondents answered that they now have spare cash to spend on
housing and on small business enterprises such as trading and marketing activities. One
of the questions asked during the interviews was whether farmers are aware of any
small handicraft business or small business in general that used the by-products of the
oil palm. There was a higher awareness of the existence of such related industries in the
Philippines than in Ghana. The availability of oil palm fronds in the Philippines has
created an impetus for the development of cottage industries like mat weaving, used for
floors and walls of rural homes, and basket weaving that provides additional sources of
income to both women and children. Surprisingly, neither processor, Ghana Oil Palm
Development Corporation in Ghana or Agumil in the Philippines, became involved in
the encouragement of the development of small-scale industries to use the palm plant
by-products to produce commercial products (Inkumsah, 2004; Chang, 2005). Clearly,
a more economically prosperous population within the outgrower areas adjacent to the
nucleus estate would augur well for the maintenance of a well-trained and educated
work force. It would also assist in projecting the processor firms as an integral and
healthy partner in the community’s development prospects.
While direct research into the creation of employment in the supporting farm goods and
services sector was not a direct focus of this research, there was anecdotal evidence of a
sustained growth of these supporting enterprises in the communities captured within the
outgrower scheme areas of the two study areas. The outgrowers reported purchasing
their agricultural inputs locally as compared to the nucleus estates who reported that
they purchased their required inputs in bulk in the large centres or overseas (Chang,
2004; Inkumsah, 2004; Outgrower Interviews, 2004). Finally, many of the outgrowers
themselves reported that their families now had the capital, from the oil palm profits, to
open up various trading enterprises in their local communities including dressmaking,
hairdressing salons, etc. These new enterprises formed part of the developmental matrix
of the region through further employment, training and through the multiplier effects
from increased spending and purchasing power.
While clearly some differentiation of socio-economic wellbeing has resulted in the two
researched outgrower schemes in Ghana and the Philippines, the research indicates that
it has largely been held in check because of employment and related economic
activities. In fact, anecdotal and interview information indicates that local area
development has not been skewed towards the outgrowers alone and interviews and
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observational surveys indicated a more balanced growth in the two regions (Outgrower
Interviews, 2004). To a great degree, extended family members, other farmers and local
artisans have been the positive recipients of enhanced socio-economic and communal
wellbeing following the introduction of oil palm outgrower schemes in their respective
areas (Addo, 2000; Narciso, 2003; Chang, 2004; Cinco, 2004; Grino Jr., 2004; Gyasi,
2004; Inkumsah, 2004; Poku, 2004).
8.4.2 FAMILY LABOUR, FAMILY RELATIONSHIPS AND GENDER EQUALITY
As a non-traditional crop, oil palm cultivation does not support Glover and Kusterer’s
(1990b) observation that non-traditional crops and processing technologies
predominantly involved the engagement of women. While women are not excluded
from the cultivation of this crop, the fact remains that the care and maintenance of oil
palm is a physically heavy task. On the other hand, while oil palm farming can
generally be considered as ‘men’s crop’ in Ghana and in the Philippines, the interviews
and focus group discussions did not yield information on gender differentiation in terms
of contract ‘ownership’. While limited, there was evidence that women were selected
as outgrowers and in some cases, were seen by both the processors and their fellow
contract farmers as being successful outgrowers. The research also directly supports
Doss’s (2002) contention that there is no gender differentiation in terms of crop
ownership in Ghana.
In spite of the physical demands, women can and frequently do play a significant role in
oil palm cultivation, not only as owners but also as hired labourers. However, nearly 50
per cent of the surveyed outgrower farmers indicated that they did not engage female
workers. Of the females who were hired, their work most often involved either weeding
or the collection of loose fruitlets. This is a direct result of the demanding physical
nature of the other tasks involved in the cultivation of oil palm and, possibly, a
reflection of their traditional role in providing food crops for the family. In Ghana
specifically, loose oil palm fruitlets form part of the remuneration and women use them
in the preparation of traditional foods, e.g. oil palm soup. In general, females were
hired by farmers who cultivated less than ten hectares and notably less so by farmers
with more than ten hectares. Female spouses, however, were seen to play a pivotal role
beyond weeding and loose fruitlet gathering and, in fact, were found to assume
responsibility for tasks such as farm worker supervision along with administrative and
financial management functions. This latter point is quite culturally relevant in the
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Philippine case where women normally handle the financial function in the home and
family-owned business. In certain instances, the respondents indicated that their wives
have started small businesses, using the earnings from oil palm farming as capital.
In terms of the involvement of the family in oil palm farming, there was limited
evidence from the research to support Hayami’s (2000) contention that “the family
farming unit is able to benefit from the utilisation of the low-opportunity-cost labour of
women, children and aged family members whose off-farm employment opportunities
are limited”. While the research found that the use of family labour (wives and
children) in oil palm cultivation was much more common in Ghana than it was in the
Philippines, the use of spousal labour in oil palm contract farming in the two study areas
is not at all extensive. Those spouses who do perform functions on their families
outgrower plots do so on a very limited basis, and as noted above, they were more
frequently involved in labour supervision and/or in undertaking administrative and/or
financial functions related to their family farms.
This research, admittedly time bound, did not yield any evidence of simmering
problems to support Watts’ (1994a) argument that contract farming acts as a catalyst for
gender and broader conflict within the household. While 59 per cent of the spouses
were engaged helping their partners in oil palm cultivation in the Philippines and 86 per
cent in Ghana, 25 per cent of them worked for less than half a day during week days.
Only 20 per cent worked for a full day directly related to the oil palm. As noted above,
while the harvest was the key area for their intervention (38 %), administration and
financial management placed second at 22 per cent. Based upon anecdotal evidence
obtained in discussions with a number of spouses in both study areas, there were no
concerns about their partners becoming involved as outgrowers of oil palm. Farmers
themselves made note of the fact that they did consult with their spouses on farming
decisions and on decisions concerning the use of profits they obtained (72 per cent of
the time in Ghana and 59 per cent of the time in the Philippines). This consultation may
have contributed to their responses that they did not have any family discord caused by
the oil palm (97 per cent of the time in Ghana and 92 per cent of the time in the
Philippines).
It must be pointed out, however, that these limited disagreements among family
members may be more a factor of the nature of the crop than of contract farming itself.
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As opposed to the findings of schemes researched by Carney (1988), Bülow and
Sørensen (1993) and other researchers, the work available to women and children on oil
palm outgrower schemes remains relatively limited. Certainly, as in the case in Ghana,
the fact that the collection of loose fruitlets are culturally in line with the traditional role
of women in providing food for the family, provides less opportunities for displacing
farm labour with home food production activities. The research also pointed to the fact
that child labour is not extensively utilised in oil palm farming since most respondents
saw their children’s first priority as getting a good education.
8.4.3 LABOUR QUALITY, AVAILABILITY AND BENEFITS
Farm workers were generally not the recipients of farmer largesse when it came to
worker benefits. In both countries, however, farmers declared that they would pay for
all medical costs associated with any injury sustained while a worker was working on
their farms. Some outgrowers also provide a mid-day meal for workers as well but,
beyond this, very little was provided according to the farmers interviewed. One of the
benefits of the Pakyaw system for farmers is that there was no obligation on their part to
provide any worker support at all. The quid pro quo, however, is that using contractors
to undertake a farm activity is more expensive than direct-hire.
One unexpected feature of the farmer interviews was that generally they found no
difficulty in obtaining sufficient labour in a timely manner; that they found the local
labour to be acceptable in terms of quality; and, finally that they found the cost of this
labour to be reasonable. From the literature available on the industry in Ghana, the
researcher was prepared to find considerable disharmonies between outgrowers and
their hired labour and was surprised to find that their relationship was quite amicable.
The history of agricultural labour in the Philippines, along a similar vein, has been
anything but cordial. Farm labour, largely landless, had little in common with the
economically more prosperous land owners. In fairness, however, Agusan del Sur, with
its large indigenous population has benefited from both the Agrarian Reform Act and
the laws enacted to protect the land rights of indigenous peoples in the Philippines.
In conclusion, the findings of this research lend support to Minot’s (1986:75) argument
that contract farming improves labour productivity and that this in itself would result in
a growth in benefits for hired labour in the longer term. One of the key points raised
during the interviews and focus group discussions was the need for hiring a competent
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team of workers so that harvesting is finished on time. While recognising that labour is
abundant, there is a premium given to specialised and more skilled workers, particularly
harvesters. As evidenced in Ghana, the outgrowers now pay their part-time workers a
daily or piece rate (hill, hectare, etc.) that, the workers set themselves. In the case of the
Philippines, given the experience of labour ‘poaching’ by some outgrowers, higher
wages and/or additional benefits are provided to maintain skilled or semi-skilled
workers on the oil palm farms.
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9.0 OUTGROWER PERCEPTIONS ON TECHNOLOGY TRANSFER IN THE OIL PALM INDUSTRY IN GHANA AND THE PHILIPPINES
9.1 Introduction
Advances in modern agriculture have been important contributors to productivity and
profitability for many farmers. More recently, bio-technological advances have not
only dramatically affected farm-input industries, but also the distribution channels that
support them. Improvements in transport, storage and packaging technologies have
fashioned a new growth of capital-intensive agro-industries in the wholesaling and
retailing sectors. Meanwhile, the use of sophisticated equipment that improves product-
quality reduces labour demand and ensures consistency in quality has expanded
significantly. The implications for the small farmer in developing countries cannot be
underestimated (Narayanan and Gulati, 2002:49).
In order to meet domestic and export agricultural targets, developing countries need
improved technologies within the entire commodity chain – production, processing and
distribution. Reardon (2000:202-3) summed up the discussion on the transfer of
technology when he stated, “The necessity of agro-industrialisation is almost
indisputable. … a plethora of questions remains as to how to get the right kind of agro-
industrialisation…to yield broad-based environmentally sustainable growth that creates
wealth and improves human well-being.” Reardon argued that environmental
sustainability must be the final judgement of any contract farming scheme, even in the
face of a successful transfer of technology.
Ehui (1999) argues that while technology need not crowd out smallholders through
substitution of capital for labour, there is evidence that an increase in the share of
processed products in the agro-food sector implies an increase in capital to labour ratios.
This could result in small farmers losing the benefits of contract farming to larger
farmers or corporate farms, as the latter are able to reap the economies of scale offered
by technological advances. The issue, therefore, becomes the degree of access to
technology rather than the technology per se. Where technology is appropriate to their
225
resource base and constraints, the speed of adoption is not significantly different
between small and large farmers (Narayanan and Gulati, 2002).
Technology used in oil palm cultivation is relatively basic when compared to other
crops farmed under contract. Nevertheless, it is significant as a viable strategy for
increasing the productivity of smallholder outgrowers as it includes the transfer of both
technical and managerial processes. The objective of the present chapter is to analyse
the contention that contract-farming systems use the transfer of technology as a strategy
for increasing the productivity of smallholder agriculture. As such, it will focus on the
transfer of technology and training processes to oil palm outgrowers in Ghana and in the
Philippines. It will examine the variations in technology used by interviewed
outgrowers before and after entering into contract with their respective processors along
with the benefits that have accrued to the outgrowers, including the improvements in
their farming systems and agricultural practices. These variables include such factors as
access to technology, credit, soil and nutrient sampling, agricultural inputs, agricultural
extension and the use of mechanisation before and after entering into contract. Finally,
the chapter will present the implications of technology transfer under contract as
perceived and articulated by the outgrowers along with the specific training related to
land care and land conservation that they received.
The transfer of technology is critical to the relationship between the outgrower and the
processor. Vellema (2002:3) supports this contention when he stated, “Technology
transfer through the introduction of artefacts [agricultural inputs] and through the
guidelines and rules prescribed by the contract and technicians is, in the case of contract
farming, a major determinant in the relationship between the contract grower and the
trans-national corporation.” Beyond the biological suitability of the introduction of a
contracted crop into an area, the relationship that develops between the outgrower and
the contractor is a key factor in the determination of economic results and the
subsequent general influence on local and regional socio-economic development
(Carney, 1994).
9.2 Contract Farming and Technology
The industrialisation of agriculture has resulted in significant and widespread
institutional, technological and social changes to agricultural production at a global
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level. These changes, according to Schrader (1986), are largely the result of advances
in biological and information technologies along with general economic growth, the
increasing scale of organisation and the relative modernisation of production,
processing and distribution systems (Kirsten and Sartorius, 2002:506). Drabenstott
(1995:14) argued that there are two forces that are driving the process of agro
industrialisation, a new consumer and a new producer. It is the second that forms the
focus of the current chapter – the new producers, who are utilising new technological
and managerial processes. These technologies allow processors, using farmers under
contract, to produce customised products to meet the changing lifestyle and food safety
concerns of the consumer. The harnessing of technology ensures that the consumer gets
the quality, consistency and value and other characteristics they demand (Drabenstott,
1995). The resultant increased levels of technology being utilised in the manufacture
and processing of agricultural commodities has resulted in the expansion of product
uses and even the development of additional products (Von Braun and Kennedy, 1994).
The rise of contract farming systems are quickly replacing spot markets97 for domestic
agricultural crops, export agricultural crops and other agricultural products, and has
heralded an increase in product quality and safety along with the use of more consistent
technology (Vellema, 2002). Production contracts are increasingly linking small,
medium and large third world farmers more directly to consumers in both domestic and
foreign markets. These linkages are being made possible through the increased vertical
coordination of agricultural firms or retail distributors as represented by both trans-
national corporations and indigenous bodies – national corporations - that cater directly
for the changing demands of society (Kirsten and Sartorius, 2002). At the heart of these
changes are the technological advances and processes that allow for the increased
industrialisation of the agricultural sector.
Kirsten and Sartorius (2002:506) offered some cautionary advice, when they stated,
“Although this sounds like an ideal situation, traditional markets do not handle these
[changing] circumstances well.” Changes in agricultural systems throughout the world
are resulting in social, cultural and economic impacts. There is considerable debate on
the positive and negative impacts of technology transfer by agribusiness to the
97 Spot market is defined as a commodities market in which goods are sold for cash and delivered immediately. The spot market is also called the "cash market" or "physical market", because prices are settled in cash on the spot at current market prices, as opposed to forward prices.
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developing world (Dicken, 1986:363; Poulton et al., 1998). Some researchers have
questioned the appropriateness of technology transfer to developing countries by
multinational corporations, citing unspecified adverse effects on the social and political
environment (Dicken, 1986; Little and Watts, 1994a).
Notwithstanding these concerns, the use of contract farming systems is rapidly
increasing in developing countries. The global sourcing of agricultural products in the
developing world is resulting in the rapid replacement of more traditional forms of
agriculture along with the social inter-relationships that supported them. Efficient
agricultural production requires outgrowers to have timely crop cultivation techniques.
When and how to fertilise, weed, water, apply pesticides and fungicides are crucial to
the process. It also requires that outgrowers have information on the product
requirements of the processor, such as export standards related to chemical use (Key
and Runsten, 1999). This is of particular importance since the cultivation regime varies
considerably in accordance with the technological requirements of the specific crop.
The contracted crop is frequently an important determinant of the socio-economic
characteristics of the choice of the outgrowers by processors (Glover, 1987:442).
Larger producers have a distinct advantage over smaller farmers if processors rely on
the contracted farmers to acquire technological and production information on their
own. This is because larger producers are frequently better educated and they can
subtract the fixed costs of acquiring information over a broader revenue base (Key and
Runsten, 1999:387). In the case of labour-intensive crops, the small farmer has an
advantage in that he can access unpaid labour from a much greater base (see Chapter 8).
The processor, in this situation, must ensure that they mount an effective extension
program to transfer both the optimal cultivation techniques to their outgrowers and to
ensure that the contracted farmers are fully aware of the product requirements of the
processor.
None of this negates the frequently reported rationale of farmers in developing countries
who report that they enter into production contracts to gain access to technology,
technical skills and managerial processes.98 Farmers are prepared to surrender some of
their independence in order to acquire new facets of production (see Carney, 1988; 98 Cost reduction, access to information, market, credit, capital, plant and equipment would be the other reasons farmers are willing to enter into contract.
- 228 -
Clapp, 1994; Glover, 1994; Jackson and Cheater, 1994; Rehber, 2000; Kirsten and
Sartorius, 2002; Vellema, 2002). Through the application of new technology and the
use of modern managerial systems, outgrowers can increase production, reduce costs
and augment their incomes (Clapp, 1994; Watts, 1994b; Baumann, 2000). While
contract farming schemes are increasingly being developed within the context of this
agro-industrial environment of increasing vertical coordination, the attempt to control
production through the introduction of new technology rarely involves a standardisation
of social relations in production (Little and Watts, 1994a). This is important because
there is no established ‘outgrower technology’ program that can be universally applied.
As Vellema (2002:3) indicates, “… the institutional and organisational configurations of
contract farming are extremely varied. There are many ways in which companies […]
organise production, both technically and socially.”
The economic liberalisation and institutional reform that has taken place has been
exacerbated by the declining role of government in the provision of agricultural
services, including agricultural research and its dissemination via extension services.
The private sector has now assumed the responsibility for the provision of agricultural
research, extension, production and marketing services via outgrower contracts (Coulter
et al., 1999; World Bank, 2001). As a direct result, the institutional absorption and
integration of farmers into new production systems has taken place (Little and Watts,
1994a). Watts (1994a) argues that contract farming leads to the ‘deskilling of labour’,
but Grossman (1995:204), while agreeing that this could be the case in highly regulated
schemes, indicated that it is by no means a certainty. He postulates that, “… in many
cases, peasants modify technical packages to suit local needs ….”
Benziger (1996:1686) pointed out that the success of outgrower schemes is contingent
upon the willingness of the farmers to learn new technology. Glover (1987:446)
asserted that, “… one of contract farming’s most promising features is its effectiveness
in transferring technology to small farmers. To exclude small farmers from contract
farming involving technologically dynamic crops is to exclude them from one of their
few opportunities for exposure to new techniques.” Glover and Kusterer (1990:152)
concluded that changes in the farming and management skills of small farmers are
possible over relatively short periods. While the literature on contract farming
recognises technology as an important facet of contracted agricultural production, there
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is limited data in the literature on this subject, particularly beyond South East Asia
(Glover and Ghee, 1992; Echánove and Steffen, 2005).
9.3 Perspectives on Technology Transfer under Contract
In theory, contractors will provide a better extension program than government because
they have a more direct financial interest in the success of their outgrower programs.
While accepting this as a basic premise, Baumann (2000) argues that the transfer of
technology under contract is varied both in its quality and in its sustainability.
Baumann, however, citing from Ellman’s (1986) evaluation of the Commonwealth
Development Corporation (CDC) outgrower schemes, did agree that the CDC projects
had been successful in their transfer of technology. Ellman’s (1986) argued that this
was principally because the CDC concentrated on a limited number of crops and
developed an expertise and refined technology that could be passed along to farmers.
There was no constant reinvention of the technology, its application or the cropping
procedures involved.
Baumann (2000) was concerned that a repetitive mono-cropping system could affect the
environment. Technology developed for many contract-farming schemes is highly
crop-specific and often fails to include the transfer of knowledge on how to manage the
crop as part of an integrated farming system. The insistence of contractors on the use of
standardised agricultural inputs and input quantities can lead to conflict between
themselves and their outgrowers, who have a more intimate knowledge of their own
microenvironments.99 The contractors may transfer technology but the danger remains
that this alone may not contribute to the outgrower’s development as an agriculturalist,
to local, regional or national knowledge development, or to environmental protection.
The continuity, quality and sustainability of extension services are other questions.
Glover and Kusterer (1990b) note that there is a rapid transfer of technology when the
new crop is first introduced into an area. Their attention to the new outgrowers is more
intense at these times, but frequently fades away over time as the contractors direct their
99 For example, the President of the Agusan del Sur State College of Agriculture and Technology (ASSCAT), Dr Jaquias, indicated in a 2004 interview that one of the major irritants to the oil palm outgrower scheme in the Province was the ‘cookie cutter’ approach taken by the contractor in the application of technology, particularly in the application of fertiliser. A majority of the outgrowers interviewed during the course of this research in the Philippines also echoed these sentiments.
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attention to more recently recruited outgrowers. Instructional written memoranda to the
outgrowers replace farm level assistance and this can lead to feelings of abandonment
amongst less secure outgrowers.100 The training itself can vary from formal to
informal, but usually consists of general orientations, on-farm demonstrations in
planting, weeding and harvesting, on-farm inspections, and skills training on managerial
systems such as record keeping of costs and sales. Glover (1987) reported that there
were benefits to outgrowers beyond the training associated with the transfer of
technology. He pointed out that growers, through a direct association with the
contractor’s staff, learn about the business environment beyond their farm fields,
including a better understanding of how the market works or how to run their farm as a
business.101 Glover (1994) indicates that even if there are less than successful
contractual results, outgrowers still apply their knowledge and experience gained under
contract to other future situations.
Vellema (2002) studied the relationship between technology transfer and organisational
change in agriculture in the Philippines. While recognising the importance of
technology in contract farming, he held that institutional and cultural fundamentals were
the basic ingredients in the success of any contract farming scheme. Vellema (2002:3)
saw the transfer of technology as being the “… central element mediating the
relationship between the contract grower and the company.” He considered that the
provision of agricultural inputs, instructions and rules prescribed under the contract or
emanating from processors technicians were essential for creating an environment in
which the relationship between the parties can nurture, evolve and finally mature into a
successful scheme. Vellema (2002:14) pointed out that the management of this
knowledge and technology is transient as this process is “… imperfect and firm
[processor] and commodity specific”. It allows for the conclusion that decision-making
related to the introduction and use of technology is institutionally removed from the
farm level (see Clapp, 1988; Glover, 1994; Little and Watts, 1994a; Burch et al., 1996).
In spite of the fact that the processors dominate the process, Vellema (2002:15)
100 This was frequently reported during interviews with outgrowers in both Ghana and in the Philippines Outgrower Interviews (2004). It was also confirmed as being an issue during interviews with outgrower program managers Pons Narciso, in the Philippines, and Michael Kemeh-Mensah, in Ghana (Narciso, 2003; Kemeh-Mensah, 2004). 101 Chapter 8 presented a case where an introverted small farmer under contract developed greater self-confidence and business acumen to such a degree that he has opened a non-farm business enterprise in the nearby town and rose to become the first President of the Philippines palm Growers Association. Few, including his spouse, would have predicted this change in him prior to his farming under contract (Narciso, 2003; Chang, 2005).
- 231 -
postulated that “… success or failure in growers’ fields not only depends on individual
crop management but is interrelated to the design of cropping systems and the selection
of (new) technologies inside the company.”
Nevertheless, the development and transfer of technology remains a central component
of all contract-farming schemes. While outgrowers may resent not being included in the
deliberations on the application of technology in their own fields, their contributions are
more likely to be fine-tuning rather than a true contribution to technology use per se.
Contract farming should be seen as integral to the developmental process and its value,
at least in part, rests in the benefits derived from the transfer of new technology and
farm management processes. Kirsten and Sartorius (2002:516) concluded that, “… the
educational experience of interacting with an agricultural partner can provide a platform
for farmers in developing countries … to convert from subsistence to commercial
farming.”
9.4 Technology Transfer and Training in the Study Areas
In both Ghana and the Philippines, the transfer of technology to oil palm outgrowers
was undertaken using informal training methodologies. Structured training materials
were not employed in the transfer of either general or specific information on the
cultivation or management of the crop. Potential outgrowers were identified at
‘outgrower information workshops’ organised by the two processors in their respective
catchment areas. These farmer orientation meetings were, in reality, an occasion for the
processor to ascertain which of the interested farmers meet the criteria that that they had
established for their selection of outgrowers.
In the Philippines, the outgrower selection criteria used by Agumil includes not only
land ownership and financial considerations but also the applicant’s reputation as a
farmer and businessperson. In terms of the financial variable, they looked for any
impediment that would obstruct the prospective outgrower from meeting the costs of
establishing and maintaining an oil palm farm. To be an outgrower, a farmer is
expected to either have his/her own financial resources or be eligible to obtain a bank
loan and, more importantly, be seen as someone who would repay his/her loans.102
102 Most Agumil outgrowers had access to loans from the First Consolidated Bank of the Philippines, however, Agumil has to co-sign the loan documents as a guarantor in case of default by the farmer.
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Farmers are also expected to have the title to their agricultural land or, as a minimum,
have a legal lease for its use for the next 25 years. Finally, farmers must possess a
positive reputation, often indicated by word of mouth from credible members of their
community. These references form a strong basis for the farmer’s acceptability as an
Agumil outgrower (Narciso, 2003; Chang, 2005).
The early recruitment of outgrowers in Ghana was mainly based upon their family size
and farmers with large immediate and/or extended families were attractive to the
GOPDC. As a rule, GOPDC actively discouraged outgrowers from hiring paid casual
labour as it directly influenced the outgrower’s oil palm farm profits. When the
outgrower program commenced in 1975, land ownership and access to finances were
not an issue. Almost all of the outgrowers contracted within the thirty-kilometre radius
of the processing mill were small tenant farmers.103 All financial requirements of the
outgrowers were met by GOPDC itself, on a loan basis, for seedlings, fertiliser and
other requirements including tools and boots (Addo, 2000; Aeschliman, 2001;
Inkumsah, 2004). This situation continued up until 1998 when the GOPDC, under
private sector ownership, cancelled their outgrower farm credit program.
Following the selection of outgrowers, both processors used initial group meetings to
introduce the farmers to oil palm cultivation and to introduce basic managerial
techniques. These sessions were oral, had limited structure and contained no written
‘course material’ for the outgrowers to keep. Following these group trainings, on-site
farmer instructions on seedling planting, weeding, harvesting, pruning and land
conservation techniques took place (Narciso, 2003; Kemeh-Mensah, 2004). In neither
country was the training extended beyond the verbal level and, once again, no written
material was presented.
The participation of GOPDC and Agumil in these on-farm activities varied from
activity to activity and from time to time. In the Philippines, it was common for Agumil
to lay out the pattern for the planting of the oil palm seedlings and to supervise their
planting. At GOPDC, during the period before they changed to organic production,
‘fertiliser teams’ would go throughout the outgrower areas to fertilise the oil palms. Agumil itself frequently loaned the funds necessary for the outgrowers to purchase the oil palm seedlings from the processor. The lending agency for cooperatives and indigenous farmers is the Land Bank of the Philippines. Again, Agumil must present itself as a guarantor of the loan. 103 A 30-kilometre radius was seen as the maximum distance from the oil palm processing mill that the FFB could be collected without losing their freshness and palm oil content.
