• Business And Markets

    Lending Is Prioritized for Contract Farming 

    The Central Bank of Iran has instructed lenders to apportion at least 20% of their loans to the agriculture sector through supply chain finance (SCF) and the contract farming scheme

    The Central Bank of Iran has instructed lenders to apportion at least 20% of their loans to the agriculture sector through supply chain finance (SCF) and the contract farming scheme. 

    In a bylaw the CBI said private farming companies, export-based and knowledge-based agro firms must be given priority for loans, the CBI website reported.  

    Back in January, the CBI announced the SCF program to improve lending efficiency and navigate bank resources toward the production sector. 

    SCF involves automating transactions and tracking invoice approval and settlement processes, from initiation to completion. Under this paradigm, buyers agree to approve  supplier invoices for financing by a bank or other outside financier.

    In coordination with the Ministry of Agriculture and other relevant bodies, the CBI now intends to extend the SCF program to contract farming. 

    The Food and Agriculture Organization of the United Nations says contract farming “is agricultural production carried out according to an agreement between farmers and a buyer, which places conditions on the production and marketing of the commodity”.

     

    The CBI has said is determined to promote contract farming in line with the government’s decision to support agriculture  and improve rural employment

    Farmers and processing or marketing firms are the parties to the contract, coming to terms for the production and supply of agro products under forward agreements, frequently at predetermined prices.

    The CBI has said is determined to promote contract farming in line with the government’s decision to support agriculture  and improve rural employment.

    It says that lending under this method is “non-inflationary” and will not overburden banks – as has been reported in the past. The program should help improve “targeted finance” in farming and improve funding.    

    Last month, Javad Sadati-Nejad, the agriculture minister, spoke about plans to tap contract farming to augment wheat production across the country. 

    “Under contract farming, we plan to give farmers agricultural input and provide insurance cover for the crop,” he said, announcing a rather ambitious plan to implement contract farming on 2 million acres in the coming agriculture year.

    Funding in the contact farming framework involves paying farmers and “executors” to cultivate crops and buy machinery. It also involves R&D and technical training to improve added value  

    As per the FAO guidelines, contract farming arrangement also invariably involves the purchaser in providing a degree of production support through the supply of inputs and the provision of technical advice. 

    The basis of such arrangements is a commitment on the part of the farmer to provide a specific commodity in quantities and quality determined by the purchaser and a commitment on the part of the company to support the farmer's production and purchase the commodity.