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FAO/UNEP/UN-Energy Bioenergy Decision Support Tool -
MODULE 3: Implementation and Operation
soaring production costs, falling returns, and the reduced credit
worthiness of investors under high risk conditions. In the end the
incentives to invest may disappear, and local people, investors,
and the government all lose out. Proper allocation of land rights
is therefore at the heart of good development strategies for
land-intensive activities like biomass feedstock production.
Processes for reconciling competing interests in land allocation
and land rights should include the following (FAO and UN-Habitat,
2009):
• Ensure that informed decisions are made:
participants in the
decision-making process should understand the competing
interests and trade-offs between short term and long
term; the options chosen should be fnancially sustainable,
technically appropriate, and implementable.
• Ensure that decisions are made at the appropriate level:
Decisions may be made through both formal and informal (or
traditional) institutions. The principle of subsidiarity requires
that decision-making takes place at the lowest competent
level, with the possibility of appeal to a higher level. In many
countries this requires the decentralization of decision-
making, tasks and funds to the local or regional levels. It
also requires building the capacity of weaker local actors,
including local governments, communities and producers
who have a stake;
• Transparency:
Decisions on land rights should be open and
transparent to maintain credibility.
• Accountability:
Ensure that all actors are accountable; use a
system of checks and balances.
• Ensure that the rule of law is applied to all:
rules shall be
applied impartially to everyone.
Such processes together with good governance for natural
resources can prevent conficts and ensure that there are
processes for reconciling competing interests in land and natural
resource use.
CONTRACT FARMING (OUTGROWER SCHEMES)
One way to mitigate the risks of displacement by concession
allocation is through contract farming (outgrower schemes).
As a form of agricultural production, contract farming has
been practised for a long time. The potential advantages and
disadvantages are summarized in Table 4.
Contract farming often faces signifcant constraints in implemen-
tation, depending on the relation between smallholders and
companies (or land development agencies). The cases of oil
palm and timber have been evaluated in some detail in order to
consider policies and institutions that can help to overcome such
constraints (for detailed analysis, see Vermeulen and Goad, 2006).
The solutions to such constraints include the need for collective
action through farmers’ or growers’ groups. There are theoretical
arguments in favour of collective action, including easier and
cheaper access to inputs, cost reduction in marketing due to
economies of scale, and greater bargaining power for farmers
in negotiations with companies. However, experience shows
that this is easier said than done, and the record in that respect
is mixed at best. Factors that seem crucial for the success of
organizing farmers into groups include (FAO, 2007):
• Resources available to farmers (e.g. Land, water, education
and other livelihood assets);
• Experience in working together;
• Size of the group (small groups work better);
• Presence of clear and active leadership;
• Clear perception of the economic benefts of forming into
groups.
Table 4: Advantages and Disadvantages of Contract Farming for Companies and Farmers
(FAO, 2001b)
Advantages
Disadvantages
Farmers
• Inputs, production services often supplied by
company
• Credit advances from the company
• Contract farming often introduces new
technology and also enables farmers to learn
new skills
• Farmers’ price risk is often reduced as many
contracts specify prices in advance
• Contract farming can open up new markets
which would otherwise be unavailable to small
farmers
• Particularly when growing new crops, farmers face risks of
both market failure and production problems
• Ineffcient management or marketing problems can mean that
quotas are manipulated so that not all contracted production is
purchased
• Companies may be unreliable or exploit monopoly position
• Company staff may be corrupt, particularly with quotas
Company • Contract farming with small farmers is more
politically acceptable than, for example,
production on estates
• Working with small farmers overcomes land
constraints
• Production is more reliable than open-market
purchases and company faces less risk by not
being responsible for production
• More consistent quality can be obtained than if
purchases were made on the open market
• Contracted farmers may face land constraints due to lack of
secure tenure, jeopardizing sustainable long-term operations
• Social and cultural constraints may affect farmers’ ability to
produce to company’s specifcations
• Poor management and lack of consultation with farmers may
lead to farmer discontent
• Farmers may sell outside contract (extra-contractual
marketing) thus reducing processing factory throughput and
lowering effciency
• Farmers may divert inputs supplied on credit to other
purposes, thereby reducing yields