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The outgrowers would be charged a fee for this service. The outgrowers in the
Philippines appear to have received better instructions on business management,
including record keeping, but the outgrowers in Ghana appear to have received better
instructions in land care than their Filipino counterparts. Once the outgrowers have
gone through the cycle of ‘trainings’, they still receive on-site visitations and
instructions from the processor’s agricultural demonstrators. This training wanes over
time and is replaced by written memoranda sent to the outgrowers with instructions to
undertake cyclical tasks such as brush or circle weeding (Jaquias, 2004).
9.4.1 BUSINESS MANAGEMENT OF AN AGUMIL OUTGROWER
Text Box 9.1 portrays an Agumil outgrower who is not comparable to the mainstream
outgrower in either of the two study areas. Nonetheless, the improvement in his
business skills as a direct result of the training that he has received from Agumil is
noteworthy. The farmer acknowledges that he has improved his profitability by
keeping complete and accurate farm records of all of his expenses and income from the
sale of FFB to Agumil. It is interesting to note that, while he acknowledges that he has
learned new procedures and managerial processes from Agumil, he does not blindly
follow Agumil’s prescriptions. During the interview with him he stated, “Agumil
recommends that I use the broadcast method of applying my fertiliser, but I did not
follow their advice. I told my men to fertilise using the ‘lobong’ method …”104 On the
other hand, while he checked the recommended fertiliser amount with the Bureau of
Soil Analysis, who recommended that he should use only half of the recommended
quantity, he decided to follow Agumil’s recommendation (Outgrower Interview PH
012, 2004).
9.5 Changes in the use of Technology
One of the issues concerning the appropriateness of technology transfer via contract
farming schemes in developing countries are the cultural, social and economic costs to
the host country. These can arise from problems associated with the imposition of an
agribusiness corporate system based on profit, to rural societies who cultivate land
104 The ‘lobong’ method involves placing the fertilizer in a shallow trench around the plant, in this case around the oil palm. It is considered a more direct method of getting the fertilizer to the plant than would be the case in using the broadcast method.
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Box 9.1 Outgrower Training in Farm Record Keeping Pays Off With an undergraduate degree in agricultural engineering and a master’s degree in agricultural economics, Concordio Orlanes is certainly not what one can consider an average farmer in the Philippines. He spent most of his working life building up his career with the Philippine civil service but took up optional retirement at age 55. He then concentrated on turning his own private business, Orlanes Farm Enterprises, into a profitable venture. With the help of his wife, he started in 1999 by planting thirteen hectares of oil palm seedlings and was among the first of Agumil’s contracted outgrowers. Three years later, he planted an additional five hectares of oil palm seedlings, bringing his total to eighteen hectares of oil palm. Concordio Orlanes also cultivates fifteen hectares of rice (palay), twelve hectares of coconut, three hectares of camote and one hectare of maize. His educational background and his training as a soil technologist have provided him with enough confidence to introduce oil palms onto his farm. But it was the skills training given to outgrowers by Agumil on financial record keeping that has enabled him to keep track of the expenses and income on his farm. He stated. “Agumil has assisted me in elevating my farming to a more professional level. I have learned to adjust my profits by better understanding my expenses.” The two tables below are his actual records for 2003.
Harvest Maintenance*January 24,314 3,960 3,500 7,460 16,854February 29,303 5,320 6,720 3,000 15,040 14,263March 43,653 5,690 4,500 10,190 33,463April 31,128 5,650 3,500 9,150 21,978May 17,768 30,800 3,500 3,400 3,000 40,700 -22,932June 20,716 2,550 3,000 5,550 15,166July 19,580 3,850 3,000 6,850 12,730August 19,920 3,650 2,750 4,000 10,400 9,520September 34,994 5,300 4,000 9,300 25,694October 63,757 6,400 5,500 11,900 51,857November 90,913 30,800 7,200 3,400 7,000 48,400 42,513December 71,271 4,350 1,450 5,000 10,800 60,471Total 467,317 61,600 57,420 17,720 49,000 185,740 281,577
** Transport includes not only fuel and oil but also driver’s allowance/wages.
Transport**FertiliserYear: 2003 Sales Total
ExpensesNet
Income
Orlanes Farm Enterprises - Oil Palm Fresh Fruit Sales and Expenditures (2003) Expenditures
Labour
* Maintenance labour: includes fertilisation, round weeding, brush weeding and spraying.
Year: 2003Vol/Kgs. Sales/Pesos Vol/Kgs. Sales/Pesos Vol/Kgs. Sales/Pesos
January 4,250 11,220 4,950 13,094 9,200 24,314February 5,515 14,559 5,585 14,744 11,100 29,303March 7,385 19,496 9,925 24,157 17,310 43,653April 3,975 9,877 9,250 21,251 13,225 31,128May 4,155 9,830 3,355 7,938 7,510 17,768June 2,325 5,660 6,185 15,056 8,510 20,716July 3,855 9,383 4,310 10,197 8,165 19,580August 3,855 9,120 4,565 10,800 8,420 19,920September 9,215 22,237 5,315 12,757 14,530 34,994October 14,850 39,583 8,885 24,174 23,735 63,757November 15,630 52,463 11,455 38,450 27,085 90,913December 8,430 38,514 7,170 32,757 15,600 71,271Total 83,440 241,942 80,950 225,375 164,390 467,317Average/Mo. 5,869 17,092 6,260 16,920 12,129 34,012
Orlanes Farm Enterprises - Oil Palm Fresh Fruit Deliveries and Sales (2003)Volume of Deliveries and Sales
Jan-15 16 – 30/31 Monthly Total
(Source: Orlanes Farm Enterprises, Agusan del Sur, Mindanao, Philippines, 2004)
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under traditional and frequently communal modes of production (Eaton, 1997).
Contract farming schemes are designed on the basis of crops that are most appropriate
in terms of their chances of agronomic success, market acceptance and their
compatibility with the farmers’ willingness and ability to absorb innovations and
adaptations in order to diversify their cash crop base (Glover and Ghee, 1992;
Baumann, 2000; Eaton and Shepherd, 2001).
These introduced innovations may include technological change involving managerial
processes, and new production processes including the use of fertilisers, new cultivars
and pesticides (Eaton and Shepherd, 2001). These material inputs may require
additional finance on the part of farmers and, under contract farming schemes,
agribusiness be the source of not only innovative technical change but of the farm credit
required by the outgrowers. Harvey (1985), supporting contract farming systems,
proposes that smallholder farmers gain access to technology, agricultural inputs and
management processes in this manner. In turn, these systems can foster agricultural
development (Eaton, 1997).
The main perception of both the Ghanaian and Filipino farmer was that the technology
they were exposed to during the introduction of the oil palm to their farms had not
changed their overall use of technology on their farms. When requested to indicate the
level of use of ‘technology’ after entering into contract, 75 per cent of the Filipino
outgrowers indicated that their use of technology had not changed since entering a
contract (Figure 9.1). This compared to 60 per cent of the Ghanaian outgrowers who
indicated that their use of technology had remained the same. Twenty per cent of the
Filipino farmers and 32 per cent of the Ghanaian contract farmers, however, did indicate
that their use of technology had subsequently increased. Clearly, the adaptation of new
technology was not the primary benefit sought after by outgrowers in the two study
areas. Vandebeeck’s (1999) study indicated that while 98 per cent of the GOPDC
outgrowers assessed the scheme as ‘good’, none of the reasons that they gave to support
this view included any reference to technology transfer.
Table 9.1 presents the responses of the outgrowers to specific questions on their
changing use of farm inputs, credit, soil and leaf nutrient sampling, agricultural
machinery and extension services. In terms of agricultural credit, entering into contract
did change the source of the outgrower’s funds. In Ghana, while 97 per cent self
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financed their agricultural operations before entering into contract, only 36 per cent did
so after. Sixty four per cent of these farmers received agricultural credit via the
GOPDC. The use of local moneylenders for farm credit was discontinued completely
because of the change. In the Philippines, as in Ghana, there was a switch away from
self-financing (85 per cent to 48 per cent) as 45 per cent of the outgrowers availed
themselves of the commercial financing from the First National Bank of the Philippines.
01020304050607080
Perc
enta
ge
Less Same More
Level of Use
Figure 9.1 Outgrower Use of Technology after Entering Contract Farming Scheme
GhanaPhilippinesTotal
Before After Before After Before After
Self Financed 97.2 36.1 85.2 48.1 95.1 42.6Institutional 0.0 0.0 7.4 44.4 3.3 19.7Local Money Lender 2.8 0.0 0.0 0.0 1.6 0.0Oil Palm Processor 0.0 63.9 0.0 0.0 0.0 37.7
97.2 0.0 84.0 0.0 91.8 0.0Min. of Agr. 2.8 0.0 8.0 0.0 4.9 0.0Other Sources 0.0 0.0 8.0 0.0 3.3 0.0OP Processor 0.0 100.0 0.0 100.0 0.0 100.0
None Used 0.0 0.0 12.0 0.0 4.9 0.0Min of Agr. 2.8 0.0 0.0 0.0 1.6 0.0Local Market 97.2 19.4 76.0 64.0 88.6 37.7Other Sources 0.0 0.0 12.0 0.0 4.9 0.0OP Processor 0.0 80.6 0.0 36.0 0.0 62.3
97.2 38.9 64.0 32.0 83.6 36.1Min. of Agr. 2.8 0.0 12.0 0.0 6.6 0.0Commercial Labs 0.0 0.0 24.0 24.0 9.8 9.8OP Processor 0.0 61.1 0.0 44.0 0.0 54.1
None Used 100.0 97.2 8.0 8.0 62.3 60.70.0 0.0 60.0 32.0 24.6 13.10.0 2.8 32.0 60.0 13.1 26.2
Not Used
Not Done
RentedOwned
Soil/Leaf Sampling
Machinery Use
Table 9.1 Outgrower's Sources of Funds, Services and Supplies Before and After Contract
Financing
Extension Services
Fertiliser Source
Ghana Philippines Combined
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There was a significant improvement in the utilisation of agricultural extension services
under contract. Previously, 97 per cent of the Ghanaian outgrowers had not or could not
avail themselves of these services and only 16 per cent of the Filipino farmers indicated
that they benefited from extension services. Of this percentage, only 8 per cent
benefited from the services of the Ministry of Agriculture while the other 8 per cent
used private consultancies. After entering into contract, 100 per cent of the outgrowers,
in each country, indicated that they now benefited from agricultural advisory services.
The use of fertiliser was not affected by the introduction of oil palm outgrower contracts
as its use before contract farming was high in any case. The source of the fertiliser did
change as the Ghanaian farmers reduced their open local market purchases from 97 per
cent to 20 per cent, with GOPDC supplying the difference.105 In the Philippines, local
market purchases remained high at 64 per cent, down from 76 per cent, before the
outgrower scheme commenced. Thirty six per cent indicated they purchase their
fertiliser from Agumil directly.
Nutrient sampling of both soils and vegetation has increased significantly since the
farmers became oil palm outgrowers. Previously, 97 per cent of the Ghanaian
outgrowers and 64 per cent of the Filipino outgrowers indicated that they had never had
their soil or plants tested for nutrients. After entering into outgrower contracts, the
number who still did not test for nutrients declined to 39 and 32 per cent, respectively.
In Ghana, 61 per cent of the outgrowers have availed themselves of GOPDC nutrient
testing services, while in the Philippines, 44 per cent have received this service to date
from Agumil. Both processors indicated that they provide this service on an ‘as
required’ basis (Narciso, 2003; Kemeh-Mensah, 2004). Twenty-four per cent of the
outgrowers in the Philippines still use private laboratories, a proportion that remained
unchanged from the period before they entered into contracts with Agumil.
The extent of machinery use by the outgrowers in Ghana has not changed following the
establishment of the outgrower scheme. In the Philippines, while the incidence of use
has not changed, the rental versus ownership ratio has reversed with more outgrowers
(60%) reporting that they now own machinery versus 32 per cent who indicated that
they rent. Before entering into contract these two percentages were reversed with 60
per cent renting and 32 per cent owning. This reflects greater farm incomes derived
105 These figures reflect the situation before GOPDC went organic in 1998.
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from the cultivation of oil palm coupled with the fact that the outgrowers, if they can
afford it, would find a small tractor of benefit in the transport of FFB to central
collection points.
9.6 Perceived benefits from the Transfer of Technology
Based upon outgrower’s perceptions in Ghana and the Philippines, 56 per cent felt that
the major benefit from the technology transfer was the training itself and 27 per cent
believed that the benefit was in the transferability of the technical and managerial
lessons to their farming in general.106 This latter reported benefit increased to 65 per
cent when outgrowers provided a secondary response. In Ghana, 47 per cent of the
outgrowers indicated that ‘transferability’ was the major benefit in their primary
response, rising to 82 per cent for their secondary response. In the Philippines, training
in its own right was indicated as the major benefit in their first response (71%), while 50
per cent saw the benefit of transferability as the major benefit for their secondary
response (Figure 9.2).
Figure 9.2 Reported Benefits from Technology Transfer under Contract
0.0
15.0
30.0
45.0
60.0
75.0
90.0
PhilippinesResp.#1
PhilippinesResp.# 2
Ghana Resp.# 1 Ghana Resp.# 2
Perc
enta
ge
1. Training2. Income3. Transferability4. Market Access5. No Benefit
In general, little difference exists between ‘training’ and ‘transferability’. The
outgrowers in both countries saw being a contract farmer as an opportunity to improve
both their cultivation and managerial processes, thereby being given an opportunity to
increase their profits. Figure 9.3 presents the outgrower’s perceptions on what they saw
as being the negative or positive benefits arising from the transfer of technology. The
106 Transferability is defined, in this case, to be the usage of the cultivation and management practices acquired as oil palm outgrowers to other crops that they cultivate, e.g. cocoa, citrus, rubber or coffee.
- 239 -
responses of the outgrowers in both study areas were primarily positive. Ninety-one
and 96 per cent of the outgrowers in the Philippines and in Ghana, respectively, felt that
their entry into oil palm contract farming had provided them with enhanced farming
skills and that they had benefited overall. This was reflected in the secondary question
concerning their views on whether their farming practices had improved. In Ghana, all
of the outgrowers indicated that their farming generally had improved since becoming
oil palm outgrowers and in the Philippines 88 per cent agreed with their Ghanaian
counterparts.
Figure 9.3 Outgrower perceptions on whether they have benefited overall and if their farming has improved under
contract
91.3 96.4 87.5 100
0.0
20.040.0
60.080.0
100.0
Perc
enta
ge
No 8.7 3.6 12.5 0
Yes 91.3 96.4 87.5 100
Philippines Ghana Philippines Ghana
Benefited Overall? Farming Improved?
At a more specific level, Figure 9.4 shows the results from an open-ended question
asked of the outgrowers on how their agriculture had improved since becoming oil palm
contractors. The initial response of outgrowers in Ghana (54%) and the Philippines
(65%) indicated that the primary improvement to their agriculture rested in the fact that
they now knew how to produce a crop that they were not familiar with before. In other
words, they had diversified their agriculture. The Ghanaian outgrowers, once again,
indicated that they used the techniques that they acquired from the GOPDC extension
agents to improve the husbandry of their other crops. In terms of the secondary
responses, the Ghanaian outgrowers (73%) indicated that they used the acquired skills
for their other agricultural tree crops, including citrus, coffee, cocoa and rubber. At the
secondary response level, 62 per cent of the Filipino outgrowers provided an ambiguous
response to the effect that ‘it made me a better farmer’.
- 240 -
Figure 9.4 Has your agriculture improved from being under contract?
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
PhilippinesResponse # 1
PhilippinesResponse # 2
GhanaResponse # 1
GhanaResponse # 2
Perc
enta
geYes, I learned a newcrop technology
Yes, it has made me abetter farmer
Yes, I use the new skillsfor my other crops
Yes, but no specificreason was given
No, it has not helped toimprove my agriculture
9.7 Land Conservation and the Transfer of Technology
Environmental protection plays a critical role in contract farming systems (Burch et al.,
1992; Little, 1994; Miller, 1995). Deforestation, the depletion of water resources and
soil degradation are major ecological concerns that accompanies agricultural
development (Eaton, 1997:299)). The nature of the crop produced and the physical
environment determine the degree of environmental problems that can be associated
with a contract farming scheme. While the economic rationale for the development of
contract farming schemes can be quite well understood, physical and biological
environmental degeneration may become a major economic threat to rural societies
(Eaton, 1997). In the case of GOPDC in Ghana, it was evident that land care formed a
specific focus of their ‘transfer of technology’. In the Philippines, environmental
concerns did not receive the same direct response in the training components of the
outgrower program. This, however, does not necessarily mean a lack of concern on the
part of the Filipino processor.
In view of national and global concerns related to environmental protection, it is
ethically and economically crucial that sponsors, their extension staff and the
outgrowers themselves address environmental issues during the implementation of
outgrower schemes. The most practical way sponsors can ensure ecological
compatibility within contracts is to ensure that projected outgrower areas are selected, in
consultation with the farmer and qualified extension staff (Eaton, 1997:300). The
- 241 -
farmer’s knowledge of the local historical and production performance of his land,
including local micro-environmental factors, should ultimately form a considerable part
of the decision making process on agronomic and land care issues. The willingness by
outgrower scheme managers to incorporate local knowledge is imperative for the
success of the outgrower system but sponsors are not always astute enough to follow
this advice (Cinco, 2004; Inkumsah, 2004).
During the interviews conducted in Ghana and in the Philippines, outgrowers were
asked if, in their view, the processors (GOPDC and Agumil) were concerned about the
long-term viability of their land. As shown in Figure 9.5, all of the outgrowers in
Ghana indicated that GOPDC shared their concern for the conservation of their land
holdings. Only 65 per cent of the Filipino outgrowers shared this belief. Largely, these
responses were based upon the willingness of the scheme sponsors to provide the
pertinent transfer of technical knowledge, through training, on land care techniques. In
the case of the GOPDC outgrowers, 97 per cent indicated that they had received specific
training in this area while in the Philippines, only 52 per cent of the outgrowers
indicated that they had had received training in this area. In interviews with both firms,
Agumil and GOPDC, the management indicated that the preservation of the
environment and the outgrowers’ farms was of paramount importance to them.
Figure 9.5 Processor Concerns for Their Outgrower's Agricultural Lands
65.2100
52.296.5
0.0%20.0%40.0%60.0%80.0%
100.0%
Philippines Ghana Philippines Ghana
Does the processor care for thepreservation of your land?
Has the processor provided youwith landcare training?
Perc
enta
ge
No
Yes
In an open-ended follow-up question, outgrowers were asked to indicate what training
they had received, if any, from GOPDC or Agumil. As shown in Figure 9.6, if training
was received, the primary training that was received in both study areas (47% in Ghana
and 27% in the Philippines) was on how to construct terraces and drainage canals to
- 242 -
prevent slope erosion. The second most prevalent training in Ghana (33%) was on
using the pruned palm fronds to construct ‘banks’, again with the intent of preventing
rapid runoff and soil erosion. This was followed up by 20 percent of the outgrowers
who received training on the planting of a nitrogen fixing cover crop to decrease erosion
and at the same time nourishing the oil palms. In the Philippines, 23 per cent of the
outgrowers received similar training and 7 percent received training on the use of the
palm fronds to create barriers against rapid rain runoff.
23.126.9
7.7
19.223.1
19.6
47.1
33.3
0 00.0
10.0
20.0
30.0
40.0
50.0
Perc
enta
ge
Philippines Ghana
Figure 9.6 Does the processor provide you with landcare training and, if so, what is it?
Yes, instructions on theuse of nitrogen fixingcover crop
Yes, training onterracing and drainagecanals
Yes, training on the useof fronds for banking toprevent erosion
No, and they instruct usto use too muchfertilizer and roundup
No, they don't teach usanything about landconservation
9.8 Conclusion Contract farming is increasing rapidly in developing countries and affecting traditional
agricultural, practices and social inter-relationships that support both. The fact remains,
however, that contract farming in developing countries will increase in the future in
response to the globalisation of agricultural systems. Care must be exercised to ensure
that new technology is introduced within a well-organised and effective development
framework. It must involve proper transfer mechanisms in conjunction with technical
and managerial processes that directly benefit smallholder outgrowers.
Outgrower contracts allow contract farming scheme sponsors to maintain a desired level
of quantity and quality of production. Sponsors of contract farming schemes in
developing countries usually provide technical advice to farmers on all facets of the
production, transportation and handling of the crop that they market. Improved
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techniques are normally required to upgrade and promote agricultural commodities into
markets that demand high quality standards (Eaton and Shepherd, 2001). Efficient
agricultural production requires outgrowers to have knowledge of crop cultivation
techniques such as when and how to fertilise, weed, water, and apply pesticides and
fungicides. It also requires that outgrowers have information on the product
requirements of the processor such as export standards related to chemical use and other
crop characteristics (Key and Runsten, 1999). This is of particular importance since the
cultivation regime varies considerably in accordance with the technological
requirements of the specific crop. In addition, introduced agronomic adaptation,
production techniques and managerial and financial processes may actually increase
productivity and quality. In order to achieve these increases, private sector companies
may offer more focused technological advisory services than government agricultural
extension services have in the past as they have a direct financial interest in improving
farmers’ production, in terms of both quantity and quality (Glover and Kusterer,
1990b:16).
With the exception of the oil palm seedlings, a product of extensive hybridisation, the
transfer of knowledge required for the production of oil palms represents the transfer of
a relatively low level of technology. Outgrowers in the two study areas have readily
accepted the technology that was tendered as part of the outgrower scheme and they
support Drabenstott’s (1995) definition of ‘new producers’. The data collected during
the course of this research provides little evidence to support the cautionary advice of
Kirsten and Sartorius (2002) on the capacity of traditional systems to cope with
increasing levels of technology. Similarly, there was no evidence of any adverse effects
on the social and political environments that were postulated by Dicken or Little and
Watts (Dicken, 1986; Little and Watts, 1994a). In addition, oil palm production under
contract does not lend itself to the situation portrayed by Ehui (1999), wherein small
rural farmers have difficulty coping with the transfer of technology necessitated by
agro-industrialisation that mandates an increase in the capital to labour ratio. In the two
study areas, it has been more a question of the access to technology rather than the
technology per se, as suggested by Narayanan (2002).
As indicated elsewhere in the literature,107 the outgrowers were prepared to surrender
some of their independence to gain access to technology. Virtually all of the
107 (See, for example, Carney, 1988; Clapp, 1994; Glover, 1994; Jackson and Cheater, 1994)
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outgrowers (94%) felt that they had benefited from being under contract and 94 per cent
felt that they had improved as farmers. Eighty-two per cent indicated that the training
they received was the primary benefit of being an outgrower. This finding is supported
by Baumann (2000). It is important to remember that the benefits derived from being
under contract will vary dependent upon the specific crop and the technology associated
with it (Vellema, 2002). In the case of the oil palm, the pruning and harvesting
functions are unique to it, but managerial, financial and weeding systems and tree
planting schematic layouts have proven useful to the outgrowers in the production of
other tree cash crops.
The present research found that the transfer of technology, simple as it is in the case of
oil palm cultivation, was frequently a central issue in the determination of the
relationship between the processor and the outgrower. For example, the frequency and
intensity of weeding or the level of fertilisation was frequently cited by the interviewed
outgrowers as a valid cause for questioning the processor’s understanding of the local
agricultural environment in both Ghana and in the Philippines. This lack of
understanding was also evident in the understanding of cultural norms and was not
restricted to technological aspects of oil palm production. In Ghana, for example, oil
palm processors contractually require the outgrowers to harvest the palm fruits (FFB)
up to the 25th year of the oil palm’s life. The outgrowers argue that the peak production
has fallen off by the 18th to 20th year. This difference of opinion has influenced the
relationship between the processor and the outgrower in Ghana. In reality, the issue is
partly a cultural one in a society that places a high premium on the production of palm
wine from the trunks of the oil palm for cultural and religious requirements (Gyasi,
2004).108 Hence, the Ghanaian outgrower sees greater value in an earlier termination of
the oil palm tree than does the processor.
Contract farming systems can introduce adverse consequences to the environment
(Burch et al., 1992; Little and Watts, 1994a; Miller, 1995; Eaton, 1997). Variations
occur, dependent upon the crop that is under production and it is imperative that during
the design and implementation of outgrower schemes that the views of the extension
staff be coupled with those of the outgrowers themselves (Eaton and Shepherd, 2001
233). Based upon interviews with the outgrower scheme managers at Agumil and
GOPDC and the interviews held with the respective outgrowers, it was apparent that
108 See Chapter 6 for a description of ‘palm Wine’.
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GOPDC was better at thoroughly integrating land conservation training into their
outgrower program. This was supported by the outgrower responses that indicated that
100 per cent of the outgrowers in Ghana felt satisfied that the GOPDC shared their
concern over land conservation. As a positive sign, 97 per cent of these outgrowers had
received field training in land care. There was no way to ascertain whether this was a
recent phenomenon since the privatisation of the GOPDC in 1995 or whether GOPDC
had always pursued a solid environmental program since its inception in 1975. All of
this is not to say that Agumil, in the Philippines, was not prepared to address
environmental issues; it just did not seem to be a central facet of their outgrower
education program. Only 65 per cent of the Agumil outgrowers felt that the processor
cared for their land. With land care education not taking a prominent role in the
outgrower program, only 52 per cent of the outgrowers recalled having received any
training in this area. These results are interesting given that outgrowers in Ghana are
virtually all tenant farmers, i.e., they do not own the land that they farm, and the lands
of the Filipino outgrowers are virtually all titled properties. One might expect the
statistics to be quite the opposite.
Contract farming has received the endorsement of multilateral and bilateral donors in
part because the proponents (contractors or processors) of outgrower schemes in
developing countries have been prepared to work closely with smallholder outgrowers
in the transfer of agricultural technology. Their actions are not entirely altruistic as
these trans-national or national corporations have considerable self-interest involved in
ensuring outgrowers’ success in achieving product quality, quantity and the timeliness
of product delivery. If the outgrower scheme is in its early stages, there is also an
opportunity to use the success of the earlier outgrowers to attract further farmers into the
scheme (Cinco, 2004). This was certainly the case with the development of Agumil’s
outgrower scheme in the oil palm industry in the Philippines, where early outgrowers
were hand picked to achieve almost certain success. Agumil’s objective was for these
successful farmers to serve as examples to lure further smaller farmers into the
outgrower scheme. The regular supply of FFB from the outgrowers is required to
maximise the economic efficiency of the contractor’s processing mill, even where a
nucleus estate exists. In this respect, the profitability of their firm depends on their
ability to operate the plant at full capacity (Chang, 2005).
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The significance of the ‘transfer of knowledge’ in the oil palm industry is that it allows
for its adaptability and transferability into the outgrowers farming business in Ghana
and in the Philippines. Benziger (1996) noted that the success of an outgrower scheme
was, at least in part, based upon the willingness of outgrowers to adopt new technology.
This has certainly taken place in the two schemes investigated in this research. The
outgrowers’ acceptance of new technology has resulted in their increasing self-
confidence and ability to transfer this knowledge into other facets of their lives.
Examples of this are the evident propensity of the outgrowers to enter into other
business ventures using the business acumen that they obtained as oil palm farmers. In
conclusion, the evidence reported here supports Glover’s (1987; 1994) contention that
outgrowers benefit beyond the actual content of the technology transferred to them and
that the outgrowers use the knowledge and experience of living under contract in other
situations. The introduction of new technology can open new markets and create
economic benefits for smallholder farmers.
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- 248 -
10.0 FINDINGS AND IMPLICATIONS
10.1 Introduction The basic tenets of a neo-liberal approach to agriculture holds that contract farming will
ensure agricultural modernisation through the transfer of technology and capital on risk-
free terms (Baumann, 2000). The anti-liberalisation approach, on the other hand, finds
contract farming to be a tool of international capital with little socio-economic value or
redemptive features for rural populations and their communities. As the proceeding
chapter demonstrated, the oil palm outgrowers interviewed as part of this research had
substantially benefited from the transfer of technology. The fact that such a high
percentage of the outgrowers (94% on average) believe that their farming skills have
been enhanced following their entry into contract, is just one factor that brings into
question the frequently cited view that rural populations are disadvantaged under
contract while realising limited gains (Clapp, 1994; Watts, 1994a; Little, 1994b; Little
and Watts, 1994c; Porter and Phillips-Howard, 1997a; Collins and Wingard, 2000).
This chapter will make a brief presentation of some of the commonly held views on
both the negative and the positive impacts of entering into agricultural contracts. This
will be done mainly with the objective of presenting the findings of the present research
as they relate to these potential impacts. Finally, the chapter will report on the questions
posed to the outgrowers on what they considered the principal benefits to their families
and to their communities that resulted from the introduction of oil palm contract
farming in their respective areas. Their views and their perceptions on what they saw as
the negative impacts of the oil palm contracting scheme will also be presented.
10.2 Potential Impacts of Contract Farming
Figure 10.1 presents some of the mainstream issues that are the focus of debate in
contract farming literature. The issues that focused on the outgrowers, their
productivity and income were addressed in Chapter 6. Decision-making and farm
control were presented in Chapter 7 based upon the data collected during outgrower
interviews in both Ghana and in the Philippines. Chapter 8 focused in on those issues
Diversion/Leap-frogging Economies of ScaleNon-adherence to Contract Terms Risk MinimisationHigh Transaction Costs Quality ControlQuality Variations Security of SupplyLand Degradation Political Expediencies/SupportLack of Political Stability/Support Increased FundingUnstable Market Conditions Improved Communal Standing
Reduced Local Food Production Access to MarketLoss of Decision-Making Power Access to Technology & TrainingNon-adherence to Contract Terms Access to Research and ExtensionDependency Access to Agricultural InputsUnpaid Family Labour Access to Capital and CreditLand Degradation Increased and/or Diversified IncomeUnstable Market Conditions Increased Communal Status
PositiveNega
tive
Proc
esso
rO
utgr
ower
Dependency, incl. decision-making, subsumption and
contract terms and prices
Social Impacts
Food SecurityOut
grow
er
Land Ownership and Land Care
Wealth Generation & Distribution
Figure 10.1 Contract Farming Issues Under Debate
Technology Transfer, incl technology adaptation and training
Labour Issues, incl. family labour
Proc
esso
rPositiveNe
gativ
e
249
that relate to employment and local farm labour in the two study areas. Finally, the
transfer of technology, its adaptation by the outgrowers into their wider farming
activities and the training used in the transfer of the technology were discussed in
Chapter 9.0. As in the previous three chapters, the data presented are based upon the
face-to-face outgrower interviews conducted in 2004, plus a number of corroborating
interviews with officials in the government, academia and oil palm processing plants.
Other mainstream issues that are not present relate to the management of the outgrower
process, including contract implementation, control and enforcement and price
determination and quality control. Additionally, the regulatory environment has taken
on an increasing importance as the oil palm sector has increasingly been privatised in
the two countries. The research focused less on these latter two issues, management and
regulation, than it did on the other mainstream issues identified in Figure 10.1. It is
recognised, however, that these are also key issues for general economic stability and
that they have implications on both local and regional development.
Stemming from these central issues, Figure 10.1 presents the identified impacts of
contract farming, broken down into those that are perceived to be positive and those that
are negative. Given that the basic premise of contract farming is what Eaton and
Sheppard (2001) call ‘Partnerships for Growth’, the identified impacts are further
broken down into those that affect the processor as well as those that affect the
outgrower. The key positive benefits for embarking upon a contract farming scheme for
the outgrower are: access to market, technology, capital and credit, research and
extension, increased or a more diversified income base, increased extended family and
community employment and, as reported by interviewed outgrowers, an increase in
social and communal status. For the scheme’s sponsor, the main benefits are:
economies of scale for their capital investment in milling equipment, a reduction of risk
in terms of the vagaries of primary agricultural production, security of supply and better
control of quality, increased access to state or donor funding into ‘development
projects’,109 and finally, political expediency of introducing a farming system that
directly includes local farmers into the productive process, as opposed to the creation of
further estates following the expropriation of land by government.110
109 In fact, in 2004, the privatised GOPDC obtained a loan, at a favourable rate of interest, from the African Development Bank for the construction of a fractionalisation plant and new co-generation power plant at the nucleus estate at Kwae. 110 The development of further plantation estates is considered ‘politically incorrect’ in many quarters (Barbier, 2000; Magdoff el al, 2000; Larbi et al, 2004; Wakker, 2004).
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Turning to the possible negative impacts of contract farming, the outgrower can
experience a loss of decision-making authority and control at the farm level, as most
contracts in developing nations are very specific in terms of both the tasks that must be
performed and in exactly how to go about them. The development of a dependency on
the contract over time can also result in the outgrower being at a disadvantage. The
processor can manipulate the terms of the contract to suit their own interests, often
resulting from unstable market conditions (supply and demand issues) or world market
pricing issues.111 There can also be a whole range of adverse issues concerning the use
of unpaid family labour and the development of tensions within the household coupled
with the an increase in the cost of staple food commodities as the production of cash
crops supplants the production of food crops. Finally, the potential for land degradation
in situations where sponsors can easily shift production to new areas remains a
possibility. For the schemes sponsors, negative impacts could includes situations where
the outgrowers do not adhere to the terms of the contract including not following the
advice for the use of agricultural inputs or care for the crop. Related to this is the
situation where the outgrower contravenes the terms of the contract by selling his
production to another buyer, often avoiding the repayment of loans obtained as part of
the contract.112 Other issues include: the accumulation of high transaction costs when
dealing with a large number of smallholder farmers; variations in crop quality; poor
land care on the part of the outgrowers resulting in a virtual reduction of crop output;
declining political support with changing governments; and, unstable market conditions.
In the literature, case studies, mainly undertaken in East and Southern Africa, have
indicated that contract farming has been observed to increase tensions between
household members (Carney, 1988; Carney, 1994; Key and Runsten, 1999). Struggles
over both resources and women’s labour occur frequently in areas where contract
farming has been established. Carney (1994) suggested that most literature on contract
farming has ignored the tendency of contract farming to control the ways in which
peasants organise the labour of the family members, particularly women. Carney
(1994:185), concluded that the potential advantages of using contract farming as a
strategy for increasing agricultural productivity and fostering rural development cannot
be assessed independently of the social relations involved in the regulation of peasant
production. 111 This is often accomplished by using product quality as a reason to reject the farmer’s production. 112 In Ghana, this practice is known as ‘diversion’ while in the Philippines it is called, ‘leap-frogging’. In the case of the tenant farmers in Ghana, it is a means of avoiding the payment to the land owner.
- 251 -
There was no evidence of these factors in the present research. Few women were
involved as outgrowers (18% in the Philippines and 10% in Ghana) in oil palm
cultivation because of the physical nature of the crop and, in the case of Ghana, due to
land tenure issues. Notwithstanding this, while 67 per cent of the female spouses (86%
in Ghana and 59% in the Philippines) assisted their husbands on their oil palm farms, 10
per cent of these actually managed the farm for their family and 24 per cent work on the
farm for less than half a day. In reference to the labour of the children of the family,
outgrowers in both regions indicated that the priority for their children was to attend
school. In fact, most outgrowers reported that this was made possible following
increased income from the cultivation of oil palm. In Ghana, however, 56 per cent
reported that their children assisted them on their oil palm farms as compared to the
Philippines where only 14 per cent used their children’s labour. Children’s assistance
was usually rendered on weekends, holidays and after school. Less than six per cent of
the outgrowers reported disagreements within the family resulting from their entry into
contract farming. In addition, 65 per cent indicated that they equally shared decision
making concerning the crop’s cultivation and the use of their profits with their spouses
(see Chapter 8).
There is also evidence to suggest that contract farming can make farming households
more vulnerable to food shortages, particularly where staple crops are replaced with
cash crops (Kennedy and Cogill, 1987; Magdoff et al., 2000). Minot (1986:72)
postulated that, “Greater incomes are not always translated into improvements in
standards of living broadly defined to include nutrition, education and health.”
Although the impact of higher incomes is generally positive, some schemes involve a
shift from subsistence food production to commercial production. Although not
harmful in itself, this is sometimes combined with poor choices regarding food
purchases and/or inequitable distribution within the household. In cultures where men
and women have separate budgets and spending responsibilities, such as in much of
Africa, women are generally responsible for the care and feeding of the family. Thus,
payments to the men from outgrower cash crops may bias household purchases away
from food and health-related items. However, this problem can occur with any income-
generating project and is not a problem unique to contract farming. No evidence of the
substitution of cash crops for food crops was provided during the course of the present
research. A high percentage of the outgrowers cultivate food crops (89% in Ghana and
83% in the Philippines) in addition to their production of oil palm. This production
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mainly involves staple food crops for home consumption in Ghana’s case while in the
Philippines, food crops are mainly produced on a commercial basis (see Chapter 6).
In other studies, contract farming is seen to be a means of introducing social economic
differentiation due to the introduction of skewed income distribution in rural
communities following the adoption of contract farming schemes (Korovkin, 1992; Key
and Runsten, 1999; Kirsten and Sartorius, 2002). These studies argue that the
technological and monetary advances accrue to only a minority of farmers in any given
area, resulting in uneven development that may not necessarily meet the needs of the
country concerned (Meliczek, 1985). Minot (1986:71) in his paper on contract farming
and its effect upon small farmers, indicated that while the impact of contract farming
can be quite intense, its impact is also ‘relatively narrow’, providing benefits to limited
numbers of farmers and their families. The evidence gathered during the course of this
research would indicate a more positive outcome. The cultivation of oil palm under
contract lends itself to the creation of employment, albeit part-time, outside of the
immediate family. The data collected during the interviews with the farmers indicates
that fully one-third of the outgrowers engage 15 to 19 workers to assist them with the
weeding and harvesting processes. If extrapolated to the entire outgrower populations
in the two study areas, well over 100,000 part time jobs were created and paid at or
above the national daily wage for agricultural workers.113 The outgrowers were very
clear in their belief that the benefits derived from the cultivation of oil palm extended
well into the community in general (see Chapter 8).
In addition, there is certainly a body of literature that suggests that smaller farmers will
find greater difficulty in participating in globalised agricultural economies where the
expansion of business into the agricultural sector has become more established (Eaton
and Shepherd, 2001). Some evidence also suggests that smaller farmers have become
increasingly marginalised due to the propensity of processors to enter into contracts
with larger farming operations. Given that the processor will have to enter into fewer
contracts to meet their production requirements, the transaction costs of maintaining
their outgrower scheme will be reduced. Based on the evidence gathered in Ghana and
in the Philippines, contract farming of oil palm is primarily undertaken by outgrowers
with limited hectarage of oil palm. In Ghana, 72 per cent of the outgrowers are
113 This does not imply that these are necessarily all additional jobs, as some of the workers engaged to work on the outgrower’s oil palm farms might have been employed elsewhere, in one form or another.
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cultivating oil palm on less than four hectares of land. This percentage increases to 89
per cent for outgrowers who are farming less than ten hectares. In the Philippines, the
respective percentages are 15 per cent under 4 hectares and 51 per cent under ten
hectares. The percentage increases to 74 per cent for those who are farming less than
fifteen hectares of oil palm. In Ghana, at least three fourths of the outgrowers are
farming limited hectares of oil palm (see Chapter 6).
Paradoxically, there remains a prevailing opinion amongst governments and donors
alike that contract farming remains an economic panacea for the small peasant farmer
(Little and Watts, 1994a; Porter and Phillips-Howard, 1997a; Singh, 2002a; World
Bank, 2002b; World Bank, 2004a). Supporting this position is a body of evidence that
suggests that contract farming has the potential to raise the welfare of growers,
particularly small farmers. This is because of an increase in their absolute income, their
access to knowledge, information and technology, credit, agricultural inputs, markets
and other services (see Carney, 1988; Clapp, 1994; Glover, 1994; Jackson and Cheater,
1994; Hudson, 2000; Kirsten and Sartorius, 2002; Vellema, 2002). In this sense,
contract farming allows small farmers to cultivate and market non-traditional cash crops
with the possible multiplier effects on employment, infrastructure and growth in the
local economy (see Glover, 1983; Glover, 1984; Minot, 1986; Glover and Ghee, 1992;
Morrissey and Mcgillivray, 1999; Warning and Hoo, 2000; Warning and Key, 2002).
One must also ponder Glover’s (1983) argument that, when compared to more
traditional patron-client relationships, modern contract farming leaves less room for
exploitation between the growers and the buyers. In terms of services, contract farming
is seen as a means by which farmers can access services once provided by the state prior
to neo-liberal economies, but which are no longer available to farmers from those
sources (Dirven and Ortega, 1996; Schejtman, 1996; Echánove and Steffen, 2005).
Certainly, the consolidation of small farmers into corporate bodies such as cooperatives
does provide an avenue for processors to contract and work with small farmers. It also
provides these smallholders with a modicum of collective bargaining power to use when
dealing with the contractors.
While on balance the discourse on contract farming does not imply a totally negative
picture, globalisation in the sector has certainly given rise to an increasing focus on a
number of environmental and socio-economic issues (Warning and Key, 2002). Glover
and Lim (1992), while clearly being more positive about contract farming than other
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researchers, have brought the debate down to relatively simple terms. While they
acknowledge that contracts can lend themselves to being exploitative in nature, they
point out that they can also result in notable increases in living standards. In this sense,
according to Baumann (2000:9), referring to earlier studies undertaken by Glover (1983;
1987; 1994), contract farming has to be “… examined on a case-by-case basis in order
to understand its potential as a tool in rural development strategies.” Baumann (2000:9)
went on to say that this examination should analyse the “… economic logic behind
contract farming and its political implications, in particular the effects of contract
farming on the process of empowerment and political organisation by outgrowers.”
10.3 Family Benefits from Being an Outgrower
An open-ended question was asked of outgrowers in Ghana and in the Philippines,
‘What do you see as the three key benefits to you and your family from being an oil
palm outgrower?’ They were requested to list three benefits, indicated in Figure 10.2
and 10.3 as their first, second and third responses. As might be expected, the responses
from Ghana and the Philippines were quite different. The Filipino outgrowers have
been harvesting the oil palm fruits for a shorter period, farmed more hectares of oil palm
and generally come from different socio-economic situations. The responses of the
outgrowers were subsequently grouped into the most common responses, six responses
in the case of the Philippines and seven responses for the Ghanaian outgrowers.
Figure 10.2 indicates the responses of the Filipino outgrowers to the question of what
they thought were the main benefits of being contracted oil palm producers. In terms of
their initial response, ‘financial security’ (69%) was overwhelmingly seen as the
primary benefit of being an outgrower. Other first responses provided were ‘personal
growth, exposure and knowledge’ (17%) and an ‘opportunity to invest in other
business’ (12%). These latter responses were also indicated as key benefits at the
second response level with 30 per cent of the outgrowers indicating ‘personal growth,
exposure and knowledge’ as their second benefit choice and 32 per cent who selected
‘opportunity to invest in other businesses’ as the second benefit they derived from being
an oil palm outgrower. Finally, at the third level, ‘personal growth, exposure and
knowledge’ attracted 33 per cent of the outgrowers while 20 per cent of them saw ‘more
leisure and travel time’ as a key benefit of being an oil palm contractor. The ability to
invest in other enterprises and personal growth and knowledge was frequently indicated
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as a benefit by the Filipino outgrower. Box 10.1 relates a brief anecdotal story of one of
Agumil’s outgrowers, relating his story of personal growth not only as an outgrower but
also as a member of his community. Differences in responses can partly be explained
by variations in the socio-economic environment of the two case study areas.
Figure 10.2 Philippines: Family Benefits Under Contract
0.0
20.0
40.0
60.0
80.0
Perc
enta
ge
1st Response 0.0 11.9 2.4 69.0 16.7 0.0
2cd Response 7.1 32.1 3.6 10.8 39.3 7.1
3d Response 6.7 13.3 13.3 13.4 33.3 20.0
Ability to help othersOpportunity to invest in other
business
More funds for children's education
Financial securityPersonal growth,
exposure and knowledge
More leisure time and travel time
BOX 10.1 The Road to Being A Well-Respected Community Member Eduardo Galo is among the foremost oil palm outgrowers in Agusan del Sur. He embraced oil palm farming, in 1995, with such gusto as Agumil’s first contract farmer. What he lacks in terms of training (he only pursued secondary education), he makes up with his dedication and eagerness to learn about the management of oil palm. While his wife helps him manage the farm, he is very hands-on with respect to tending to the palms, undertaking the weeding and the fertilising, and when his trees became mature enough to bear fruit, he personally supervised his workers at harvest, three times a month. He is also very active in promoting oil palm to his fellow farmers and has overcome his shyness to take every opportunity to talk about how he started with oil palm farming and how this has benefited him and his family. He credits being an outgrower of Agumil as the reason he now has confidence to talk to others. He also acknowledges that the financial benefits of oil palm farming have assisted him in providing a good education for his six children.
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Figure 10.3 indicates the responses of the Ghanaian outgrowers to the same question
posed to their Filipino counterparts. In terms of their initial response, ‘financial
security’ was only selected by 49 per cent of the outgrowers (as compared to 69% of the
Filipinos) as the primary benefit of being an outgrower. Thirty per cent of the
outgrowers in Ghana indicated the ‘more funds for children’s education’ was a key
benefit at this first response level, followed by 18 per cent who saw ‘ability to improve
or build new housing’ as a key benefit. Unlike the Filipino outgrower, the Ghanaian
outgrower did not see ‘personal growth, exposure and knowledge’ as a benefit at any
level of response. At the second level, the Ghanaian outgrowers indicated that ‘more
funds for children’s education’ (50%) was the main benefit, followed by 11.5 per cent
in each of the following benefit groups: housing, ability to help others, financial security
and funds for investment. Finally, at the third level, improvement to housing and funds
for health requirements were indicated as main benefits. While ‘opportunities to invest
in other businesses’ did not appear to be a key benefit indicated by the Ghanaian
outgrower, at any response level, individual stories clearly related that one of the key
benefits of being an oil palm outgrower was the fact that they could channel profits into
other business enterprises. Box 10.2 and Box 10.3 relate two such stories from GOPDC
outgrowers.
Figure 10.3 Ghana: Benefits to Family Under Contract
0.0
10.0
20.0
30.0
40.0
50.0
Perc
enta
ge
1st Response 18.2 0.0 3.0 30.3 0.0 48.5 0.0
2cd Response 11.5 11.5 11.5 50.0 4.0 11.5 0.0
3d Response 26.1 13.0 13.0 8.7 21.8 8.7 8.7
Ability to improve/build new housing
Ability to help others with money/jobs
Opportunity to invest in other
business
More funds for children's education
More funds for health needs
Financial security
More leisure/travel
time
10.4 Community Benefits An additional open-ended question was asked of outgrowers in Ghana and in the
Philippines to ascertain what they saw as being the main benefits that their communities
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derived from having the oil palm outgrower scheme in the region. As was the case for
the family benefits, the outgrowers were requested to list three benefits, as first, second
and third level responses. While the differences in responses between Ghana and the
Philippines were not as pronounced as they were in the case of family benefits, Figures
10.4 and 10.5 below indicate the responses of the Filipinos and Ghanaians, respectively.
Once again, the responses were grouped by the researcher following the completion of
the field survey.
Box 10.2 Oil Palm Contractors Channel Investments into the Community “I do things now that I have never done before. I have a steady income from my oil palm farm and from the dress shop that I now own. I am more self-confident, especially when I attend community meetings, and when I deal with the apprentices in my shop. I am also able to take care not only of my husband and children but also my extended family”. These were the words spoken by Amoakoa Margaret Akosua during my interview with her in August 2004. Now 40 years of age, Margaret started her oil palm farm when she was in her early thirties. She was among the first of the female outgrowers of GOPDC and as she indicated, “GOPDC wasn’t sure that women were strong enough to be oil palm farmers”. Together with her husband, also an outgrower with GOPDC, she finds time to combine work on the farm with expanding her dress shop and venturing into buying and selling not only agricultural produce (maize) but also goods such as buttons, zippers, polyester, etc. She hires part-time labourers to work on her farm but spends time carrying FFBs herself during harvest times. The major benefit of having a steady income from the oil palm, according to Margaret, is the fact that her family can now secure loans from the bank that they use to expand their business interests.
Box 10.3 Broadening the Future Horizons of an Outgrower’s Family “With five children, my wife and I work hard at our oil palm farm so that we can give them a good education”, says Adjei, one of the GOPDC outgrowers interviewed in August 2004. Adjei was among the first of the outgrowers in the village of Twefease and he is among those very vocal in encouraging his neighbours to become oil palm outgrowers. “We received a lot of benefits from oil palm farming and if we can encourage more of the community to do so, this will be good for our community’s development”, he emphasised during the interview. GOPDC has a reward scheme, based on the oil palm production of the outgrowers in a community, whereby an amount is provided to the community for social infrastructure such as school or a clinic. In terms of benefits to his immediate family, Adjei cites the fact that they were able to open a convenience store and a pub in the town from his earnings as an oil palm outgrower. “Not only will the additional income benefit me and my immediate family”, he stressed during the interview, “I will also be able to help my extended family”.
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Figure 10.4 indicates the benefits that the community receives from the presence of the
oil palm scheme in their area, according to outgrowers interviewed in Agusan del Sur.
At the first response level, the outgrowers indicated that the primary benefits for the
community were higher employment (76%) and an improvement in the socio-economic
situation (11%). At the secondary level, 37 per cent of the outgrowers identified
improvements in the socio-economic environment as a key benefit, followed by 34 per
cent who saw the key benefit as being increased tax revenue by government and 23 per
cent who identified higher employment. Finally, at the third response level, an
increased level of local investment (36%) was the main benefit followed by an
improved socio-economic environment (27%).
Figure 10.4 Philippines: Benefits to Community Under Contract
0.010.020.030.040.050.060.070.080.0
Perc
enta
ge
1st Response 10.9 8.7 76.0 2.2 2.2
2cd Response 37.0 34.3 22.9 2.9 2.9
3d Response 27.3 13.6 9.1 36.4 13.6
Improved socio-economic situation
Increased tax revenue
Higher employment
Increase in local investment
Improved peace, order and security
The reported benefits for the Kwaebibirem District in the Eastern Region of Ghana are
indicated on Figure 10.5. The results differ from those reported for the Philippines and
to a certain extent reflect the fact that the outgrower scheme in Ghana is much more
mature than is the scheme in the Philippines. At the first response level, nearly 71 per
cent of the outgrowers identified that the main benefit for their communities has been
the improved socio-economic situation. Fewer in number identified higher employment
(21%) and business investment (9%) as benefits for the community at the first response
level. At the secondary level, 38 per cent identified increased business investment in
their communities as the key benefit of the oil palm farming scheme in their area.
Thirty-five per cent indicated higher employment in the community as the benefit while
the generally improved socio-economic situation was cited by a further 24 per cent. At
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the third level response in Ghana, higher employment was indicated as a key benefit to
the community by 39 per cent of the respondents; 35 per cent indicated it was increased
local business investment; and, 27 per cent identified an improved socio-economic
situation.
Figure 10.5 Ghana: Benefits to the Community Under Contract
0.0
20.0
40.0
60.0
80.0
Perc
enta
ge
1st Response 70.6 20.6 8.8 0.0
2cd Response 24.1 34.5 37.9 3.5
3d Response 26.9 38.5 34.6 0.0
Improved socio-economic situation Higher employment Increase in local
investmentImproved peace, order
and security
At the community level, the combined outgrowers in the two study areas identified
higher employment (34%), improvements in the general socio-economic situation
(33%) and increased business investments (21%) as the three main benefits for the
community from the oil palm scheme in their locality. From observational research
undertaken within the study communities and anecdotal information gathered during
interviews, it was evident that the communities affected by the oil palm scheme were, in
fact, experiencing an expansion in the provision of goods and services, improvements to
civil works such a roads and drainage and improvements in the quality of housing in the
communities where the outgrowers live.
10.4.1 NEGATIVE BENEFITS TO THE COMMUNITY FROM CONTRACT FARMING
Finally, the outgrowers were asked to specify what they perceived as negative impacts
caused by the introduction of the oil palm and the oil palm contracting scheme. None of
the outgrowers identified any negative impacts on themselves or their families in either
case study area (Figure 10.6). It is important, however, to note that the present research
is simply a ‘snapshot’ in time and that past evidence in Ghana as reported by
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Aeschliman (2001) or Daddieh (1994), for example, indicated serious problems existed
between the outgrowers and the government owned GOPDC. In the Philippines,
however, 4 per cent of the outgrowers identified increasing crime as a negative result
facing their communities. The other 96 per cent cited that they felt that there were no
negative impacts upon the community. It is important to note that, in 2004, the
outgrower scheme was ostensibly only a few years old and negative impacts may
simply not appeared at that time. In Ghana, however, 54 per cent of the outgrowers
indicated some negative aspects of the scheme while the remaining 46 per cent
identified no negative outcomes. Of those who found negative impacts, 36 per cent saw
that a general increase in crime incidence and anti-social behaviour had followed the
success of the scheme with ‘unemployed hooligans from surrounding areas being
attracted to the wealth created by the outgrower scheme’. A decline in community spirit
since the advent of the outgrower scheme was cited by 9 per cent of the outgrowers.
Interestingly, 9 per cent indicated that the outgrower scheme had wrought class
differentiation between the outgrowers and other farmers in the area.
Figure 10.6 Negative Impacts of Contract Farming
0.0
20.0
40.0
60.0
80.0
100.0
Perc
enta
ge
Ghana 36.3 9.1 9.1 45.5
Philippines 4.1 0 0 95.9
Increase in communal crime
Decline in communal spirit
Developing class differentiation
No negative outcome
10.5 Conclusion This chapter provided a brief review of the overall findings of the research undertaken
in Ghana and in the Philippines in order to assess some of the commonly held views
concerning the negative and the positive impacts of contract farming. A presentation of
the major findings of the present research was made in terms of the potential positive
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and negative impacts. The chapter also reported on the views of the outgrowers in
Ghana and the Philippines concerning the principal positive and negative impacts on
their families and their communities emanating from the introduction of oil palm
contract farming in their respective areas.
The literature frequently reports that contract farming increases tensions among
household members over the use of financial resources and women’s labour (Carney,
1988; Carney, 1994; Key and Runsten, 1999). There was no evidence of these factors in
the present research. While admittedly, few women were involved as outgrowers as
such, female spouses do assist their husbands on their oil palm farms. Ten per cent of
the spouses actually managed the farm for their family and 24 per cent work part time
on the farm. Few outgrowers reported disagreements within the family resulting from
entry into contract farming of oil palm and the majority of outgrowers indicated that
they shared decision-making with their spouses on the cultivation of the oil palm and
the use of their profits. Nevertheless, there is still value in accepting Carney’s
(1994:185) caution that due diligence of the social relations involved in the regulation
of peasant production must be factored into the design and implementation of outgrower
schemes. In relation to family labour, while the children of outgrowers, particularly in
Ghana, assist their family on the oil palm farms, it is mainly restricted to weekends and
holidays. In fact, outgrowers in both regions indicated that their priority for their
children was for them to attend school.
No evidence of the substitution of cash crops for food crops was evident during the
course of the research. In reality, most outgrowers cultivate food crops in addition to
their production of oil palm. In Ghana, the outgrowers primarily cultivated staple crops
for home consumption. In the Philippines, food crops were frequently produced by the
outgrowers but for commercial sale to the market or to intermediaries. These findings,
therefore, conflict with the frequently cited evidence that suggests that contract farming
can make farming households more vulnerable to food shortages (Kennedy and Cogill,
1987; Magdoff et al., 2000). It is, however, appropriate to acknowledge that while the
impact of higher incomes is generally positive, some schemes involve too great a shift
from subsistence food production to commercial production, leaving the outgrower
community vulnerable to adversely changing market conditions for staple commodities
(Minot, 1986).
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The evidence gathered during the course of the present research would indicate a more
positive outcome than some previous studies that have indicated that contract farming
schemes introduce social and economic differentiation due to skewed distribution of
incomes in rural communities (Meliczek, 1985; Korovkin, 1992; Key and Runsten,
1999; Kirsten and Sartorius, 2002). The cultivation of oil palm under contract lends
itself to the creation of employment, albeit part-time, outside of the immediate family.
The data collected during the interviews with the outgrowers indicate that their
employment of local farm labour, particularly for weeding and harvesting, can be
considerable. The simple extrapolation of the data collected would indicate that
employment creation in the case of this crop is quite considerable. In addition, as
opposed to a pure plantation economy, purchases of goods and services in the local
communities were greater under the nucleus estate-outgrower scheme, creating
agricultural service sector employment opportunities. The outgrowers, themselves,
believe that the benefits derived from the oil palm outgrower scheme extend well into
the community.
Some evidence suggests that smaller farmers will find greater difficulty in participating
in outgrower schemes (Eaton and Shepherd, 2001). This is mainly due to the propensity
of processors to enter into contracts with larger farming operations, thereby, entering
into fewer contracts to meet their production requirements and, as a result, reducing
their transaction costs of maintaining their outgrower scheme. Based on the evidence
gathered in Ghana and in the Philippines, contract farming of oil palm is primarily
undertaken by outgrowers farming small farms of oil palm. In Ghana, only 25 percent
farm five hectares or more and while the figures for the Philippines would indicate that
oil palm farm sizes are greater, they would still be considered smallholder farmers with
74 per cent farming less than fifteen hectares of oil palm. While the data in the
Philippines is skewed by the presence of five large landowners, the trend on oil palm
outgrower schemes in both Ghana and the Philippines is for the contracting of
smallholders, in part for reasons of political expediency.
Whatever farmer’s motivations were to enter into contract, there are tangible benefits to
be derived from contract farming in the oil palm sector. It is important to note,
however, that these benefits can be influenced by a number of extraneous factors such
as the world market price, largely determined by supply and demand and a number of
other internal factors. At the family level, however, the outgrowers have given a clear
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indication that profits under contract have provided them with financial security that in
turn has allowed them to send their children to school, improve their housing and health
conditions and invest in further business enterprises. The outgrowers report that their
communities have also benefited from the introduction of the oil palm schemes in terms
of the generation of employment opportunities, increased commerce and industry, a
general improvement in the socio-economic situation of their communities and,
interestingly, increased governmental revenues from taxation. At the community level,
however, the increase in economic activity has also resulted in an increase in the
incidence of crime and anti-social behaviour.
In summary, the research indicates that the cultivation of oil palm does has the
propensity to reward outgrowers with increasing income and a better access to
knowledge, information and technology, capital and credit, agricultural inputs, markets
and other services. The development of the two schemes also indicates that contract
farming in oil palm allows small farmers to cultivate and market this non-traditional
cash crop that has multiplier effects on employment, infrastructure and a growth in the
local economy. Higher levels of income were exhibited along with the generation of
capital as indicated by a number of farmers investing in more farmland or commercial
businesses while allowing for a positive distribution of wealth into the community in
general. In this regard, higher employment was seen as a key factor. A real transfer of
technology was evident and the technology being transferred is being adapted by the
outgrowers for use in their other farming activities. However, the outgrower-training
program in both schemes lacked a rigourous, systemic and sustainable approach. No
evidence presented itself of any systemic conflict or contractual problems between the
processor and the outgrowers, in spite of historical evidence of this in Ghana. The
Filipino outgrower, however, did clearly display a greater level of scepticism of the
Agumil’s ‘technology’ than their Ghanaian counterparts did on GOPDC’s technology
transfer.
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11.0 CONTRACT FARMING IN OIL PALM
This study focused on two oil palm producing countries to provide a broad-based
tableau upon which to explore the contribution that farming oil palm under contract
makes to rural development in the two countries. A number of qualitative and
quantitative methods were used to gather information on contract farming in the oil
palm industry in both Ghana and the Philippines. Direct interviews with outgrowers
and both formal and informal interviews with the trans-national corporations working in
the oil palm industry in the two countries provided not only an assessment on their
outgrower programs but also access to their data bases concerning their outgrower
programs. Informal discussions with officials from the various governmental levels and
organisations, both national and international, in the two countries provided useful data
to assemble the background setting for this research. The methodology utilised enabled
a clear portrayal of the socio-economic profile of the outgrowers in the two countries.
Subtle changes were made to the field questionnaires and organisation of the focus
group discussions to take into account the cultural variation between the outgrowers in
the two countries.
The clear advantage for the oil palm remains the fact that its productivity per hectare is
much greater than any other edible oil crop, thus cutting the cost of land, infrastructure,
harvesting and maintenance (Corley and Tinker, 2003). Bio-technological advances by
the industries leading palm oil exporters, Malaysia and Indonesia, have allowed for
outputs of up to five MT of oil per hectare. Mechanisation in the oil palm industry may
result in higher outputs but the cultivation of oil palm continues to be highly reliant
upon a large labour supply. In the short-term, its competitive position, therefore,
depends on the relative cost of labour (Corley and Tinker, 2003).
The development of the oil palm industry is quite different in Ghana than it is in the
Philippines. In Ghana, palm oil has been used for thousands of years as an integral part
of the cultural, religious and biological needs of the country and its people. For
Ghanaians, the oil palm is a part of their daily life forming the basis of their cuisine and
socio-cultural patterns. In addition to this, the oil palm trees are often felled before they
have reached their useful life to make palm wine, a drink of great importance to the
religious and socio-cultural way of life of the Ghanaian people. Finally, in Ghana,
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FFBs are diverted to household or small mills to produce palm oil that is used directly,
in its raw form, in the daily food of the people living within the forest and coastal areas
of Ghana. The Philippines has no history of using palm oil in their diet and, as such, it
is simply a profitable cash crop that beyond its industrial uses has no special
significance within society or the home. Hence, household or small mills in the country
are non-existent and consequently, the practice of diversion of FFB is not a problem
faced by mills operating in the Philippines.
11.1 Developmental Policy and Contract Farming in the Literature
The formation of a number of large plantation estates and processing industries, most of
which had a high level of government ownership and control, was an outcome of the
development thinking of the 1970s profiling agrarian industries as the solution for
underdevelopment in rural areas. The efficacy of this state-driven approach to
agricultural development was undermined in the 1980s by rising debt, low commodity
prices and a series of global economic recessions. There was an increasing concern that
many of these development schemes were inefficient, unaccountable and a poor use of
scarce state resources (White and Bhatia, 1998). The state-driven approach often had
negligible impacts on socio-economic wellbeing, and even contributed to the loss of
productive traditional cultural and agrarian systems (Dorward et al., 1998).
As a result of these failures, the developmental focus has increasingly shifted to market-
led solutions and the promotion of private sector-led agricultural development (World
Bank, 1995). The globalisation and liberalisation of the world agricultural sector that
started to take form from the late 1980s onwards has brought about an increase in
vertical coordination in the sector (Kirsten and Sartorius, 2002). While vertical
coordination can imply a plethora of production relationships, one of the most widely
discussed methods involved in this agricultural restructuring has been both the growth
and the dispersion of contract farming (Little and Watts, 1994c). The growth of
contract farming has, in turn, led to a reduction in the level of governmental
participation in the agricultural sector (Raynolds, 2000; Dolan, 2001b; Echánove and
Steffen, 2005). It can be argued that the agricultural sectors of developed countries has
been able to adjust itself to the advent of increasing contract farming, but many scholars
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have questioned the nature of the impacts of this farming system on the rural economies
of developing countries.
Historically, contract farming has been a significant force in agriculture for over a
century, particularly in developed nations. This development took place well before the
introduction of neo-liberal policies in the last two decades (Burch and Rickson, 2001;
Eaton and Shepherd, 2001; Kirsten and Sartorius, 2002; Echánove and Steffen, 2005).
Corporate involvement in farming has become an important issue not only in terms of
the maintenance of the family farm system and the survival of rural communities, but
also in terms of socio-economic and natural resource impacts (Burch et al., 1999).
While the incidence of both corporate and contract farming are rapidly increasing, there
has been limited research undertaken on the economic and social impacts of either type
of business structure on rural communities (Black et al., 2000; Tonts et al., 2003). This
is particularly true in the case of developing economies where a review of the literature
on vertical coordination yields mixed results (Narayanan and Gulati, 2002).
There are a great number of opinions and judgements concerning contract farming in
developing economies. Up to the early 1990s, literature concerning the social and
economic impacts of contract farming in developing countries focused primarily on
contract farming schemes in East and Southern Africa and to a lesser extent in West
Africa. Over the last decade, the literature has increasingly included scholarly papers
that focus on contract farming in Latin America and Asia where its expansion has been
notable. However, detailed studies on specific contract farming ventures, such as this
study, still remain rare. The broad theoretical debate of this study focused on the role
that contract farming systems can play in agricultural development. As such, the
primary aim of this research was to ascertain the role that contract farming plays in the
pursuit of development and the extent to which it can enhance development in this
regard. One of the central difficulties in drawing any conclusion on whether contract
farming should be encouraged or discouraged, is the lack of comparability between the
large number of types of schemes, crops being contracted, the ‘actors’ involved and the
socio-economic, political and institutional environments in which they are nurtured.
This research was not intended to compare itself to other studies per se but rather to
assess the outgrower schemes in Ghana and in the Philippines in terms of the positive
and negative findings exposed in the literature, in general.
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This lack of comparability is compounded by the fact that scholars inherently have
chosen to study differing aspects or elements that make up contract farming, assuming
diverse theoretical perspectives in their study of outgrower schemes. As a result, they
have devised definitional structures that, in terms of their own research, have best
explained the specific facets of contract farming that they are researching and the
perspectives that they are using to view the issues that arise. This has left future
researchers with an array of definitions to choose from and has generally resulted in the
development and the use of highly technical, if not particularly functional definitions of
contract farming (Minot, 1986; Baumann, 2000). In this sense, many of the negative
and positive aspects of contract farming identified in various studies over the last twenty
years result from, as least in part, the specific research objectives being sought.
Virtually all researchers agree that contract farming is, by its very nature, quite
unpredictable and that while in one area it might be considered developmentally
negative, in another, a similar scheme might be relatively successful (Porter and
Phillips-Howard, 1997a; Baumann, 2000). A number of researchers have noted that
contract farming schemes rarely involve standardised production relationships between
the actors, involve the same crop or are developed and implemented within the same
socio-economic, political and institutional environments (Goodman, 1990; Glover and
Kusterer, 1990b; Little and Watts, 1994a; Little and Watts, 1994c; Eaton and Shepherd,
2001). As such, contract farming schemes need to be judged on a stand-alone basis,
based upon their overall socio-economic affects on rural communities. The present
research seems to bear witness to this, as contract farming in the oil palm industry in
both case study areas does not appear to generate similar findings to case studies
previously referred to in the literature.
Notwithstanding this, the literature in general, does project a picture of contract farming
where, on balance, the positive impacts do not entirely compensate for the negative
effects. The development and initial implementation of contract farming schemes can
be quite complicated and, therefore, it is imperative that sponsors of contract farming
schemes address potential adverse impacts on rural society (Eaton and Shepherd, 2001).
In this regard, there is a need to conduct further and more detailed research into: the
income generation and income distributional effects of contract farming; food security
issues; social differentiation issues that specifically address the exclusion of elements of
rural society and the development of inequalities within the household; and, rural
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employment including the possible creation of further difficulties for landless rural
citizenry. While the present research reveals that the employment, income generation
and distributional impacts of contract farming in the oil palm industry are, overall, quite
positive, further research on possible adverse effects on social differentiation would be
warranted as well as the broader impacts on the communities in general.
Corporate farming and contract farming are both clearly in the forefront of
manifestations of neo-liberal policy-making and show no signs of abating. Hence,
increased efforts in terms of research compilation and connectivity along with more
cohesive research will result in a more informed decision-making environment within
the globalised agricultural sector. There is a need to explore the issues or component
variables that manifest themselves in order to obtain a better understanding of the
valuable lessons that can result and that, in turn, can be used to design more beneficial
contract farming schemes.
11.2 Developmental Context
Carney (1994:185) propositioned that, “The advantages of using contract farming as a
strategy for increasing agricultural productivity and fostering rural development cannot
be assessed independently of the social relations regulating peasant production.” Minot
(1986:71-72) in his paper on contract farming and its effect upon small farmers,
indicated that while the impact of contract farming can be quite intense, its benefits can
often be narrowly focused, providing benefits to a limited numbers of farmers and their
families. In this sense, he argued that greater incomes are not always translated into
improvements in standards of living broadly defined to include nutrition, education and
health. Although the impact of higher incomes in contract farming schemes are
generally positive, some schemes involve a shift from subsistence food production to
commercial production. Although not harmful in itself, this is sometimes combined
with poor choices regarding food purchases and/or inequitable distribution of profits
within the household. However, as Minot himself noted, this is not a problem unique to
contract farming as it can occur with any income-generating project.
The economic impacts of contract farming, in conjunction with positive social impacts
are the primary objective of contract farming schemes from a developmental
perspective. The present research investigated a number of these social and economic
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issues related to contract farming schemes in Ghana and the Philippines, both in the oil
palm industry, in an attempt to ascertain the degree of their contribution to local and
regional development. It must be acknowledged, however, that insufficient data exists
to isolate the specific contribution of the oil palm schemes to local development in the
face of many other economic and social activities that are taking place simultaneously.
In addition, while this research did investigate labour, household and distributional
issues, it did not investigate nutrition, health and education in any detail. This research
was not intended to review contract farming in the oil palm industry using a broad
socio-economic development analysis.
11.2.1 SOCIAL IMPACTS ON DEVELOPMENT
The literature on contract farming frequently contends that small farmers are excluded
from contract farming schemes. This argument finds its basis primarily in research
undertaken in the period from 1980 to 1990 as presented by a number of researchers
(Buch-Hansen and Marcussen, 1982; Glover, 1994; Little and Watts, 1994a; Porter and
Phillips-Howard, 1997a). More recent authors have indicated that there is a greater
degree of inclusiveness of small farmer in outgrower schemes (White and Bhatia, 1998;
Weatherspoon et al., 2001; Narayanan and Gulati, 2002; Vellema, 2002; Warning et al.,
2002; Patrick, 2004; Simmons et al., 2005). It remains a reality, however, that smaller
farmers will find greater difficulty in participating in outgrower schemes (Eaton and
Shepherd, 2001). This is mainly due to the propensity of processors to enter into
contracts with larger farming operations, thereby, entering into fewer contracts to meet
their production requirements and, as a result, reducing the transaction costs of
maintaining their outgrower scheme.
The present research on oil palm contract farming indicates that in neither case study
area was there any overt attempt to avoid contracting with smallholder farmers. In fact,
contract farming in the two subject areas is primarily undertaken by outgrowers farming
small fields of oil palm. In Ghana, at the commencement of the GOPDC project in
1975, the World Bank GOPDC project called for the specific targeting of small farmers
(World Bank, 1975). The only limiting criteria for farmer selection were that
outgrowers should be mature enough to have more extensive farming experience; to
have large immediate and extended families for labour purposes; and, finally, to have
some capital accumulated as there are high costs involved in the cultivation of oil palm
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with no immediate financial returns in the first three to four years. In 2004, only
twenty-five percent of the Ghanaian outgrowers farmed more than five hectares.
In 2004, the Philippines oil palm farm sizes were greater than those in Ghana but, in the
context of the country, they would still be considered smallholder farmers and three
quarters farm less than fifteen hectares of oil palm. In the Philippines, Kenram,
allocated land from their former plantation to smallholder landless farmers who were
willing to produce oil palm for their mill. In the case of Agumil, initially they selected
outgrowers who possessed capital, larger land holdings and a recognisable degree of
business acumen. This was done ostensibly to ensure the successful start-up of the
scheme. Outgrowers who were selected during the second and subsequent phases were
largely small farmers (Chang, 2005). Interestingly, because of the criteria utilised by
Agumil, some of the first phase farmers had no prior experience in agriculture at all. As
the transaction costs would be higher under these circumstances, the avoidance of
smaller farmers was not motivated by cost considerations. The trend on oil palm
outgrower schemes in both Ghana and the Philippines is for the contracting of
smallholders, in part for reasons of political expediency.
The selection of outgrowers by Agumil in the Philippines and the GOPDC in Ghana
reflected the variance in their individual methodologies as well as the political context
within which they operated. The establishment of their respective outgrower programs
and their selection criteria for outgrowers were also influenced by the original rationale
for their establishment – on the one hand a social engineering project and on the other, a
purely profit-motivated business venture. As one might expect, the historical
differences of motivations between the two processors would have a contextual impact
on the developmental impact of their respective outgrower schemes. In turn, this socio-
economic environment plays its own part in determining the role of contract farming in
agricultural development.
There is limited literature concerning outgrower education and training although Minot
(1986) and Kirsten and Sartorius (2002) argued that education levels directly influenced
contract clarity, adherence and enforcement. Uneducated farmers, often smallholders,
were at a greater disadvantage under contract because there was a greater propensity for
them to not understand the contract very well, particularly those sections relating to
product quality. In addition, these farmers would have greater trouble in absorbing and
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understanding the training sessions offered by the contract-farming sponsor than would
farmers with greater levels of education. Because of these two factors, contractual
relations between this group of outgrowers and the sponsor are frequently poorer. In
Ghana, this was certainly the case and relations between government and the
outgrowers were difficult, at best (Aeschliman, 2001). In the Philippines, the
mainstream contracted outgrower, possessing higher levels of education, felt more
confident than his Ghanaian counterpart did and they were confident to raise contractual
issues they might have with Agumil’s management. Resolutions to perceived or real
problems that have arisen, therefore, have been arrived at quickly, thereby, avoiding
conflict.
The literature on contract farming entertains a lively discussion on the potential impacts
that arise as a result of the implementation of contract farming schemes (Little and
Watts, 1994a; Runsten and Key, 1996; Singh, 2001; Kirsten and Sartorius, 2002).
These include gender issues in terms of the differentiation in the selection of outgrowers
(Bülow and Sørensen, 1993; Dolan and Sutherland, 2001a; Doss, 2002), adverse
impacts upon power relations within the farming households as tensions arise between
male household heads, their wives and children (Carney, 1994; Key and Runsten, 1999;
Dolan, 2001b; Raynolds, 2002), struggles over the use of women’s and children’s
labour increase in areas where contract farming has established itself (Carney, 1994;
Porter and Phillips-Howard, 1997a; Narayanan and Gulati, 2002) and a reduction in
household food security resulting from the production of cash crops (Kennedy and
Cogill, 1987; Magdoff et al., 2000). The present research found that there was no overt
gender bias in the selection of outgrowers. However, interviews with the female
outgrowers and anecdotal discussions with women in the communities, in both Ghana
and in the Philippines, indicated that female farmers have reduced access to land and
credit as compared to male farmers. While these two issues are not specific to the oil
palm industry in either Ghana or in the Philippines, when coupled with the heavy
physical demands of oil palm cultivation, they do impose severe limits on women’s
abilities to enter into contract farming in the industry.
The literature frequently reports that contract farming increases tensions among
household members over the use of financial resources and women’s labour (Carney,
1988; Carney, 1994; Key and Runsten, 1999). Although undertaken at only one
specific point in time, this research did not yield any evidence of simmering problems to
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support Watts’ (1994a) argument that contract farming acts as a catalyst for gender and
broader conflict within the household. Admittedly, few women were involved as
outgrowers themselves but female spouses do assist their husbands on their oil palm
farms in the two study areas. While a small majority (59%) of the spouses were
engaged helping their partners in oil palm cultivation in the Philippines and 86 per cent
in Ghana, 25 per cent of them worked for less than half a day during week days. Only
20 per cent worked for a full day during weekdays on their spouse’s oil palm farms. Of
these, ten per cent actually managed the oil palm farm for their family. The harvest was
the key area for their intervention, followed by administrative and financial
management of their families’ oil palm ‘business’. Based upon anecdotal evidence
obtained in discussions with a number of women in both study areas, there were no
concerns about their partners becoming involved as contracted outgrowers of oil palm.
The male farmers themselves made note of the fact that they did consult with their
spouses on farming decisions and on decisions concerning the use of profits they
obtained. This consultation may have contributed to the responses of Ghanaian
outgrowers (92%) and Filipino outgrowers (97%) that they did not have any family
discord resulting from being under contract. Only a few outgrowers reported minor
household disharmony after entering into contract and the majority of the outgrowers
indicated that they shared decision-making with their spouses. There is, however, still
value in accepting Carney’s (1994:185) caution that due diligence of the social relations
involved in the regulation of peasant production must be factored into the design and
implementation of outgrower schemes.
In terms of the involvement of the family in oil palm farming, there was limited
evidence from the research to support Hayami’s (2000) contention that “the family
farming unit is able to benefit from the utilisation of the low-opportunity-cost labour of
women, children and aged family members whose off-farm employment opportunities
are limited”. While the research found that the use of family labour (wives and
children) in oil palm cultivation was much more common in Ghana than it was in the
Philippines, the use of spousal labour in oil palm contract farming in the two study areas
is not at all extensive. Those spouses who do perform functions on their families
outgrower plots do so on a very limited basis, and as noted above, they were more
frequently involved in labour supervision and/or in undertaking administrative and/or
financial functions related to their family farms. This latter point is quite culturally
relevant in the Philippine case where women normally handle the financial function in
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the home and family-owned business. In relation to child labour, while the children of
outgrowers, particularly in Ghana, do assist their family on the oil palm farms, it is
mainly restricted to weekends and holidays. In fact, outgrowers in both countries
indicated that their priority was for their children to attend school. Over time, with
greater and more reliable income from oil palm cultivation, outgrowers reported that
they more routinely sent their children to school. Additionally, the respondents
indicated that their wives have also started small businesses, using the profits from oil
palm farming as capital.
No evidence of the substitution of cash crops for food crops was evident during the
course of the research. In reality, most outgrowers cultivate food crops in addition to
their production of oil palm. Food security never became an issue in Ghana as all of the
outgrowers indicated that they continued to grow food crops for their households and
for sale in the local community markets. In the Philippines, oil palm occupies a land
zone not previously used for the production of food crops and no food crops were
reported as being replaced with oil palms. Additionally, food crops produced by the
Filipino outgrowers were primarily produced for commercial sale to the market or to
intermediaries. These findings, therefore, negate the frequently cited research
suggesting that contract farming can make farming households more vulnerable to food
shortages (Kennedy and Cogill, 1987; Magdoff et al., 2000). It is, however, appropriate
to acknowledge that while the impact of higher incomes is generally positive, some
contract farming schemes involve too great a shift from subsistence food production to
commercial production, possibly leaving the outgrower community vulnerable to
adversely changing market conditions for staple commodities (Minot, 1986). What was
of interest to the researcher in Ghana was the fact that oil palm contract farming was
only one element in the outgrower’s economic tableau. Virtually all of the outgrowers
produced oil palm as only part of their diversified farming program. In addition to food
products for their own household and for sale in the local food markets, the outgrowers
also produced other cash crops such as oranges, coffee, rubber and cocoa. The situation
in the Philippines was similar for full time farmers.
11.2.2 ECONOMY AND THE ENVIRONMENT
Contract farming is frequently seen as a farming system that introduces economic
differentiation due to the introduction of a skewed distribution of incomes in rural
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communities (Korovkin, 1992; Key and Runsten, 1999; Kirsten and Sartorius, 2002).
These studies argue that the technological and monetary advances accrue to only a
minority of farmers in any given area, resulting in uneven development that may not
necessarily meet the needs of the country concerned (Meliczek, 1985). The evidence
gathered during the course of the present research would indicate a more positive
outcome than some previous studies have indicated. It provides evidence that the oil
palm industry creates employment and promotes economic development. In this sense,
it supports the argument postulated by Glover and Kusterer (1990b) that outgrower
schemes create employment opportunities in the rural areas of developing nations,
where the poorest people live. In both Ghana and the Philippines, the cultivation of oil
palm under contract lends itself to the creation of employment, albeit part-time, outside
of the immediate family, creating quantifiable employment in the rural areas affected
by the outgrower program. The outgrowers themselves, small farmer or otherwise,
form part of the employment created through the outgrower scheme but significant
levels of part-time employment was also created because of the high labour
requirements of oil palm farming. Some of this labour, i.e. harvest labour, by its very
nature, is de facto full-time, not only because of the rotational nature of oil palm
harvesting but because many of these harvest workers work for more than one
outgrower. This is also true of labourers who undertake brush and circle weeding. The
data collected during the interviews with the outgrowers indicate that their employment
of local farm labour, particularly for weeding and harvesting, can be considerable. The
simple extrapolation of the data collected would indicate that employment creation
from outgrower schemes in the oil palm industry is substantial.
Information from the interviews with farmers indicated that about a third employ
between fifteen and nineteen part-time workers on their oil palm farms, mostly to
undertake activities such as weeding and harvesting. This research data, if extrapolated
to the 7,000 outgrowers at GOPDC would indicate that 107,500 related part-time jobs
were created in Ghana from the development of the outgrower program at GOPDC. In
the Philippines the more modest number of Agumil outgrowers (305) would have
created 5,200 part-time jobs across nine separate provinces in Mindanao with 1,780
part-time worker jobs in Agusan del Sur alone. One must consider, however, that most
of these workers perform their services on more than one outgrower farm and, as such,
there is a resultant built in over-reporting of job creation. Nonetheless, it is evident
from the research results that there can also be considerable under-reporting of hired
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labour use by many outgrowers who have or still use contracted labour work gangs
through the Pakyaw or Lump sum systems. As the outgrowers pay a contract price by
the task, he/she is not concerned about the quantity of labourers that are actually utilised
by the contractors.
In spite of the physical demands, women can and frequently do play a significant role in
oil palm cultivation, not only as owners but also as hired labourers. However, nearly
half of the surveyed outgrower farmers indicated that they did not engage female
workers. Of the females who were hired, their work most often involved either weeding
or the collection of loose fruitlets. This is a direct result of the demanding physical
nature of the other tasks involved in the cultivation of oil palm and, possibly, a
reflection of their traditional role in providing food crops for the family. In Ghana
specifically, loose oil palm fruitlets form part of the remuneration and women use them
in the preparation of traditional foods, e.g. oil palm soup.
One unexpected feature of the farmer interviews was that the outgrowers had no
difficulty in obtaining sufficient labour in a timely manner; that they found the local
labour to be acceptable in terms of quality; and, finally that they found the cost of this
labour to be reasonable. From the literature available on the industry in Ghana, the
researcher was prepared to find considerable disharmonies between outgrowers and
their hired labour and was surprised to find that their relationship was quite amicable.
The history of agricultural labour in the Philippines, along a similar vein, has been
anything but cordial and farm labourers, largely landless, had little to share
economically with the landowners. The large indigenous population in Agusan del Sur
has benefited from both the Agrarian Reform Act and the laws enacted to protect the
land rights of indigenous peoples in the Philippines.
The findings of this research lend support to Minot’s (1986:75) argument that contract
farming improves labour productivity and that this in itself has resulted in a growth in
benefits for hired labour in the longer term. One of the key points raised during the
interviews and focus group discussions was the need for hiring a competent team of
workers so that harvesting is finished in a timely manner. While recognising that labour
is abundant, there is a premium given to specialised and more skilled workers,
particularly harvesters. As evidenced in Ghana, the outgrowers now pay their part-time
workers a daily or piece rate (hill, hectare, etc.) that, the workers set themselves. In the
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case of the Philippines, given the experience of labour ‘poaching’ by some outgrowers,
higher wages and/or additional benefits are provided to maintain skilled or semi-skilled
workers on their oil palm farms.
There is recognition by the outgrowers that the benefits derived from the oil palm
outgrower scheme extend well into their communities. The positive effect of oil palm
farming on employment creation has resulted in positive spin-offs for their local
community, firstly in terms of available cash amongst the population through payments
to the outgrowers and wages to the labourers and secondly, in terms of cottage industry
development and ancillary employment generation. Most outgrowers reported that they
now have surplus capital to spend on housing and for investments into small business
enterprises such as trading and marketing activities in their local communities. These
new enterprises formed part of the developmental matrix of the region through further
employment, training and a multiplier affect on area development from increased
spending and purchasing power.
The research also indicated that purchases of goods and services in the local
communities, by outgrowers, are much greater than a pure plantation economy and that
this has assisted in the creation of a viable farm service sector and further employment
opportunities. The outgrowers purchased their agricultural inputs locally as compared
to the nucleus estates who reported that they purchased their required inputs in bulk
from the capital city or directly from overseas (Chang, 2004; Inkumsah, 2004). While
direct research into the creation of employment in the farm services sector was not a
direct focus of this research, there was anecdotal evidence that a sustained growth of
these supporting enterprises in the communities were taking place because of the
initiation of the oil palm outgrower schemes.
Cottage industries are also being developed in communities within the nucleus estate-
outgrower scheme area making use of the by-products from the cultivation of the oil
palm. For example, the availability of oil palm fronds led to the development of
cottage industries making floor and wall mats and baskets in the Philippines. This has
provided additional sources of employment and income for both women and children.
The research findings indicated that neither Agumil nor GOPDC were active in
promoting these cottage industries in their respective areas. Such efforts, however,
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would assist in projecting the processor firms as an integral and healthy partner in the
community’s developmental prospects.
While clearly some differentiation of economic wellbeing has resulted in the two study
areas in Ghana and the Philippines, the research indicates that it has largely been held in
check by increased employment and the creation of ancillary economic activities.
Anecdotal and interview information indicated that local area development has not been
skewed towards the outgrowers alone as the surveys indicated a more balanced growth
in the two regions. To a great extent, extended family members, other farmers and local
artisans have been the positive recipients of enhanced economic wellbeing following
the introduction of oil palm outgrower schemes in their respective areas (Addo, 2000;
Narciso, 2003; Chang, 2004; Cinco, 2004; Grino Jr., 2004; Gyasi, 2004; Inkumsah,
2004; Poku, 2004).
Contract farming systems, however, can introduce adverse consequences to the
environment (Burch et al., 1992; Little and Watts, 1994a; Miller, 1995; Eaton, 1997).
To a certain extent, these environmental consequences are related directly to the crop
that is being produced under contract. It is imperative, therefore, that in the design and
implementation of outgrower schemes, the views of the extension staff be coupled with
those of the outgrowers themselves (Eaton and Shepherd, 2001:233). Based upon
interviews with the outgrower scheme managers at Agumil and GOPDC and the
interviews held with their respective outgrowers, it was apparent that GOPDC has been
better at integrating land conservation training into their outgrower program. This was
supported by the outgrower responses that indicated that all of the outgrowers in Ghana
felt satisfied that the GOPDC shared in their concern over the preservation of their land
as indicated by the fact that almost all of them had received field training in land care.
All of this is not to say that Agumil, in the case of the Philippines, was not prepared to
address environmental issues; the environment just did not seem to be a central facet of
Agumil’s outgrower education program. Only one third of the Agumil outgrowers felt
that the processor cared for their land. With land care education not taking a prominent
role in the outgrower program, only a half of the outgrowers recalled having received
any training in this area. These results are interesting given that outgrowers in Ghana
are virtually all tenant farmers, i.e., they do not own the land that they farm, and the
lands of the Filipino outgrowers are virtually all owned and titled properties.
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11.2.3 ON THE TRANSFER OF TECHNOLOGY
Sponsors of contract farming schemes in developing countries usually provide technical
advice to farmers on all facets of the production, transportation and handling of the crop
that they market in order to maintain a desired level of both quantity and quality of
production. Improved adaptation techniques are normally required to upgrade and
promote agricultural commodities into markets that demand high quality standards
(Eaton and Shepherd, 2001). Efficient agricultural production requires outgrowers to
develop timely crop cultivation techniques, e.g. when and how to fertilise, weed, water,
apply pesticides and fungicides. Outgrowers must also have access to information on
the product requirements of the processor such as export standards related to chemical
use and other crop characteristics (Key and Runsten, 1999) This is of particular
importance since the cultivation regime varies considerably in accordance with the
technological requirements of the specific crop. In addition, introduced agronomic
adaptation, production techniques and managerial and financial processes may actually
increase productivity and quality. In order to achieve these increases, private sector
companies may offer technology with a deeper level of self interest than government
agricultural extension services have in the past as they have a direct interest in
improving farmers’ production, in terms of both quantity and quality (Glover and
Kusterer, 1990b:16).
With the exception of the oil palm seedlings, a product of extensive hybridisation, the
transfer of knowledge required for the production of oil palms represents the transfer of
a relatively low level of technology. Nevertheless, outgrowers in the two study areas
have readily accepted the technology that was tendered as part of the outgrower scheme
and in this sense they support Drabenstott’s (1995) definition of ‘new producers’.
Based on the data collected pertaining to the transfer of technology during the course of
this research, there is little evidence to accept the cautionary advice of Kirsten and
Sartorius (2002) on the ability of traditional agrarian systems to cope with increasing
levels of technology. Similarly, there was no evidence of any adverse effects on the
social and political environments that were postulated by Dicken or Little and Watts
(Dicken, 1986; Little and Watts, 1994a). In addition, oil palm production under
contract did not lend itself to the situation portrayed by Ehui (1999), wherein small rural
farmers have difficulty coping with the transfer of technology necessitated by agro-
industrialisation that requires an increase in the capital to labour ratio. In the two study
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areas, it has been more a question of the access to technology rather than the technology
per se, as suggested by Narayanan (2002).
The significance of the ‘transfer of knowledge’ in the oil palm industry in the two
research areas, when overlaid on the outgrowers and their farming systems, is that it
represents a high degree of adaptability and transferability of knowledge. Benziger
(1996) noted that the success of an outgrower scheme was, at least in part, based upon
the willingness of outgrowers to adopt new technology. This has certainly taken place
in the two schemes investigated as part of this research. The outgrowers’ acceptance of
new technology has resulted in increasing self-confidence on their part and their ability
to transfer this knowledge into other facets of their economic lives. Examples of this
are the evident propensity of the outgrowers to enter into other business ventures using
the business acumen that they obtained as oil palm farmers. The large estates in both
the Philippines, but more significantly in Ghana, have created, by way of their
outgrower schemes, a pool of farmers who have improved their skills in the cultivation
of the oil palm crop. The cultivation practices that these farmers, and their labourers,
have learned as oil palm outgrowers have been extended to the cultivation of other tree
crops that they farm. In this sense, the cultivation of oil palm under contract has
resulted in the transfer of oil palm technologies and cultivation practices into
neighbouring farming areas (Addo, 2000).
The evidence collected during this research supports Glover’s (1987;1994) contention
that outgrowers benefit beyond the actual content of the technology transferred to them
and that the outgrowers use the knowledge and experience of living under contract in
other situations. The introduction of new technology, that is well organised with proper
mechanisms for its sustainable transfer, can open new markets and create economic
benefits for smallholder farmers. There was a considerable change in the manner in
which Ghanaian farmers went about their farming business. Since farming was largely
a family operation with experience passed down from one generation to another, advice
was mainly sought from family members. This time tested system remains true to the
present with most of the respondent outgrowers indicating that they still conducted their
agricultural business in this manner. Nonetheless, in reference to their oil palm farming
activities, these same outgrowers indicated that they follow the advice of GOPDC on all
aspects of its production. They rationalised this by saying that they felt it was in their
best interests as oil palm has increased their income. Furthermore, these outgrowers
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reported that they have applied much of the oil palm technology, such as weed control
or land conservation techniques, in the cultivation of their other tree crops and in so
doing, have increased their income from these crops as well.
The situation was somewhat similar in the case of the Filipino outgrowers. Prior to
entering into oil palm outgrower contracts, a majority of the outgrowers indicated that
they relied upon their own or their families’ farming experience when making on-farm
decisions. However, unlike their Ghanaian counterparts, Filipino outgrowers are
considerably less rigorous in observing the terms of their outgrower contracts,
particularly when it came to the application of technology. Only half of the outgrowers
reported that they completely followed the direction and advice of the Agumil extension
agents and, of those who do, a third said that they listened to the advice provided but
then made operational decisions based upon their own farming experience.
11.2.4 ON BEING UNDER CONTRACT
Outgrowers are frequently prepared to surrender some of their independence in order to
gain access to technology (Carney, 1988; Clapp, 1994; Glover, 1994; Jackson and
Cheater, 1994). In this regard, virtually all of the outgrowers reported that they had
benefited from being under contract and, similarly, most believed that they had become
better farmers because of being under contract. In terms of the benefits of being under
contract, the outgrowers in both the Philippines and in Ghana reported that the primary
benefit of being an outgrower was in their acquisition of knowledge from the
technology transfer under the terms and conditions of their contracts. This perspective
supports Vellema’s (2002) argument that contract farming is a legitimate means of
introducing farmers in developing countries to both new technology and markets within
a self-sustaining developmental environment. As noted by Vellema (2002), the benefits
derived from being under contract do vary depending on the crop and the specific
technology associated with it. In the case of the oil palm, the pruning and harvesting
functions are unique to it but managerial, financial and weeding systems and tree
planting techniques have proven useful to the outgrowers in the production of other tree
cash crops.
In terms of farmer autonomy, the majority of the Ghanaian outgrowers reported that
they had not experienced any change in their power (autonomy) after entering into
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contract inspite of the fact that the majority of them fully adhered to the farming
instructions given to them by the scheme’s extension agents. Conversely, sixty per cent
of the Filipino outgrowers felt that they had surrendered some of their autonomy and
felt that the relationship that they had with Agumil was much more dependent than they
felt in the case of their other crops. However, as noted by Kirsten and Sartorius (2002),
entry into the oil palm industry by individual farmers would not be as easily facilitated
without the technological and financial support that the processors provide. It should
also be noted that the Filipino outgrowers, while previously producing commercial
crops, had done so to sell into spot market and not for the processing and export market.
The relationships that they would develop would be quite different.
The incidence of contractual disagreements between the processor and the outgrower
varied little between Ghana and the Philippines. The main areas of concern that were
cited by the outgrowers were the length of the contract, the pricing and/or grading
systems, the frequency of harvest (three times per month in the Philippines), the
quantity of fertiliser use being recommended (many of the Filipino outgrowers believe
that Agumil is recommending an over-application of chemical fertiliser) and the high
cost of transportation of FFB to the mill. This latter point was cited by the outgrowers
in both Ghana and in the Philippines.
The transfer of technology is frequently cited as a central issue in the determination of
the relationship between the processor and the outgrower (Vellema, 2002). While the
transfer of technology in the case of oil palm cultivation is relatively simple, the
frequency and intensity of weeding or the level of fertilisation were frequently cited by
the outgrowers as a reason for questioning the processor’s understanding of the local
agricultural environment in both Ghana and in the Philippines. This lack of
understanding was also evident in their understanding of cultural norms and was not
restricted only to the technological aspects of oil palm production. The primary
contractual problem reported by Ghanaian outgrowers related to the length of the
contract term that the Ghanaian outgrower wants to see reduced from 25 years to 18-20
years. Currently, their contract requires them to harvest the palm fruits (FFB) up to the
25th year of the oil palm’s life. The outgrowers argue that the peak production has
fallen off by the 18th to 20th year and at this age, it is difficult to harvest fruits and care
for the palm as it is too high. This difference of opinion has influenced the relationship
between the processor and the outgrower in Ghana. In reality, the issue is a cultural one
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in a society that places a high premium on the production of palm wine from the trunks
of the oil palm for cultural and religious requirements (Gyasi, 2004). Hence, the
Ghanaian outgrower sees greater value in an earlier termination of the oil palm tree than
does the processor. This problem was not raised by the Filipino outgrower probably
because their palms are all less than five years in age.
The second issue of note was common in the case of both groups of outgrowers,
namely, the pricing and/or grading systems. Outgrower responses obtained during the
course of the field interviews in both the Philippines and Ghana support the arguments
presented by Minot (1986) that conflicts between contract farmers and buyers often
relates not to decision-making and control, but on issues relating to product quality
control and grading. The findings also lend support to Minot’s views that adverse
relationship issues that develop over quality control and grading issues would be sorted
out as growers become more conversant in the acceptable product standards and as
quality and/or grading standards are further refined by the processors. In the
Philippines, the issue of both pricing and transparency in the grading system relates
more to the fact that, in 2004, they had only been shipping their fruit to Agumil’s mill
for less than one year and the outgrowers had high expectations. In recent years,
GOPDC, recognising the limited understanding of their outgrowers on how prices for
palm oil are determined, have spent considerable efforts to explain to the outgrowers
how world market prices for the crop are determined and how they are influenced by the
quality of the palm oil that the outgrower supplies. While their efforts have been
successful to a certain degree, the outgrower survey indicates that much more needs to
be done in this area in both countries.
11.3 Conclusion Development theory, as espoused by both governments and development agencies in
the 1960s and for much of the 1970s, called for government intervention in the
economy as a means of achieving socio-economic development. Rural areas were not
spared as government interventions in agriculture were seen as an effective means of
achieving socio-spatial equity and poverty alleviation (World Bank, 2003; World Bank,
2004a). In Ghana, this manifested itself in the establishment of large state or parastatal
oil palm estates with processing capabilities, most of which had a high level of
government ownership and control, yet estates that were also accompanied by tenant
farmer arrangements and outgrower programs (Daddieh, 1994). In the Philippines,
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plantation development was encouraged as a means of improving the developmental
prospects of the landless rural poor. In some cases, they were established in partnership
with government parastatals but more frequently with private sector funding. The
advent of agrarian reform in the 1980s brought about their demise and the birth of
outgrower systems throughout the country (Putzel, 1992; Fuwa, 2000). In the 1990s, an
increasing focus on market-led solutions and the promotion of the role of the private
sector in the pursuit of agricultural development started to take place. In simple terms,
state intervention was eschewed in favour of a broadly neo-liberal development agenda
(Dorward et al., 1998). The growth of neo-liberalisation agricultural policies in both
countries has led to minor changes in the Philippine context but to significant ones in
Ghana where the oil palm industry has now been mainly privatised. This in turn has
sponsored a renewed growth in the expansion of neo-liberal non-traditional agrarian
systems (Poku, 2004).
Central to much of the contemporary debate has been the issue of contract farming,
which has increased rapidly in line with structural adjustment in the agricultural sector.
Proponents of this form of agribusiness argue that it provides small farmers with access
to technology, training, capital and a degree of price certainty (Glover, 1994; Baumann,
2000; Burch and Rickson, 2001; Eaton and Shepherd, 2001). Dorward et al. (1998),
however, made the argument that the nucleus estate-outgrower program approach to
agricultural development had negligible impacts on socio-economic wellbeing, and even
contributed to the loss of productive traditional cultural and agrarian systems. The
present assessment of GOPDC and Agumil and their outgrowers showed little evidence
that such is the case. While this is not exclusively an offshoot of the private sector
management of both schemes, the increased focus on market-led solutions has resulted
in increased economic wellbeing in the communities that are associated with their
outgrower program. In this sense, the results achieved to date in the two outgrower
schemes are not consistent with the reported negative results found by researchers
elsewhere (Watts, 1988b; Bülow and Sørensen, 1993; Grosh, 1994; Little and Watts,
1994a).
The research findings support Grosh’s (1994) views that there are varying local,
regional and national responses to contract farming as an agricultural system and as
such, contract farming had to be judged on a case-by-case basis. As noted by Glover
and Kusterer and Goodman (1990; 1990b), the composure of the contracting
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environment is created by and is influenced by a great number of factors, including the
crop, the political and economic environment, the level of complexity of the contract,
technology and the relations between the ‘actors’, amongst other aspects inherent in
farming contracts. Generally, this was found to be the case in both Ghana and in the
Philippines.
As noted in Chapter 2, contract farming has received the endorsement of multilateral
and bilateral donors in part because the sponsors of outgrower schemes in developing
countries have been prepared to work closely with outgrowers in the transfer of
agricultural technology. Their actions are not entirely altruistic as these trans-national
or national corporations have considerable self-interest in ensuring outgrowers’ success
in achieving product quality, quantity and the timeliness of product delivery. If the
outgrower scheme is in its early stages, there is also an opportunity to use the success of
the earlier outgrowers to attract further farmers into the scheme (Cinco, 2004). This
was certainly the case with the development of Agumil’s outgrower scheme in the oil
palm industry in the Philippines, where early outgrowers were hand picked to achieve
almost certain success. Agumil’s objective was for these successful farmers to serve as
examples to lure further smaller farmers into the outgrower scheme. Where processing
is involved, the regular supply of FFB from the outgrowers was required to maximise
the economic efficiency of the processing mill, even in a situation where a nuclear
estate exists. In this respect, the profitability of their firm depends on their ability to
operate the plant at full or near full capacity (Chang, 2005).
Contract farming is increasing rapidly in developing countries and this is affecting
traditional agricultural structures, practices and the social inter-relationships that support
them. The fact remains, however, that contract farming in developing countries will
increase in the future in response to the globalisation of agricultural systems. Care must
be exercised to ensure that new technology is introduced within a well-organised and
effective development framework. It must involve the proper mechanisms for its
transfer in conjunction with other technical and managerial processes that directly
benefit smallholder outgrowers.
Whatever their motivation to enter into contract, there are tangible benefits to be derived
from contract farming in the oil palm sector. It is important to note, however, that these
benefits can be influenced by a number of external factors such as the world market
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price, largely determined by supply and demand, and a number of other internal factors.
At the family level, outgrowers have given a clear indication that profits under contract
have provided them with financial security that in turn has allowed them to send their
children to school, improve their housing and health conditions and invest in further
business enterprises. The outgrowers report that their communities have also benefited
from the introduction of the oil palm schemes by way of generating employment
opportunities, increased commerce and industry, a general improvement in the socio-
economic environment and, interestingly, increased governmental revenues from
taxation. At the community level, however, the increase in economic activity has also
resulted in a rising incidence of crime and anti-social behaviour.
In summary, the research indicates that the cultivation of oil palm does has the
propensity to reward outgrowers with increasing income and a better access to
knowledge, information and technology, capital and credit, agricultural inputs, markets
and other services. The development of the two schemes also indicates that contract
farming in oil palm allows small farmers to cultivate and market a non-traditional cash
crop that has multiplier effects on employment, infrastructure and a growth in the local
economy. Higher levels of income were exhibited along with the generation of capital
as indicated by a number of farmers investing in more land or business while allowing
for a positive distribution of wealth in the community in general. In this regard, higher
employment was seen as a key factor. A real transfer of technology was evident and the
technology being transferred is being adapted by the outgrowers for use in their other
farming activities. However, the training program on both schemes lacked a rigourous,
systemic and sustainable approach. No evidence presented itself of any systemic
conflict or contractual problems between the processor and the outgrowers, in spite of
historical evidence of this in Ghana. However, the Filipino outgrower did clearly
display a greater level of scepticism of the Agumil’s ‘technology’ than their Ghanaian
counterparts did on GOPDC’s technology transfer.
While there certainly may be serious limitations to the market liberalisation strategy, in
general, it is clear that there remains a strong commitment to this approach on the part
of most development agencies and governments. Over the past decade, privatisation
and the establishment of contract farming systems have proceeded at a rapid pace. In
the case of Ghana, this is particularly evident in the oil palm industry, which has
experienced the privatisation of the state-owned or parastatal plantation established in
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the 1970s, together with the rapid expansion of contract farming schemes (White and
Bhatia, 1998). This has had significant implications not only for the nature of the oil
palm industry in the country, but also for local farming systems and agricultural
development.
The two outgrower programs have been successful while at the same time not showing
any signs of the major problems identified by researchers addressing contract farming
issues in the 1980s and 1990s (e.g. Glover, 1994; Little and Watts, 1994a), namely, the
dependence of farmers on the inputs provided by firms, the loss of control over decision
making on the property, the threat of price manipulation, and the possible
environmental consequences. The contention that contract farming will undermine the
prosperity of local and regional economies and contribute further to the problems of
social inequity and poverty were found not to be the case in the present research. If
anything, social and economic wellbeing would seem to have been augmented through
the successful operation of the GOPDC outgrower scheme. In the Philippines, the
outgrower program is now only five years old and possibly, because of this, it has not
yet manifested any impacts except for the evident creation of employment and some of
the economic repercussions on the economies of the local communities.
As the experience and lessons of the past decades demonstrate, the move to a private
sector-led development of oil palm outgrower contracting schemes has provided a better
chance for promoting agricultural development in Ghana and the Philippines. Both
governments need to ensure, however, that a comprehensive policy and regulatory
framework for private sector agricultural development is in place. Given that a strong
private sector could provide the vehicle for agricultural development and the reduction
of poverty in the countryside, both governments and the various private sector
companies engaged in oil palm production need to work in partnership with each other
towards the goal of a diversified and expanded agricultural production base. The
private sector led oil palm industry has been successful in creating jobs in the rural areas
directly, through the engagement of outgrowers, and indirectly, through the farm
workers who are subsequently engaged by the outgrowers themselves. These promising
results have promoted agricultural development in the communities where the
outgrowers reside and provide the impetus for such partnerships.
- 287 -
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APPENDICES
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Appendix I: FIELD QUESTIONNAIRES _______________________________________________ I – A Group ‘A’ Farmers – Ghana & Philippines Respondent No: ____________ Date: ____________ Region/Province: Municipality/Barangay: Interviewee’s Name
And Address: Part 1: General Characteristics of Respondent and the Farm
1. Gender of Respondent: /___/ Male /___/ Female
In what year were you born? ____________ Are you born in Agusan del Sur? /___/ Yes /___/ No If NO, please indicate the province where you were born: ____________________
2. Who is the respondent? /___/ Owner of the farm
/___/ Relative of farm owner /___/ Other, Specify ___________________________
3. Level of Education and Training:
a. What is the highest level of educational attainment of respondent?
/___/ Elementary /___/ Secondary /___/ College or Tertiary, Specify /___/ Diploma or Postgraduate degree, Specify
b. What agriculture-related training has the respondent undertaken?
4. How many hectares does the owner have in total and what is the land ownership status?
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___________________ Hectares, /___/ Titled ___________________ Hectares /___/ Leased
Type of Crop
No of Hectares Planted to this
crop
Number of Years this Crop has Grown
No. of Hectares Under
Contract
No. of Years Under
Contract
Oil Palm
Other Crops: 1. 2. 3.
5. How long have you been farming? ________________ years
4.
Total Hectares or Years
6. Have you ever farmed under contract before? _____________
7. If so, what crop did you farm under contract? _____________ 8. Are you: a) Self-financed (Scheme A) _____________ or
b) First Consolidated Bank (Scheme B) _____________ or c) Land Bank Financed (Scheme C) _____________
9. What are your total sources of income (Annual or Monthly in Pesos)?
Source of Income Amount Earned in Pesos (Specify per year or monthly)
All Agricultural Crops Oil Palm under contract
Oil Palm not under contract Agricultural-related business
Other Sources of income, specify: 1. 2.
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10. What percentage of your total income do you get from non-oil palm related farming activities? _____________%
Part 2: Specific Information Related to Contract Farming 2A: Decision Making
11. Before you entered into contract, how did you make decisions related to your farm activities? _____________________________________________________________
12. Now that you are farming under contract, how do you make decisions related
to your farm?
_____________________________________________________________ 13. Do you feel you have lost or gained decision-making power after you
entered into any contracting schemes? If so, please elaborate.
_____________________________________________________________
14. Based on your experience in contract farming, what problems have you encountered in terms of the contract terms and conditions?
_____________________________________________________________
2B: Technology Transfer and Adaptation
15. What level of technology is used in your farming operations? And where was it obtained, etc.? [Provide any information the farmer provides in the spaces below or on the backside of the sheet.]
Before Contract Schemes After Contract Schemes
Access to agricultural credit
Mechanisation
Soil and nutrient sampling
Seed
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Fertiliser
Insecticides/Herbicides
Agricultural extension services
Harvesting of the crop
Transportation (Owned or rented)
16. How do you feel that you had benefited from the transfer of technology
under contract, including any training provided under the contract?
_____________________________________________________________
17. Do you feel technical assistance (training) has improved your farming techniques?
_____________________________________________________________
18. Does the contractor care about your land? If so, does he offer specific
training or programs to assist you in the environmental protection of your land?
_____________________________________________________________
2C: Labour Utilisation
19. How many people are employed on the farm and how much are they paid?
Full Time Labourer Part Time Labourer
Before CF After CF Before CF After CF
Male Female Male Female Male Female Male Female
Salaries (Indicate if per day or per week)
Other benefits:
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Housing
Food
Medical
SSS
Educational support/ loans
Other
20. Any other comments on labour and its payment and/or benefits?
______________________________________________________________
21. Are there different salary rates depending on the type of activity the labourer is doing? What are they?
Type of Activity Male Female
Planting
Weeding
Harvesting
Transporting
22. Is your spouse also involved in contract farming? In what way?
_____________________________________________________________
23. Does your spouse make decisions related to the farm? What decisions?
_____________________________________________________________ 24. Has your entry into contract farming resulted in any disagreements among
family members? If yes, please elaborate.
_____________________________________________________________
25. Do your children also work in the farm?
/___/ Yes, Specify their ages _________________________________ /___/ No
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I – B Group ‘B’ Farmers – Agusan del Sur
Respondent No: ____ Date: ____ Region/Province: CARAGA/AGUSAN DEL SUR Municipality/Barangay: Interviewee’s Name
And Address: Part 1: General Characteristics of Respondent and the Farm
2. Gender of Respondent: /___/ Male / / Female
In what year were you born? Are you born in Agusan del Sur? /___/ Yes /_ _/ No If NO, please indicate the province where you were born:
26. Who is the respondent? /___/ Owner of the farm
/_ _/ Relative of farm owner /___/ Other, Specify ___________________________
27. Level of Education and Training:
a. What is your highest level of educational attainment? /___/ Elementary /___/ Secondary /_ _/ College or Tertiary, Specify ________________________________ /___/ Diploma or Postgraduate degree, Specify ________________________
b. What agriculture-related training have you undertaken?
4. How long have you been farming? ___ Years 5. How many hectares do you farm in total and what is its ownership status?
___________________Hectares, /__/ Titled ___________________ Hectares /___/ Leased
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6. What types of crops do you produce?
Type of Crop Hectares Planted # of Years
Other Crops (Please specify): 1. 2.
7. Have you ever farmed under contract (before)? /_ _/ Yes /___/ No
If YES, what crop(s) did you farm under contract? _____________ 8. Have you considered in the past, or are you presently considering, farming any crop
under contract? /_ _/ Yes /___/ No If yes, what crop? Why? 9. Do you know other farmers who are growing crops based on contracts (for example, oil
palm with companies such as Agumil and Filipinas Farm?
/_ _/ Yes /___/ No
If yes, do you think they get benefits from contract farming? If yes, please specify. 10. What are your total sources of income?
3.
Totals (Hectares or Years):
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Source of Income Monthly Earnings % of
Total Income
All Agricultural Crops, specify: 1.
11. What level of technology do you use in your farming operations? And where was it obtained, etc.? [Provide any information the farmer provides in the spaces below or on the backside of the sheet.]
Agricultural Inputs Do you use/access
these Services? Where do you obtain them?
Agricultural credit
Mechanised Equipment
Soil and nutrient sampling
Improved Seed
Fertiliser
Insecticides/Herbicides
Agricultural extension services
Transportation Services
12. How many people are employed on your farm and how much are they paid? (For Agumil contracted farmers – please answer Q 22 on supplemental questionnaire instead)
Full Time Labourer Part Time Labourer
Male Female Male Female
1. Wage/Day
2. 3. 4.
Agricultural-related business
Non-agricultural business
Other Sources of income, specify: 1. 2. 3.
Totals:
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2. Other benefits:
a) Housing
b) Food
c) Medical
d) SSS
e) Education
f) Other
13. Do members of your family work on your farm? /___/ Yes /__/ No
Who? Spouse /___/ Children /___/ Duration (Hours/day)? ___________________________ In what capacity do they work? ________________________________________
14. What are the important issues regarding labour use in farming operations in Agusan del Sur?
___________________________________________
15. Are there different salary rates for different types of farming activities? What are they?
Type of Activity Male Female
Planting
Weeding
Harvesting
Transporting
SUPPLEMENTAL QUESTIONS FOR AGUMIL CONTRACTORS
16. What is the total number of hectares that you have under contract to Agumil to produce Palm Oil? # of Hectares. ___ ___.
17. Do you produce Palm Oil NOT under contract to Agumil? # of Hectares __ __. 18. What percentage of your total income do you obtain from:
Agumil under contract? ___ ___________ From other mills? ________________
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19. Do you feel you have lost or gained decision-making power on your farm after you entered into the Agumil contract outgrower scheme? If so, please elaborate.
20. Based on your experience in contract farming, what problems have you encountered in
terms of the contract terms and conditions?
21. Has your access to these services changed after contracting with Agumil? How?
22. How many people are employed on your Agumil contracted acreage? on your farm and how much do they get paid?
Full Time Labourer Part Time Labourer Before CF After CF Before CF After CF
Male Female Male Female Male Female Male Female
1. Daily pay (Peso/day)
2. Other benefits: (yes or no)
a) Housing
b) Food
c) Medical
d) SSS e) Education
f) Other
23. Is your spouse also involved in contract farming? In what way?
24. Does your spouse make decisions related to the farm? What decisions?
25. Has your entry into contract farming resulted in any disagreements among family
members? If yes, please elaborate.
26. Prior to contract and after contract, what goods and services do you purchase for the farm and from whom/where? (Do you get services/supplies from Agumil?)
Type Before Contract After Contract Seed Mechanical Services Fertiliser Herbicides/Insecticides Other Farm Supplies
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27. Are you aware of or involved in livelihood activities that utilise the by-products of oil palm production that benefits the community? Do you know if the contractor has contributed to the development of such activities?
28. From your experience and point of view, what do you see as the benefits of contract
farming to:
a. To you personally?
b. To your community?
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I – C Group ‘C’ Farmers – Agusan del Sur
Respondent No: ____________ Date: ____________ Region/Province: Municipality/Barangay: Interviewee’s Name
And Address: Part 1: General Characteristics of Respondent and the Farm
3. Gender of Respondent: /___/ Male /___/ Female
In what year were you born? ______________ Are you born in Agusan del Sur? /___/ Yes /___/ No If NO, please indicate the province where you were born: ___________________
28. Who is the respondent? /___/ Owner of the farm
/___/ Relative of farm owner /___/ Other, Specify ___________________________
29. Level of Education and Training:
a. What is your highest level of educational attainment? /___/ Elementary /___/ Secondary /___/ College or Tertiary, Specify ________________________________ /___/ Diploma or Postgraduate degree, Specify _______________________
b. What agriculture-related training have you undertaken?
_______________________________________________________________
4. How long have you been farming? ________________ Years 5. How many hectares do you farm in total and what is its ownership status?
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___________________ Hectares, /___/ Titled ___________________ Hectares /___/ Leased
6. What types of crops do you produce?
Type of Crop Hectares Planted # of Years
Rice
Corn
Coconut
Bananas
Other Crops (Please specify):
1.
2. 3. Totals (Hectares or Years):
7. Have you ever farmed under contract (before)? /___/ Yes /___/ No
If YES, what crop(s) did you farm under contract? _____________ 8. Have you considered in the past, or are you presently considering, farming any crop
under contract? /___/ Yes /___/ No If yes, what crop? ________________________________ Why? _______________________________________________________________ 9. Do you know other farmers who are growing crops based on contracts (for example, oil palm with companies such as Agumil and Filipinas Farm?
/___/ Yes /___/ No
If yes, do you think they get benefits from contract farming? If yes, please specify.
_______________________________________________________________ _______________________________________________________________
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10. What are your total sources of income?
Source of Income Monthly Earnings
% of Total Income
All Agricultural Crops, specify:
1. 2. 3. 4.
Agricultural-related business
Non-agricultural business
Other Sources of income, specify: 1. 2.
3.
Totals: 100%
11. What level of technology do you use in your farming operations? And where was it obtained, etc.? [Provide any information the farmer provides in the spaces below or on the backside of the sheet.]
Agricultural Inputs Do you use/access these Services?
Where do you obtain them?
Agricultural credit
Mechanised Equipment
Soil and nutrient sampling
Improved Seed
Fertiliser Insecticides/Herbicide
Agricultural extension services
Transportation services
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12. How many people are employed on your farm and how much are they paid? (For Agumil contracted farmers – please answer Q 22 on supplemental questionnaire instead)
Full Time
Labourer Part Time Labourer
Male Female Male Female
1. Wage/Day
2. Other benefits:
a) Housing
b) Food
c) Medical
d) SSS
e) Education
f) Other
13. Do members of your family work on your farm? /___/ Yes /___/ No
Who? Spouse /___/ Children /___/ Duration (Hours/day)? ___________________________ In what capacity do they work? ________________________________________
14. What are the important issues regarding labour use in farming operations in Agusan del Sur?
_____________________________________________________________________
15. Are there different salary rates for different types of farming activities? What are they?
Type of Activity Male Female
Planting
Weeding
Harvesting
Transporting
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I – D Processor Questionnaire – GOPDC & AGUMIL Part 1: General Data on Contractor and Company Statistics/Information 1. Name of Firm: __________________________________________________ 2. Name and Position: ______________________________________________ 3. How many years has your company been engaged in farming activities? /___/ 0-5 years /___/ 6-10 years /___/ 11-15 years /___/ Over 15 years 4. How long has the firm been involved in Contract Farming: _______________? 5. How many farms in Agusan del Sur? ____________________
Other areas? ____________ 6. How much (%) of your company profits are derived from contract farming?
_______________________________________________________________ 7. What other activities is the firm involved in? _______________________________________________________________ 8. What is the business structure of your company?
/__/ Sole Proprietorship /__/ Partnership
/__/ Corporation /__/ Other _____________________________
9. How many (all areas) farms do you have under contract arrangement?
_______________________________________________________________
10. Please indicate average size of farms under contract (in hectares).
_______________________________________________________________ 11. What types of crops (all areas) do you have under contract farming? _______________________________________________________________ 12. Where else do you CF specifically? _______________________________________________________________
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Part 2: Under Contract Farming 2A: Decision Making 1. Company decisions re size of farm to contract: Is there a preference and why?
How does the political environment influence this? 2. Is the contract set? Or do farmers negotiate their participation? 3. What are the terms of the contract? Do they vary from farm to farm? Area to
area? Why? 4. In ADS what are the elements of contract? Seed? Fertiliser? Insecticides?
Technology? Training? - Pre-production, production and post-production.
5. What decisions at the farm level do you encourage the farmers to make after you entered into any contracting schemes (pre-production, production and post-production decisions)?
6. How do you “punish” non-conforming farmers? 7. In what areas do you encourage farmers to make independent decisions under
contract? 8. Protection of natural resources (farmland): How do you ensure the preservation
of the farmland under CF? What do you encourage farmers to undertake? What measures do you undertake on your own?
2B: Technology Transfer/Adaptation/Training/ Capital Mobilisation/ Environmental Concerns 1. What type/level of technology do you provide under CF?
Specify
Access to agricultural credit
Mechanisation
Soil and nutrient sampling
Seed
Fertiliser and Insecticides
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Agricultural extension services
Harvesting/ Transportation
Marketing
Other (pre-production) Other (Production) Other (Post-production)
2. Do they vary from contract to contract or are they set? 3. Based on your experience in contract farming, what problems have you
encountered in terms of:
Contract terms and conditions? Pre-production activities? Production, including harvest, activities? Post-production activities?
4. Where do you procure the supplies and services provided under contract?
Locally from within the community or from other sources? Please specify.
2C: Income Generation/ Labour Utilisation/ Distribution 1. In terms of farm labour, do you encourage farmers to adopt certain hiring
practices?
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2. Is there training of workers (casual, seasonal, etc) by your firm or does the farmer do this?
3. On average, how many labourers do the farmers under CF hire?
Locally-recruited Labour
Outside Labourers
Male Female Male Female
Permanent Labour
Seasonal Labour
2D: Socio-Economic Perspective 1. In terms of purchase of goods and services, do you procure locally in the
communities where most of your farmers operate? 2. Has there been any infrastructure constructed, improved and rehabilitated by
your company in the communities where most of your farmers, e.g. farm to market roads?
3. Does your company provide any social services (e.g. education, health, sports
facilities) in the communities where most of your farmers operate? 4. Community activities?
- 320 -
Appendix II: FILIPINO GROUP ‘C’ FARMER SURVEY RESULTS
_______________________________________________
BASELINE SURVEY CONDUCTED AMONG 240 NON-OIL PALM
PRODUCING FARMERS IN AGUSAN DEL SUR
Background:
Agusan del Sur is primarily an agricultural province where farming is the principal
means of livelihood. It is therefore no surprise that local government officials find it
encouraging that research in the farming sector is undertaken. The various meetings
held with Congressman Rodolfo Plaza and the staff of the Provincial Planning and
Development Office concluded with the realisation that a baseline survey will be useful
in coming up with a baseline of information on farmers in Agusan del Sur that can be
used in comparison to the data generated from the oil palm contract farmers. The data
to be generated from the survey can also serve as useful inputs into the provincial
planning process for the agricultural sector.
During the course of conducting the research on farmers who are now growing oil palm,
another survey was simultaneously conducted in the 14 municipalities of the province.
The Provincial Planning and Development Office (PPDO) conducted the actual survey,
using the questionnaire developed by the researcher. A workshop with the survey
enumerators held prior to the conduct of the survey focused on the rationale for the
survey. The specific questions to be asked and the manner by which the survey should
be conducted were also discussed during the workshop, as well as logistical
arrangements. Given the time and budget constraints, it was decided to interview about
a sample of 20 farmers in each of the municipality. This was undertaken with the
exception of the municipality of Esperanza where the interview was conducted with
only 11 respondents (no reason for the shortage of nine interviews was obtained).
Unlike the first survey that targeted farmers involved in contract farming, the
respondents to this survey were chosen via purposive sampling, with the enumerators
first making a courtesy call on the local municipal officials to identify farmers in the
area who were not involved in contract farming.
- 321 -
Profile of those Interviewed:
A total of 270 farmers were interviewed during the February to March 2004 period, 71
percent of whom were male farmers. Despite random selection, it transpired that
majority of the interviewees in most of the municipalities turned out to be male farmers.
However, in the municipalities of San Francisco and Veruela, the majority of the
respondents were female.
Gender Distribution of the Population Sample
1320
11
2117
12 137
1115
20 19
106
60
0
0 58 8
128
40 0
1014
0
5
10
15
20
25
Bayu
gan
Buna
wan
Espe
ranz
a
La P
az
Loreto
Pros
perid
ad
Rosario
San F
ranc
isco
San L
uis
Santa
Jose
fa
Siba
gat
Talac
ogon
Tren
to
Veruela
Municipality
Num
ber of
Inte
rvie
wee
s
FemaleMale
Farmers as young as 17 years and as old as 89 years formed part of the survey, and the
average age of most of the farmers in the population sample was 47 years. The bulk of
those interviewed, as can be seen in the following graph, was in the 41-50 age range (31
percent), followed by those belonging to the 31-40 age range (27 percent) and those
belonging to the 51-60 age range (22 percent).
Age Distribution of Population Sample
6%
27%
31%
22%
12% 2%Below 3031 to 4041 to 5051 to 6061 to 70Over 70
- 322 -
Agusan del Sur is widely known to have a diverse population, with settlers from other
provinces in the Visayas and the Mindanao region attracted by the promise of being
able to acquire land to farm in the area. The farmers who were interviewed are no
exception, with the majority (69 percent) of the sample indicating that they were born
outside the province.
Birthplace Distribution
Born outside
Born in ADS
0
5
10
15
20
25
Bayug
an
Bunaw
an
Esperan
za
La Paz
Loret
o
Prospe
ridad
Rosario
San Fran
cisco
San Lu
is
Santa
Jose
fa
Sibaga
t
Talac
ogon
Trento
Veruela
Municipality
Num
ber
of In
terv
iew
ees
The land ownership pattern based on the responses of the farmers interviewed backs up
this claim of Agusan del Sur being a “Land of Promise”. As can be seen in the
following figure, two thirds of farmers own their land, with a fourth of the respondents
leasing the land from other landowners.
Land Distribution Pattern
Owner68%
Relative 7%
Lessee25%
- 323 -
The average size of land farmed was 3.78 hectares and the average number of years
engaged in farming was 18 years. Farmers who owned land have 3.61 hectares on
average and those who leased have an average of 3.08 hectares.
Average Size of Hectares Farmed
0
5
10
15
20
25
30
35
Bayug
an
Bunaw
an
Esper
anza
La P
az
Lore
to
Prosp
erida
d
Rosar
io
San F
ranc
isco
San Lu
is
Santa
Jose
fa
Sibaga
t
Talac
ogon
Tren
to
Verue
la
Average HectaresLeasedAverage HectaresOwnedAverage HectaresFarmed
In terms of educational attainment, 40 percent have had elementary education and 39
percent have had secondary education.
Educational Attainment of Sample Population
Elementary40%
Secondary39%
Tertiary21%
A little more than half of the total respondents indicated that they had not undertaken
any agricultural training at all. Those who have undertaken training indicated the
following training packages commonly accessed:
Integrated pest management
- 324 -
Care and management of fruit plantation, including durian, kalamansi and rubber
Hog raising/Swine fattening Cut flowers technical training Training on seed production Basic rice and corn production training Basic oil palm farming Peanut production Carabao and livestock training, including artificial insemination seminar
Exposure to Contract Farming:
Of the total 270 farmers interviewed, only five had indicated that they had undertaken
contract farming in the past - falcatta or softwood lumber (2 farmers), banana (1 farmer)
and rice farming (2 farmers). In response to the question of whether they know of other
farmers who are farming under contract, about 35 percent of those interviewed said they
do. Higher earnings and more stable income, getting financial assistance by way of
credit and farm inputs, and assured markets are among those cited as major reasons why
they thought is was a good idea to go into contract farming. It is worth noting that in
the municipalities of Esperanza, San Luis and Sibagat, none of the farmers interviewed
know of anybody doing contract farming, while in the municipalities of Loreto, Santa
Josefa and Talacogon, the majority of those interviewed know other farmers who are
under contract.
Utilisation of Farm Labour:
In terms of the use of family labour, 80 percent of the respondents indicated that they do
use family labour. Of these, 60 percent said that their spouses work on the farm, either
on a full time or part time capacity. The farmers’ children also provide assistance,
assisting in the farm for a few hours each day doing such chores as planting, weeding
and harvesting.
In terms of hired labour, the relatively high salaries paid to this type of workers led to
some farmers reporting that they do not hire these labourers. The survey responses
indicated that the high cost of farm inputs lad some farmers to cut costs by not hiring
labourers to work on their farms and just use family labour. During the planting and
harvesting season, most of the farmers interviewed reported that not only did the
- 325 -
demand for farm labour go up creating shortages, but also their daily wages increased.
Finally, some farmers reported that one of the issues they face when hiring labour is the
poor work attitude of some farm labourers – they do not work well enough or they work
only when supervised.
Crop Production:
Most of the farmers interviewed devote almost half of the total hectares farmed to rice
production (42 percent). Corn production makes up the other 20 percent, followed by
coconut production at 11 percent.
Total Hectares Planted by Type of Crop
Rice42%
Corn18%
Coconut11%
Banana6%
Fruit Trees5%
Falcatta10%
Others8%
RiceCornCoconutBananaFruit TreesFalcattaOthers
According to the survey, the municipalities of Loreto, Rosario, Veruela, Prosperidad
and San Francisco are the leading producers of rice for Agusan del Sur. On average, the
farmers from these municipalities earned Php 8,800 per month from rice production.
- 326 -
Rice Production by Municipality
8%
7%
7%
6%
0%
4%
1%
1%
5%
15%
13%
13%
12%
8%
61%
San FranciscoEsperanzaSanta JosefaBunawanSibagatTalacogonBayuganSan LuisLa PazLoretoRosarioVeruelaProsperidadTrento
The survey also indicated that corn production is predominant in the municipalities of
Sibagat, Loreto, San Luis, Trento, and La Paz while coconut was the predominant crop
in the municipalities of Bayugan, Sibagat, Rosario, Prosperidad and Bunawan. The
average monthly income from corn was Php 2,780 while the average income from
coconut was Php 1,150 per month.
Corn Production by Municipality
1%
6%
3%
2%
1%
6%
0%
4%
4%
11%
21%
17%
6%
18%
74%
EsperanzaSanta JosefaBunawanTalacogonBayuganRosarioSan FranciscoVeruelaProsperidadSibagatLoretoSan LuisTrentoLa Paz
- 327 -
Coconut Production by Municipality
10%
0%
5%
0%
0%
5%
5%
0%
2%
28%
18%
14%
7%
6%
73%
TrentoSanta JosefaTalacogonSan FranciscoEsperanzaLoretoSan LuisVeruelaLa PazBayuganSibagatRosarioProsperidadBunawan
Recommendations:
Training programs being provided by Municipal or Provincial Agricultural Office
should be more targeted towards those municipalities where farmers have reported little
or no access to extension and/or training programs. The focus of the training programs
can vary across municipalities based on the predominant crops planted in these areas
and the suitability of these crops to these farms.
With the presence of oil palm processing mill in the municipalities of Trento and San
Francisco, it is expected that the farmers located in these municipalities and the
neighbouring municipalities will be encouraged by farmers that have already shifted to
oil palm production, as the benefits that they are enjoying become known. While
Trento is a major rice and corn producer for the province, it is important to note that the
expansion in oil palm is being done with land not currently planted to these staple crops
but into marginal hilly land. As such, the shift to oil palm contract farming will enable
the municipality to increase its agricultural production and income. Support services
such as farm to market roads would be a good intervention from the government in this
regard.
- 328 -
Appendix III: WEST AFRICAN OIL PALM PRODUCTION SYSTEMS
NATURAL GROVE HOMESTEAD SYSTEM
Despite the developments and proven productivity of the plantation system, the oil palm
remains largely cultivated and exploited in the semi-wild and natural groves in Africa
(Corley and Tinker, 2003). Within these natural groves, however, lies the genetic
resource for the oil palm breeders in Africa, Asia and Latin America. The size and
extent of the natural and semi natural groves has been declining due to their progressive
conversion to general farmland, the felling of oil palm trees for wine tapping, their
replacement by plantations and increasing urbanisation. As the groves have and
continue to be required for the sourcing of genetic material, this decline threatens the
future of the oil palm industry (Omoti, 2003).
SMALL SCALE MONOCULTURE OR MIXED FARMING SYSTEM
Plantation farming is a new phenomenon to West African culture. In most parts of
Africa, the culture of agriculture remains largely based upon the subsistence model.
Smallholder oil palm plots are usually in the order of 1 – 5 hectares in size and are often
farmed using a mixed cropping system whereby food crops are planted between the oil
palms, notably during the period when the palms are immature (Addo, 2000). After
three to four years, the oil palm takes over the plot and the farmer must move his staple
food crop production to another farm plot. The new plot, acquired via the communal
system from the Chief, will not likely be contiguous to his existing farm plots. In fact,
the new plot might be remote from his other farm plots, resulting in the farmer
possessing a number of plots that are small and scattered. The land tenure system does
not permit large-scale farming unless the government steps in to acquire the land for
public use. It is, therefore, difficult for one farmer to consolidate sufficient land to form
a large contiguous estate suitable for intensive cultivation (Poku, 2002a).
The smallholder oil palm system, however, is a significant sector of the overall oil palm
production system in Africa. The initial impetus of growth of the smallholder system in
Africa, hinged on the fact that the crop had already been well cultivated and exploited
- 329 -
by the indigenous people before the development of the large-scale industrial estates.
The growth of the smallholder system was principally governed by government policy
across Africa during the 1960s through the 1980s up until the present time. Smallholder
or outgrower schemes were promoted as an integral part of plantation development
models proposed by government in concert with major donor agencies such as the
World Bank, the European Union, the European Investment Bank, and the African
Development Bank (Daddieh, 1994).
In some African countries, these smallholder producers account for as much as 50 - 80
per cent of improved oil palm holdings. For example, Omoti (2003), Director of the
Nigerian Institute for oil palm Research, noted that, in the year 2003, Ghana had
292,000 hectares devoted to oil palm production, of which 250,000 hectares was in the
hands of smallholders not considered to be outgrowers for the industrial plantations in
the country. The figures he presented for Nigeria for the year 2000 were 150,000
hectares from a total of 245,000 hectares under oil palm cultivation (Omoti, 2003).
The farm’s production of fresh fruit bunches (FFBs) may be processed by the farmer,
using the traditional method of palm oil extraction, or sold to other processors. During
the lean season, the farmer sells to small-scale processors who offer higher prices than
those offered by the larger mills. The small-scale farms are normally well maintained
even though they may not adopt modern agronomic practices such as application of
fertiliser, cover cropping, etc. to improve soil fertility and yields.
MEDIUM INDUSTRIAL ESTATE SYSTEMS
The medium-scale farm ranges from 10 to 500 hectares. This type of farm normally
uses modern agronomic practices such as plant spacing, cover cropping, fertilisation,
ring weeding, and pruning. Some farmers in this category own processing facilities and
therefore use their own output as well as buying from neighbours. Those who do not
own mills or who are not contracted outgrowers for one of the large mill operators,
frequently face marketing problems during the peak season when palm oil FFBs are
abundant and processors do not have to forage for raw materials. Because the fruits are
perishable and lose weight once harvested, farmers need prompt transportation of their
FFBs from their farms to the estate mills.
- 330 -
LARGE-SCALE INDUSTRIAL ESTATE SYSTEMS
Large-scale estates are defined as areas in excess of 500 hectares. These are private or
state owned enterprises that were established to meet the internal consumption needs of
the country or to provide a surplus for export. In the last decade, state owned
plantations in Africa have increasingly become privatised, adopting modern
management, scientific and conservation methodologies. The land ownership issues,
rife under governmental ownership, have not been dispelled with privatisation and the
plantations continue to be confronted with communal opposition to their existence. In
an effort to encourage the local community to benefit from an estate in their midst, most
of the privatised plantations have become nucleus estates with small outgrower farmers
who supply FFBs under contract to a central processing factory. The processing
facilities are generally mills with a 20 to 45 MT of FFB/hour processing capacity.
SUMMARY
In general, different policy and strategy models utilised in the different nations of Africa
have driven the growth of the oil palm industry (Daddieh, 1987). Although the initial
colonial government policy of oil palm development in Nigeria discouraged industrial
estate development, the United African Company (UAC) developed a substantial
number of plantation estates in the late 1920s through to the 1950s (Omoti, 2003). In
the Democratic Republic of Congo (formally Zaire), the second major producer of palm
oil in Africa up to the 1970s, the expansion of oil palm production was predicated on
the industrial plantation model following the enunciation of a 10-year development plan
in 1949. This resulted in an increase of large plantations from 103,000 hectares in 1949
to 147,000 hectares in 1958. Production in the country has since declined as no
substantial developments have been undertaken since the 1960s (Hartley, 1988). State
corporations in Cote d’Ivoire and Republic of Benin also promoted the development of
large industrial estates. In Cote d’Ivoire, the large plantations were designed to include
a network of small farmer outgrowers (Daddieh, 1994). Irrespective of the initial
development models pursued by different African countries, large industrial estate oil
palm plantations exist in the majority of these nations today, notably in Ghana, Cote
d’Ivoire, Nigeria, Cameroon, Democratic Republic of Congo, Togo and Benin.
- 331 -
BIBLIOGRAPHY
Addo, J. S. (2000) A Study of the Oil Palm Industry in Ghana. Accra, Ghana, Ghana
Oil Palm Development Association (GOPDA). Corley, R. H. V. and Tinker, P. B. (2003) The Oil Palm, Oxford, Blackwell Science
Limited. Daddieh, C. K. (1987) Contract Farming in the Oil Palm Industry: A Comparative
Study of the Cote d'Ivoire and Ghana. Contract Farming in Africa. Worcester, MA Clark University, International Development Program.
Daddieh, C. K. (1994) Contract Farming and Palm Oil Production in Cote d'Ivoire and Ghana. In Little, P. and Watts, M. (Eds.) Living under contract: Contract farming and agrarian transformation in sub-Saharan Africa. Madison, University of Wisconsin Press.
Hartley, C. W. S. (1988) The Oil Palm, London, Longman Group (UK) Ltd. Omoti, U. (2003) Oil Palm in Africa: Evolution during the Last Decade, Trends and
New Challenges. Benin City, Nigeria, Nigerian Institute for Oil Palm Research. Poku, K. (2002a) Small-Scale Palm Oil Processing in Africa. In FAO Regional Office,
Accra (Eds.) FAO Agricultural Services Bulletin. Rome, Food and Agricultural Organisation of the United Nations.
- 332 -
Appendix IV: OIL PALM PRODUCTION DATA FOR THE AMERICAS
In terms of productivity in the Americas in 2001, Colombia had the greatest returns of
MT of palm oil per hectare with 4.0 MT/Ha, up from 2.7 MT/Ha a decade earlier. This
compares to 3.17 MT/Ha for the Americas generally, 2.86 for Asia, 2.01 for Africa and
3.37 for the world in the same year (Corley and Tinker, 2003). Colombia’s efforts
during the decade to improve the productivity of its oil palm agro-industry through
research, investigation and technology transfer programs allowed it to climb from sixth
place in the Americas in 1991 to first place in 2001 (Bolivar and Cuellar-Mejia, 2003).
By comparison, in 2001, Peru had 3.9 MT/Ha and Malaysia had a 3.7 MT/Ha yield
return. Due to Colombia and Peru’s leadership, South America (2.6) had an edge over
Central America (1.7) in terms of yield per hectare.
The strong growth in the Americas during the last decade is mainly the result of an
expansion in the total hectarage of mature FFB bearing oil palms and increasing
productivity brought about by new technologies (Corley and Tinker, 2003). The total
production of palm oil in the Americas reached 1.4 million MT in 2001 from 654,500
MT in 1991, a 7.9 per cent growth rate over the decade (Figure 1). Colombia
dominated production over the decade ending in 2001 with an overall growth rate of 8
per cent for the ten-year period. Ecuador was the second largest contributor with its
production growing from 129,300 MT in 1991 to 240,000 MT in 2001. Similarly, the
vigorous production performance of Venezuela, Mexico and Costa Rica allowed these
countries to increase their outputs. Guatemala, a non-producer in 1991, represented 5
per cent of the total Americas production output in 2001 (Bolivar and Cuellar-Mejia,
2003).
Consumption of oils and fats in the Americas also increased over the decade at an
annual rate of 3.4 per cent from 6.7 million MT in 1991 to 9.3 million MT in 2001.
Brazil accounted for 45.4 per cent of this amount, Mexico 25.6 per cent and Colombia
8.6 per cent. Specifically, palm oil consumption increased from 790,700 MT in 1991 to
1,357,900 MT in 2001, a 5.6 per cent growth rate over the decade (Bolivar and Cuellar-
Mejia, 2003). Figure 2 represents the relationships between production and domestic
consumption in the Americas.
- 333 -
0125250375500625750875
100011251250137515001625175018752000
Met
ric T
ons
(1,0
00)
Costa Rica
Dominican Republic
Guatemala
Honduras
Mexico
Nicaragua
Panama
BrazilColombia
Ecuador
PeruVenezuela
Total
Country
Figure 1 Production Growth in the Americas (1991 - 2004)
1991 1996 2001 2004
(Source: Bolivar and Cuellar-Mejia, 2003; Foreign Agricultural Service , 2005)
0 100 200 300 400 500 600
Metric Tons (1,000)
Costa RicaDominica
GuatemalaHonduras
MexicoNicaragua
PanamaBrazil
ColombiaEcuador
PeruVenezuela
Prod
ucer
s
Figure 2 Production and Domestic Consumption: Major Americas Oil Palm Producers (2004)
ProductionConsumption
(Source: Bolivar and Cuellar-Mejia, 2003; Foreign Agricultural Service, 2005)
- 334 -
APPENDIX V: GEOGRAPHIC SETTING OF THE RESEARCH AREAS _______________________________________________
This appendix will present some basic information on the two areas where field research
was undertaken between October 2003 and October 2004. It will also focus more
closely on the socio-economic and physical settings of the two areas where the
interviews took place. The first section will introduce Ghana and more specifically the
district of Kwaebibirem in the Eastern Region of Ghana where the Ghana Oil Palm
Development Corporation (GOPDC) is located. While interviews with other estate
managers in the Central and Western Regions of Ghana were undertaken, it was at
Kwae where the fundamental research was conducted in August and September 2004.
The second section will initiate the process of understanding the research area within
the Philippines by first looking at the socio-economic and physical environment in the
country as a whole and then reducing it to the southernmost island of Mindanao where
the Province of Agusan del Sur is located.
1.0 Ghana
Ghana, with a population of 20,350,000 (2004) and a total area of 238,533 square
kilometres, lies in the centre of the West African coast and shares borders with the three
French-speaking nations of Côte d'Ivoire to the west, Togo to the east, and Burkina Faso
to the north (Figure 1). To the south are the Gulf of Guinea and the Atlantic Ocean.
From its southernmost point, the country extends northwards for 670 kilometres while
its east-west distance is 560 kilometres (La Verle, 1994).
1.1 CLIMATE
The country's warm, humid climate has an annual mean temperature between 26°C and
29°C. Climatic conditions across the country, however, are hardly uniform. The
Kwahu Plateau, which marks the northernmost extent of the forest area, also serves as
an important climatic divide. To its north, two distinct seasons occur. The harmattan
season with its dry, hot days and relatively cool nights from November to late March or
April, is followed by a wet period that reaches its peak in late August or September. To
- 335 -
the south and southwest of the Kwahu Plateau, where the annual mean rainfall from
north to south ranges from 1,250 millimetres to 2,150 millimetres, four separate seasons
occur. Heavy rains fall from about April through to late June. After a relatively short
dry period in August, another rainy season begins in September and lasts through
November, before the longer harmattan season sets in to complete the cycle (La Verle,
1994).
Figure 1 Ghana, West Africa
(Source: University of Texas, 2005)
1.2 ECONOMY
Endowed with gold and agricultural resources, including palm oil, and situated between
the Trans-Saharan trade routes and the West African coastline, the area known today as
Ghana has been involved in all phases of Africa's economic development during the last
thousand years. As early as the thirteenth century, Ghana was involved in long-distance
trade, in large part because of its gold reserves. The trans-Saharan trade, one of the
most wide-ranging trading networks of pre-modern times, involved an exchange of
European, North African, and Saharan commodities southward in exchange for the
products of the African savannas and forests, including gold, kola nuts, and slaves.
- 336 -
In 1878, cocoa trees were introduced from the Americas. Cocoa quickly became the
West Africa’s major export with Ghana producing more than half the global supply by
the 1920s. African farmers used kinship networks to spread cocoa cultivation
throughout large areas of southern Ghana. Such legitimate trade, following upon the era
of slave trading, restored the overall productivity of Ghana's economy. The influx of
European goods, however, began to displace indigenous industries, and farmers began
to focus more on cash crops than on essential food crops for local consumption. The
negative impacts of mono-culture centred on the cocoa and the disequilibrium in the
balance of trade soon began to manifest themselves (La Verle, 1994).
Following its independence from Britain in 1957, Ghana’s economy went through a
succession of political and economic crisis. The near total collapse of the economy and
pervasive poverty throughout the country resulted in Ghana embarking upon a
programme of economic restructuring in the 1990s. Policy priorities included tighter
monetary and fiscal policies, accelerated privatisation, and improvement of social
services. The program included privatisation of state-owned enterprises and
government divestiture of parastatals. This divestiture of the state owned palm oil
plantations was to prove to have positive impacts on this sector, in particular
(Government of Ghana, 2004a). In spite of the positive nature of the overall
restructuring program, Ghana remains heavily dependent on international financial and
technical assistance. Gold, timber, and cocoa production remain the major sources of
foreign exchange. The domestic economy continues to revolve around subsistence
agriculture, which accounts for 34 per cent of GDP and employs 60 per cent of the work
force, mainly smallholder farmers (Government of Ghana, 2004a).
The country has enjoyed improved terms of trade with higher gold and cocoa prices and
improvements in the areas of tax administration, financial sector reform, the move to
full cost recovery for electricity and water and improved governance. Although Ghana's
economy is based mainly on subsistence agriculture, the industrial sector does play a
part by producing goods locally. Emerging industrial sector products include cassava,
fruits and cocoa by-products. In 2004, agriculture contributed 34.3 per cent to GDP,
industry 24.2 per cent and services 41.4 per cent. GDP in 2004 was US$ 48.27 billion
with a growth rate of 5.4 per cent. The inflation rate at the end of 2004 was 13 per cent
(Government of Ghana, 2004a).
- 337 -
1.3 KWAEBIBIREM DISTRICT, EASTERN REGION
The focus of this research was on the Kwaebibirem District of the Eastern Region of
Ghana. The interviewed outgrowers associated with the Ghana Oil Palm Development
Corporation (GOPDC) are from the villages of Asuom, Akokoaso and Otumi all of
which lie within this district. Table 1 represents data taken from the 2003 Core Welfare
Indicator Questionnaire compiled by the Ghana Statistical Service (Government of
Ghana, 2004b). Poverty and vulnerability are identified as major barriers to human
development in Ghana. This survey, with district-level estimates, can be used to assess
the social and economic situation and to develop a more informed and focused debate
on how welfare and vulnerability challenges may be tackled.
Table 1 Key Welfare Indicators in Kwaebibirem District (2003) INDICATORS KWAEBIBIREM
DISTRICT EASTERN REGION
NATIONAL LEVEL
1. Adult Literacy 52.7 56.6 53.4 2. Youth Literacy 68.2 72.8 68.7 3. Primary School
Access 90.2 88.4 85.4 Enrolment 79.8 75.6 69.9
4. Secondary School Access 53.4 47.1 43.3
Enrolment 37.3 40.3 38.1 5. Medical Services
Access 68.8 60.1 57.6 Pre-natal care 87.1 92.6 90.4
Satisfaction 68.8 73.7 78.6 6. Children’s Health
Stunted 24.6 30.0 32.4 Wasted 18.6 11.6 15.5
Underweight 25.9 22.9 25.8 7. Employment
Unemployed 2.0 3.7 5.4 Male 1.0 3.2 5.1
Female 2.9 4.1 5.6 Under-employed 9.1 16.4 13.6
Male 9.4 18.0 14.3 Female 8.8 15.1 13.0
8. Other Variables Access to:
Adequate Nutrition 93.0 89.2 87.2 Water 100 95.3 94.0
Potable Water 78.6 71.2 74.1 Sanitation 64.5 60.3 55.0 Electricity 39.9 42.1 50.6
Waste Disposal 74.5 64.0 65.8 Non-wood Fuel for Cooking 33.0 28.7 43.4
(Source: Government of Ghana, 2004b)
- 338 -
The unemployment rate (persons who were unemployed and unable to find work
in the seven days preceding the survey) was 3.7 per cent at the regional level as
compared to 5.4 per cent at the national level. Kwaebibirem’s rate was very low
at 2 per cent with the female unemployment rate of 2.9 per cent versus 1 per cent
for the males. Underemployment rate (persons who sought to increase earnings
and worked less or equal to 35 hours in the seven days preceding the survey) was
16.4 per cent at the regional level. This compared with 9.1 at the district level and
13.6 per cent nationally. In the district, more males than females are
underemployed.
The Kwaebibirem district meets or exceeds the regional and national averages for key
welfare indicators. Of particular interest to this research is the fact that unemployment
and even underemployment in the district are very low. The low unemployment rates in
the district have a direct impact upon oil palm production, a crop heavily reliant upon a
good labour pool. This affects the ability of outgrowers to plant further farm plots with
palm oil in the face of real labour shortages and given their inability to stretch their own
family’s labour resources.
2.0 Philippines The Republic of the Philippines, an archipelagic country lying off the southeastern coast
of the Asia mainland and at the western rim of the Pacific, between Indonesia and China
with a population of 83 million (2004) and a total land area of 298,170 square
kilometres, consists of over 7,000 individual islands (Figure 2). The eleven largest of
these islands114 contain about 95 per cent of the total land area and only about 400 of
the total number of islands are permanently inhabited. Administratively, the republic is
divided into 14 administrative regions (Figure 3), 79 provinces and 116 chartered cities
(United States Government, 2005).
The Philippines extends 1,855 km from north to south, between Taiwan and Borneo,
and 1,108 km from the Philippine Sea on the east, the Celebes Sea on the south, and the
South China Sea on the west. They comprise three natural divisions: the northern
islands that includes Luzon and attendant islands; the central islands including the 114 The eleven largest islands are Luzon, Mindanao, Samar, Negros, Palawan, Panay, Mindoro, Leyte, Cebu, Bohol and Masbate.
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Visayan Islands and Palawan and Mindoro; and, the southern islands, consisting of
Mindanao and the Sulu Archipelago.
Figure 2 Philippines
(Source: University of Texas, 2005) The majority of the people of the Philippines of the Malay ethnic group and are known
as Filipinos.115 The Chinese make up 1.5 per cent while the remaining ethnic groups
115 95.5% of the Filipinos are Malays ethnically. Of this group, 91.5 are considered Christian Malay and 4% to be Muslim Malay.
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are made up of Negritos (Negroid pygmies) and the Dumagats, similar to the Papuans of
New Guinea (United States Government, 2005). The Filipinos live mostly in the
lowlands and constitute one of the largest Christian groups in Asia. Roman Catholicism
is professed by 83 per cent of the population; 5 per cent are Aglipayans;116 5 per cent
are Muslims (concentrated in South Western Mindanao and the Sulu Archipelago); and,
7 per cent are Protestants. Some 70 native languages are spoken in the Philippines
housed within eight major dialect groupings.117 The official national language is
Filipino, a form of Tagalog but a considerable number of Filipinos speak English, the
nation's second official language (United States Government, 2005); Columbia
Electronic Encyclopaedia, 2004 #1950}.
Figure 3 Administrative Regions of the Philippines
116 The Aglipayans church is called the ‘Philippine Independent Church’, a Filipino nationalistic offshoot of the Roman Catholic Church. 117 The eight major language groupings are Tagalog, Cebuano, Ilocano, Hiligaynon (Ilonggo), Bicol, Waray, Pampango and Pangasinense.
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2.1 CLIMATE
The Philippines lie entirely within the tropical zone. Manila, with a mean daily
temperature of 26.4°C, is typical of the climate of the lowland areas—hot, humid, and
enervating. The highlands, however, have a bracing climate; e.g., Baguio, the so called
“summer capital”, on Luzon, has a mean annual temperature of 17.8°C (Columbia
Electronic Encyclopaedia, 2004). With their tropical marine climate, heavy rainfall, and
naturally fertile volcanic soil, the Philippine economy is predominantly based on
agriculture.
2.2 ECONOMY
The Philippines was less severely affected by the Asian financial crisis of 1997 than
was its neighbours, aided in part by annual remittances of $6-7 billion from overseas
workers. A slight decline of GDP in 1998 (0.6%) was followed by expansions in the
economy in 1999 (2.4%), 4.4 per cent in 2000, and accelerating to 6.1 per cent in 2004
reflecting the continued resilience of the service sector, gains in industrial output, and
an improved export sector.118 In 2004, agriculture contributed 13.7 per cent to GDP,
industry 32.42 per cent and the services sector 53.9 per cent. The inflation rate at the
end of 2004 was 5.5 per cent (Government of Ghana, 2004a; World Bank, 2004a).
Nonetheless, it will take a higher and sustained growth path to make appreciable
progress in poverty alleviation given the Philippines' high annual population growth rate
and unequal distribution of income (United States Government, 2005).119
2.3 THE PROVINCE OF AGUSAN DEL SUR, MINDANAO
Located in North-Eastern Mindanao, Agusan del Sur is the fourth largest province in the
country. It is endowed with rich natural resources contained in its agricultural, forest,
and marshlands. Figure 4 shows the location of Agusan del Sur within Mindanao. The
Province is bordered on the north by the Province of Agusan del Norte; on the South by
the Region XI and its Provinces of Compostela Valley, Davao and Davao Oriental; on
the west by the Provinces of Bukidnon and Misamis Oriental of Region X; and, on the
118 The growth rate faltered in 2001 (3.2%) due to the general global economic slowdown, an export slump coupled with domestic political and security concerns. GDP rates have been projected to be 4.8% in 2005 and 5.0 in 2006. 119 The population growth rate at this time was 2.1 per cent along with a poverty incidence rate of 30 per cent.
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east by the Province of Surigao del Sur. Agusan del Sur is comprised of 74 per cent
forestland (Protected – 175,821 hectares and Production – 487,629 hectares) and 26 per
cent Alien and disposable land consisting of 187,000 hectares of agricultural land and
built up areas of 34,628 hectares (NEDA, 2000; Provincial Planning and Development
Office (PPDO), 2004).120
Figure 4 Caraga (Region XIII)
The climate in Agusan del Sur is a Type IV climate with rainfall more or less evenly
distributed throughout the year and no pronounced dry season (Table 2). Rainfall is
heavy in all months with total annual rainfall often in excess of 3,300 mm. Monthly
rainfall averages 278 mm and the average temperature is 27 degrees Celsius with
humidity levels of between 77 and 88 per cent. Agusanos commonly refer to their
climate as having "a wet and a very wet" season. A very pronounced rainy period
usually occurs between the months of December and March.
120 Alienable and disposable land is a general classification of land in the Philippines. The term essentially refers to public domain/forest land that can be parcelled out and titled. A private individual who wants to ensure ownership will have a piece of land surveyed and then forward his/her request to the Bureau of Lands for review. The Bureau of Lands will check to see if there is any conflict of ownership, send an investigator to the area where the land in question is located to interview local people and if the request is valid, it will be then sent to the Registry of Deeds who will issue the land title.
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Table 2 Ten-Year Monthly Rainfall Records from Agusan del Sur YEARS 1992 & 1993 1994 & 1995 1996 & 1997 1998 & 1999 2000 & 2001 Total AVERAGE (cm)
MONTHSJANUARY 271.63 478.05 623.60 506.10 714.50 5187.75 518.78FEBRUARY 274.00 453.15 517.00 385.50 466.60 2096.25 209.63MARCH 216.50 437.88 448.70 345.30 536.10 1984.48 198.45APRIL 193.50 174.90 226.00 216.30 210.10 1020.80 102.08MAY 119.00 126.15 152.60 182.30 269.40 849.45 84.95JUNE 164.50 194.48 164.70 207.40 262.50 993.58 99.36JULY 236.88 197.50 210.60 128.20 211.20 984.38 98.44AUGUST 197.00 172.18 129.20 143.50 180.90 822.78 82.28SEPTEMBER 235.00 219.18 189.50 220.40 236.30 1100.38 110.04OCTOBER 250.75 154.73 165.60 150.40 293.70 1015.18 101.52NOVEMBER 140.63 268.10 194.10 307.50 300.30 1210.63 121.06DECEMBER 610.69 293.13 252.90 354.30 489.70 2000.71 200.07Annual(cm) 2475.87 3169.40 3274.50 3147.20 4171.30 33344.92 3334.49Annuel Ave/Mo. 206.32 264.12 272.88 262.27 347.61 2778.74 277.87 (Source: NEDA, 2000)
Agusan del Sur is one of the least densely populated provinces in the country with a
population density of 62 persons per square kilometre according to the 2000 census
(Table 3). In 2003, the population in Agusan del Sur was estimated to be 611,210 with
a growth rate of 1.79 per cent per annum. The population was divided into 140,578 or
23 per cent being urban dwellers and 470,632 or 77 per cent being rural inhabitants.
The productive age in Agusan del Sur makes up 54 per cent of the total population
(302,019), of which 51 per cent (154,449) have attended at least secondary school
(Provincial Planning and Development Office (PPDO), 2004).121 The total of
indigenous persons living in Agusan del Sur was 287,813 in 1997 or roughly half of the
Province’s total estimated population in 2003 of 611,210 (NEDA, 2003).
In 2003, 73 per cent of the provincial income was derived from agriculture and forestry.
The breakdown of the Agusan del Sur economy was as follows: Agriculture or agro-
forestry (41%); Industry (23%); and, Services, trade and commerce (36%). In 2003,
73.1 per cent of family income was derived from Agriculture and forestry with 26.9 per
cent coming from other sources. The average annual family income in the Province in
2003 was Peso 67,810 and the expenditures were Peso 56,902 for an average annual
savings rate of 16 per cent.122 In spite of this, according to the 2000 population census,
121 The productive group is defined as 15 to 65 year old persons (302,019). Of these 51% have attended secondary school; 8,595 or 3% have received an academic degree and 1,901 have a post-graduate degree. 122 The average annual family income would equate to US$ 1,261 at an exchange rate of US$ 1=53.8 Pesos as of February 18, 2005. Similarly, the average annual family expenditures would equate to US$ 1,058.
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the overall poverty incidence for families was 50.2 per cent and 58.0 per cent for the
population as a whole with a poverty threshold of Peso 10,594 (Provincial Planning and
Development Office (PPDO), 2004).
Table 3 Municipalities, Barangays, Area and Population123
MUNICIPALITY NUMBER OF BARANGAYS
Hectares % of Total Number % of TotalSibagat 24 55,240 6.16 29,011 5.0Bayugan 43 37,091 4.14 96,028 16.0Prosperidad 32 59,279 6.61 77,285 13.0San Francisco 27 24,694 2.75 61,286 10.0Rosario 11 35,225 3.93 29,922 5.0Bunawan 11 37,296 4.16 28,139 5.0Trento 16 80,982 9.03 45,065 7.4Sta. Josefa 11 15,899 1.77 23,778 4.0Veruela 20 34,662 3.87 36,557 6.0Loreto 20 158,742 17.7 37,227 4.7La Paz 15 131,186 14.63 39,312 6.1Talacogon 16 33,487 3.74 33,252 5.4San Luis 25 83,742 9.35 28,840 5.0Esperanza 47 109,025 12.16 45,508 7.4Agusan del Sur 318 896,550 100 611,210 100
AREA POPULATION
(Source: Provincial Planning and Development Office (PPDO), 2003)
Sixty-four per cent or 182,612 of the total labour force (284,000) were engaged in
agriculture and forestry in 2003. Rice, corn and fruits were among the major
agricultural crops. Rice (palay) occupied the largest cultivated area and remains a major
export from the Province (Provincial Planning and Development Office (PPDO), 2003).
The Province has over 12,000 hectares of palm oil and nearly 40,000 hectares of
Coconut (NEDA, 2002; Provincial Planning and Development Office (PPDO), 2003).
123 Population figures are based on an estimated rate for 2003.
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BIBLIOGRAPHY
Columbia Electronic Encyclopaedia (2004) Philippines: The History, Land and People.
In Columbia Encyclopaedia (Eds.) Infoplease. Boston, Ma. Government of Ghana (2004a) Ghana Poverty Reduction Strategy: Annual Progress
Report. In National Development Planning Commission (Eds.) Accra, Ministry of Finance.
Government of Ghana (2004b) Ghana 2003: Core Welfare Indicators Questionnaire Survey. In Bediako, G. (Eds.) Accra, Ghana, Ghana Statistical Service.
La Verle, B. (1994) Ghana: a country study. In Field Reports Division (Eds.), Library of US Congress.
NEDA (2000) Caraga Socio-Economic Profile. In NEDA, R. X. (Eds.) Butuan, Philippines, National Economic Development Authority.
NEDA (2002) Human Development Index, 2000. Manila, National Economic and Development Authority.
NEDA (2003) Caraga Data Profile. Butuan, Mindanao, National Economic Development Authority.
Provincial Planning and Development Office (PPDO) (2003) Agusan del Sur: Situationer. Prosperidad, Provincial Planning and Development Office.
Provincial Planning and Development Office (PPDO) (2004) Agusan del Sur Socio-economic Profile and Annual Plan for 2004. In Office, P. P. A. D. (Eds.) Prosperidad, Agusan del Sur, Provincial Government: Agusan del Sur.
United States Government (2005) The World Factbook: The Philippines. Washington, Central Intelligence Agency.
World Bank (2004a) Country Assistance Strategy of the World Bank Group for the Republic of Ghana. In Department, C. D.-A. R. I. S.-S. A. (Eds.) Country Assistance Strategy of the World Bank Group for the Republic of Ghana Report N0. 27838-GH. Washington, World Bank.
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APPENDIX VI: OIL PALM REGULATORY ENVIRONMENT In its broadest sense, the enabling environment is described as the institutional
environment or a set of fundamental political, social and legal ground rules that
establishes the basis for production, exchange and distribution (Tripp, 2003). It is
particularly concerned with the enabling environment for sector development,
specifically the policies and regulations that affect input availability, the interactions of
the private sector with public agricultural research, and agricultural enterprise
development. The regulatory environment is an important aspect in the success of any
business and the oil palm industry is no exception. The Philippines has a more
structured regulatory environment than Ghana but Ghana has a much greater historical
and present day participation in the development of the sector.
1.0 Philippines
1.1 THE COMPREHENSIVE AGRARIAN REFORM PROGRAM (CARP)
The Philippine Department of Agriculture postulated that the oil palm industry in the
Philippines has never achieved “…its expected rapid growth….” following the
enactment of the Comprehensive Agrarian Reform Law in 1988 (Government of the
Philippines, 2002). In the early years following its passage, the law’s policies
discouraged leasehold agreements between the CARP beneficiaries and agricultural
processors. The law’s provisions also prevented the accumulation of landholdings
larger than five hectares that affects the efficiency of the production of a tree crop such
as the oil palm. In recent years, however, it has become acceptable once again, for
farmer cooperatives to enter into outgrower producers of agricultural products in the
Philippines. All three oil palm processors in the Philippines have cooperatives under
contract to produce oil palm for their mills. In fact, Kenram, no longer having a nucleus
estate, depends upon both the cooperative that runs its former estate and their former
outgrowers who have now formed themselves into a Cooperative to ship oil palm fresh
fruit bunches (FFBs) to their mill. The Filipinas Palm Oil Plantation Incorporated
(FPPI) outgrower program’s objective is to engage cooperative groups of CARP
beneficiaries to be outgrowers to supply FFB to their mill at San Francisco, Agusan del
Sur. Agumil also has a contract (440 hectares) with an indigenous people’s cooperative
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(Monobo people) in the Province of Agusan del Sur. While these changes in CARP
procedures are laudable, there is still a requirement for greater cooperation between the
objectives of the CARP program and the country’s agricultural industrialisation in
general.
1.2 DEPARTMENT OF THE ENVIRONMENT AND NATURAL RESOURCES (DENR)
The most pertinent regulation that will have serious impacts on the growth of the oil
palm industry in the Philippines is legislation and guidelines issued by the Philippine
Department of the Environment and Natural Resources (DENR). To a great degree,
DENR, in its oversight capacity, overrides other legislation concerning the practice of
agriculture in the country.
For reasons not completely apparent, many environmentalists in the Philippines and
some at the DENR view the African oil palm (Elais guineensis) as an exotic species and
want to impose regulations that they do not extend to other “exotic species”. In a
personal communication, Dy (2004)124 indicated that, “Some environmentalists label oil
palm as an "exotic" species from foreign lands. That means coffee, cacao, avocado,
rubber, etc are exotic too. The first three came from Mexico; the last came from Brazil
via Malaysia.” This is a point worth special note as the DENR has specifically centred
out the oil palm for special treatment while other “exotic” tree crops have escaped their
notice.
A Memorandum Circular (No 2004-12) issued by DENR Secretary125 Gozun on August
31, 2004 specifically addressed the expansion of oil palm into areas classified as natural
forest or production forest. The circular indicated that, “… in consideration of the
exigent technical and ecological requirements of the subject species, appropriate and
proper safeguards are necessary ….”(DENR, 2004). The guidelines included in the
memorandum include the following provisos:
124 Dr Rolando Dy is the Executive Director of the Centre for Food and Agribusiness, University of Asia and the Pacific. He is frequently sought out for his views on the state of agriculture and agri-business in the Philippines and, specifically, in Mindanao. He is one of the few sources of information on the oil palm industry in the country. Personal communications were established with Dr Dy during 2004 on a number of issues related to the oil palm in the Philippines. 125 In the Philippines, the term “Secretary” is equivalent to Minister in parliamentary systems of government.
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• The certification by the Philippine Coconut Authority (PCA), the Department of Agriculture (DA) and the Provincial Office of the DENR for the development of any oil palm plantation;
• The planting of oil palms, in areas covered by tenurial agreements, will be limited to 10 per cent of the land devoted to agro-forestry in the approved Comprehensive Development and Management Plan (CDMP) and subject to the approval of the DENR Secretary;
• In Community Based Forestry Management (CBFM) areas, the planting of oil palms will only be allowed subject to the approved and/or amended Community Resource Management Framework - Annual Work Plan (CRMF/AWP) and certification per the first bullet above; and,
• The establishment of any oil palm plantation will be subject to the Environmental Impact Assessment (EIA) process.
As noted above, none of these conditions or requirements apply to coffee, cacao,
avocado, rubber or fruit trees, all imported into the Philippines over the years. Dy
(2004), nonplussed by the requirement for an Environment Clearance Certificate (ECC)
for plantings in excess of one hectare of oil palm, asked the rhetorical question, “Do you
expect a small farmer to do this? I doubt whether DENR requires this for coffee and
coconut, all tree crops.” On the positive side, the memorandum circular also clearly
states that under no circumstances will the cultivation of oil palms be allowed within
designated forest or forest production areas. It also confines the oil palm to slopes of
less than 26 degrees. An interesting point, given that oil palm technical experts do not
recommend using areas with slopes beyond 12 degrees (Corley and Tinker, 2003).
The other important role that the DENR plays in the oil palm industry is the creation
and administration of the regulatory environment within which the three oil palm mills
operate in Mindanao. The treatment ponds are built in accordance with DENR
stipulated standards. The treated effluents are tested to ensure that they meet Philippine
government requirements before being irrigated back into the palm growing areas.
Solid dry waste is used to fuel the boilers that generate electricity for the estates and to
create steam for the milling process. Remaining dry waste material is mulched,
composted and eventually used as fertiliser for the palms within the estate. DENR
inspectors periodically monitor all of these processes.
1.3 PHILIPPINE COCONUT AUTHORITY (PCA)
As noted above, the PCA is the governmental agency with primary responsibility for the
oil palm. The oil palm, although genetically related to the coconut, is a minor crop in
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the Philippines as compared to the coconut that remains the fundamental focus of the
PCA. The oil palm does not extend beyond the limited economic benefits it has brought
to the few farmers involved in the industry while the coconut industry is instilled into
the economic, traditional and emotional fabric of Filipino society. Callano (2004:1)
reports that “ … since its establishment in 1962, the Philippine oil palm industry has
never received any attention nor any support from government.”. It is also worth noting
that the PCA website does not have any significant reference (December 2004) to oil
palm anywhere on the site. Its two page promotional pamphlet has only one short bullet
on oil palm.
It would be unfair, however, to fail to reflect upon the support that the PCA provides to
the Philippine Oil Palm Growers Association (POPGA) and the Philippine Oil Palm
Development Council (PPDCI). In July 2004, the PCA also issued Administrative
Order No. 3: Implementing Rules and Regulations Governing the Registration and
Accreditation of Oil Palm Nurseries. This regulation, long sought after by the industry,
was necessitated by the practices of unscrupulous operators who were selling F2 oil
palm seedlings as opposed to the proper F1 material (Philippine Coconut Authority,
2004)126. Many potential outgrowers were incurring serious financial losses when they
realised poor production from their oil palms. Not only does this discourage them from
continuing in the industry but word of their failures discourages others from planting the
crop as well.
In July 2003, during the opening address of the Third National Oil Palm Congress, held
in Butuan, the PCA Administrator summarised the governmental position on the oil
palm as follows (Bahala, 2004:11-13):
• The oil palm industry shall complement the coconut industry; • The oil palm industry shall be developed as an initiative of the private
sector; • Priority in oil palm development will be given to idle, unproductive and
undeveloped areas; • Planting of oil palms shall be encouraged only in areas where an oil mill is
available or assured;
126 F1 planting materials are those that grow from seeds taken from the mother palms pollinated by artificial means using pollens from desirable male palms, which bear the desirable characteristics of the parent materials. F2 planting materials are those that are derived from the fruits of F1 palm that when planted will produce plants bearing recessive or undesirable characteristics or traits, such as but not limited to low or zero fruit yield.
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• Oil palm development shall be promoted through organised growers who have marketing tie-ups with oil millers;
• All oil palm nursery operators shall be required to register and be accredited by the Philippine Coconut Authority to assure growers of quality planting materials;
• Initial focus of development shall be in trouble-free areas; • Local R & D efforts shall be supported and coordinated by government; • Production in areas covered by agrarian reform (CARP) and ancestral
domain shall be undertaken under outgrower schemes; • Market niche for oil palm food use shall be identified to minimise
competition with coconut oil; and, • The use of chemical inputs that may harm the environment shall be
monitored and regulated.
The underlying message of the PCA’s position on the oil palm in July 2003 is that
government will provide benign support for the crop as long as it never competes for
either land or market with the coconut. One year later in June 2004, PCA Administrator
Coronacion, again delivering a major address to the oil palm community, takes a stance
that is more supportive of the oil palm (Coronacion, 2004). He takes the opportunity, at
this conference on investment and financing the oil palm industry, to announce
Administrative Order No. 3 concerning the operation of palm seedling nurseries and
announces the preparation of a forthcoming Administrative Order on rules and
regulations that will govern firms or individuals engaged in the production of oil palm,
its products and by-products (Coronacion, 2004). The salient features of this planned
order are as follows:
• Registration of all firms or persons and their agents involved in the industry;
• PCA will issue Certificates of Registration, that will be an authority to commence business;
• Quarantine inspection and verification will be imposed on imported seedlings;
• PCA will issue Permits to Import and has the authority to revoke same at their discretion; and,
• The PCA reserves the right to visit and inspect any business involved in the production of oil palm, the manufacture of its products and by-products.
While these regulations are seen as an increase in the interest by government in the oil
palm industry, it is not seen by the PPDCI as constructive intervention with the
exception of the regulations concerning nursery operations (Chang, 2004). In the final
analysis, it is evident that the Government of the Philippines has paid scant attention to
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the needs of this young industry, a industry that has such high potential to add to the
nation’s economic growth (Government of the Philippines, 2000a). In the Department
of Industry 2000 Profile on the Oil Palm Industry in Agusan del Sur (Government of the
Philippines, 2000a), the authors acerbically state that, “Coconut products have the
Philippine Coconut Authority as its support agency, while oil palm has none.” They
argue that there has been no focused support for the industry at all and the industry has
largely been left in the hands of the private sector (Government of the Philippines,
2000a). This clearly reflects the level of frustration that the industry feels about
government support.
To represent the oil palm industry more adequately, both the PPDCI and the PPOGA
feel that, generally, the PCA and the Government of the Philippines (GOP) need to
address the following issues:
• Import tariffs on crude palm oil (CPO) and palm kernel oil (PKO): From 1972 until 1996, the import duties on crude oil palm ranged from 30 to 50 per cent and for palm kernel oil, the tariff rate approached 70 per cent. By 2003, the tariff rates reduced to zero to 5 per cent under the provisions of the Asean Free Trade Agreement (AFTA-CEPT). These reductions are expected to result in an increase in imports, as importers will prefer imported crude palm oil to the relatively more expensive local production.
• Import tariffs on oil palm mill and related equipment and oil palm
seedlings: While the tariffs on the importation of crude palm oil and palm kernel oil have decreased over the last decade, tariff reductions on the importation of equipment and seedlings have not kept pace. Industry representatives argue that they will never be able to compete in this environment. They argue that if government is serious about the development of the industry, these tariffs should be removed entirely. In spite of repeated requests from the Philippine Oil Palm Development Council (PPDCI) and even the PCA itself, tariff rates for the importation of capital equipment and seedlings have not been waived by government. This has seriously inhibited the increase in the number of oil palm mills required to meet increasing hectarage and its geographic dispersion (Bahala, 2004). The lack of tax-free import privileges for cooperatives and growers associations to import farm equipment and seedlings has inhibited the expansion of the industry.
• Shortage of seedlings: Unreliable and limited supply of high quality F1
seedlings continues to reduce the industry’s ability to expand. The government could assist in this regard by producing seedlings at their research stations in Mindanao for sale to outgrowers at cost. Coupled with this problem is the shortage of regulatory policing mechanisms to shut down unscrupulous private oil palm nursery operators who continue to produce and sell F2 seedlings to unwary farmers.
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• Production Costs: Some of the factors that have been identified that make
local production relatively more expensive than that of neighbouring Asean nations are higher labour wage rates in the Philippines coupled with lower productivity. The lack of government intervention has also resulted in higher capital setup costs, in term of the construction of roads and bridges, for both the nucleus estates and the outgrower farming areas. Malaysia, in contrast, does provide support of this nature to their oil palm industry (Government of the Philippines, 2000a).
• Outgrower Financing: With the exception of the need to waive tariffs on
imported oil palm processing equipment, financing assistance for the private sector involved in the industry has never been a question. Financing requirements, however, for outgrower farmers, particularly smallholders, is a crucial requirement in the cultivation of the oil palm. The young trees do not begin to produce fruits in significant commercial quantity until they are 7 years old (Chang, 2004). Most financing organisations, however, allow for only a three-year grace period before the start of loan repayment. The PPOGA has requested that this grace period be extended up to 5 years in recognition of the high start-up expenses involved in establishing an oil palm farm (Government of the Philippines, 2002). The capital outlay by the outgrower is approximately US$ 1,000/hectare for the period up to when the palms bear fruits. CK Chang of Agumil argues that the grace period should be set at 7 years with a ten-year repayment plan. In addition, tax incentives to encourage farmers to enter into the industry in the first instance are also not being entertained by government.
• Poor quality of infrastructure in existing and potential oil palm producing
areas: There is a severe lack of roads, bridges, irrigation systems and the provision of electricity and communication services in existing and potential oil palm producing areas. These are further compounded by the lack of peace and order in many of the potential oil palm producing areas in combination with industrial strife and a lack of the rule of law generally (Government of the Philippines, 2000a).
2.0 Ghana
The oil palm industry is supported in terms of policy and regulation by the Ministry of
Food and Agriculture (MOFA), the Ministry of Environment Science and Technology
(MEST) and the Ministry of Trade and Industry (MTI). The producers, processors, end-
users, input suppliers and researchers are all linked under one organisation - Ghana Oil
Palm Development Association (GOPDA). Unlike the Philippines, and in spite of the
long history of oil palm in Ghana and West Africa, the regulatory environment for the
oil palm in Ghana is virtually non-existent. While MOFA has the main coordinating
responsibility for the oil palm, they do not have any specific section within the ministry
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devoted to it. The oil palm is not seen as a priority crop but with the advent of the PSI-
OP, this will likely change and, as such, adequate training for the front-line extension
staff on oil palm agronomy and technology should take place. The Ministry of Trade
and Industry’s role is specific and relates to the quality of the oil palm or palm kernel oil
exported, mainly to the European Union.
Finally, the Oil Palm Research Institute (OPRI) is the main body responsible for
research into the cultivation of the oil palm. Its research has focused largely on the
scientific aspects of the crop in Ghana although there have been some recent studies on
the economics of cultivating the crop, including inter-cropping it with other plant
material. The OPRI is the main source of hybrid improved oil palm seed in Ghana and
is the source of seed for national nurseries and small to medium estates in the country.
The large estates still maintain their seed supply sources in Cote d’Ivoire and Gabon,
claiming that this seed is based upon much better genetic material that will maximise
FFB production (Inkumsah, 2004).
The three organisations that have a leading role in the direction of the industry in Ghana
are its association, GOPDA, the OPRI and the President’s Special Initiative on Oil
Palm, although none of these organisations assume any role in the formulation and/or
enforcement of policy or regulations concerning the industry (Addo, 2000).
2.1 GHANA OIL PALM DEVELOPMENT AUTHORITY (GOPDA)
The Ghanaian marketing and pricing policy is segmented into the informal and formal
sectors. The informal sector pricing is determined primarily by market conditions in the
various markets for CPO, PKO and kernels. The market-determined pricing is distorted
due to lack of competition in the village markets because of poor accessibility leading to
low prices. Lack of inputs and high credit costs (interest rates of 30 to 35%) also affect
the market determined prices (Addo, 2000).
In the formal market, prices of CPO, PKO and kernels are determined by the Ghana Oil
Palm Development Association (GOPDA), formed in November 1985. In its 20-year
history, GOPDA has evolved a system of fixing prices amicably and until 1995 did so
using a combination of local market prices coupled with world market prices.
Presently, GOPDA applies the world market price for fixing prices of CPO and PKO
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and largely ignores the local market with its seasonal variations. However, FFB prices
are sometimes adjusted by the large and medium scale estates based on periodic
meetings with FFB producers and outgrowers to reflect local conditions and to
discourage diversion of FFB to the small mill operators. Minimum prices are not
guaranteed.
Addo (2000), in his 2000 study of the oil palm industry in Ghana, made two
recommendations regarding the pricing of oil palm in the country. He felt that in the
short term, GOPDA should negotiate with the Government to utilise tariff measures to
protect the local industry from collapse. In the medium term, a stabilisation fund should
be set up by GOPDA to support the industry to be known as GOPDA Stabilisation
Fund. Contributions should come from farmers (5% of FFB price), Millers and End-
users (5% of C.I.F. price of CPO) and government (5% of value added tax from the oil
palm industry). The Fund should be managed by a bank or a reputable Venture
Company under the supervision of GOPDA. GOPDA should maintain the world
market price to enable the market forces allocate scarce resources efficiently in order to
promote efficient producers in the industry. This should be supported with a
stabilisation fund.
Fortunately, neither recommendation was followed up on by either government or
GOPDA. The institution of past tariffs in the oil palm industry were partly responsible
for the demise of the industry in the 1960s and 1970s and would not benefit the industry
unless there were a number of other support mechanisms put in place to ensure growth
in the industry generally (Inkumsah, 2004). The involvement of government in the
industry in the later part of the last century led to the inefficient use of resources and its
failure in the first instance (Poku, 2004). The establishment of stabilisation funds, while
theoretically appealing, have not proven to be successful in other palm growing areas of
the world (Bahala, 2003).
2.2 OIL PALM RESEARCH INSTITUTE (OPRI)
The Oil Palm Research Institute (OPRI) is the main source of the supply of improved
genetic material for the oil palm industry in Ghana. Since the PSI-OP came into being,
the OPRI’s projections have indicated that they cannot meet the demand for expansion,
replanting and replacement of oil palms. In 1998, OPRI’s budget only allowed for the
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production of 879,632 pre-germinated nuts, an amount that would allow for the planting
or re-planting of 4,000 hectares. Addo (2000), in his study of the oil palm in Ghana
indicated that in his opinion the OPRI materials were comparable to imported materials
brought into the country from the Democratic Republic of Congo, Cameroon and Ivory
Coast by the large estates. He stated, therefore, that the OPRI needed to be supported in
their efforts to meet the demand for improved seed-nuts in the country. The PSI-OP
program requires sufficient seed-nuts to plant 15,000 hectares per annum. For the OPRI
to meet this demand it would be necessary for it to become financially independent.
This could be achieved through the preparation of a feasible business plan that OPRI
can utilise to attract the funds to expand its operations. It will also be necessary for the
OPRI to initiate management and business practices to increase its efficiency and
effectiveness Addo postulated that OPRI’s expansion should include research stations
in strategic locations in the oil palm belt to produce seedlings for sale to the farmers and
research into oil palm processing (Addo, 2000).
2.3 THE PRESIDENT’S SPECIAL INITIATIVE IN OIL PALM (PSI-OP)
The PSI-OP came into being in October 2002 under Presidential order to make the oil
palm industry one of the key drivers of economic growth and wealth creation (Poku,
2002b). The initiative itself falls under the Ministry of Trade and Industry, in
collaboration with the Ministry of Food and Agriculture (Directorate of Agricultural
Extension Services and Women in Agricultural Development). Under the initiative,
there are seven strategic requirements to underpin the successful development of a
sustainable oil palm industry in Ghana. These include (Poku, 2002b:3-4):
• Land: To secure up to 300,000 hectares of land will require Government direct involvement, given the complex nature of the land tenure system in Ghana. However, land already acquired by Government such as abandoned mining lands can be secured immediately. In addition, communities and traditional rulers could be persuaded to provide land on conditions that secure their long-term well-being.
• Legal Framework: A clearly defined legal framework for the industry will be required to protect both investors and providers of land given the long-term nature of oil palm cultivation.
• Incentive Framework: There will be a need to attract large-scale investors into the industry to facilitate the transfer of capital, technology and management.
• Funding: The initiative will have to be led by Government to demonstrate its ongoing support and commitment to the oil palm as a priority crop. Funding will be required in providing the basic infrastructure, the
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promotion community estates working with donors based either on out-grower schemes, smallholder schemes or on the Malaysian model – the Federal Land Development Authority (FELDA) scheme. Given Ghana’s precarious finances, the Malaysian model must be limited while Government focuses on out-grower and smallholder schemes and the promotion of large-scale private investment.
• Training and Skill Development: The success of the initiative will depend on how quickly Ghana builds competitive skills in the agronomy of oil palm production and the practices that go with it, in research and development and in marketing, especially export marketing in international markets. Ghana can seek alliances with Malaysia in this area.
• Infrastructure: The development of infrastructure will need to precede the creation of farms and large-scale plantations. Collaboration between the Ministries of Agriculture, Roads and Highways, Local Government, among others, will be required to ensure that infrastructure development goes ahead of the establishment of large estates.
• Sustainable Agriculture: Clear rules and regulations will need to be established to ensure that in the process of developing the industry that the environment is protected, as well as, the long-term health and safety of the affected communities, the industry itself and sustainable rural socio-economic development.
The initiative recognises the need for a strong organisation to manage the industry. It is
envisaged that the present all-party PSI-OP Advisory Board should eventually evolve
into the Ghana Oil Palm Board to work in concert with, but not necessarily replace
GOPDA. Such a board would have oversight responsibilities including, but not limited
to: the legal framework; regulatory functions; research and development; market
intelligence and information services; advisory services; industrial networking; trade
facilitation and promotion (Poku, 2002b).
The FAO agreed to support the PSI-OP program with a Technical Cooperation Program
(TCP) in late 2004. The TCP assistance from FAO concentrates on organising and
training farmers, establishing and strengthening companies consisting of farmers’
associations and oil mills, and studying the best approach to implement an expanded
PSI-OP program that has the objective of achieving a functional, profitable and
sustainable oil palm industry (Food and Agricultural Organisation, 2004). The main
challenge of the program will be the establishment of functional private companies that
combine smallholder farmers and a medium scale processor in one entity. This unique
approach has great advantages with regard to efficiency and economy of input supply,
quality assurance, and marketing. At the same time, it will protect and improve the
livelihoods of small farmers and their communities, without disrupting valuable social
structures.
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