The Central Bank of Iran has announced new guidelines for “contract farming” to help improve funding for the key sector.
As per a definition by Food and Agriculture Organization of the United Nations 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”.
Finance in this method involves paying farmers and “executors” to cultivate crops, procure input and machineries. It also involves undertaking expenses for development and research and technical training to create added value, according to the guidelines posted on the CBI website.
Interested applicants should apply for contract farming to the Ministry of Agriculture in Tehran and if the request is approved, a lender will be designated to secure funds for the project.
The executor must provide the bank details about the project, manner of implementation, intended crop(s), price, terms and time of payment.
Instructions stipulate that executors must put up appropriate collaterals with the lender, but if the executor is affiliated to the government, loan repayment must be guaranteed by the Planning and Budget Organization.
It is up to the bank to ensure that the contract farming is not a sham deal between farmers and fallacious executors to be able to borrow.
The CBI said the aim is to help improve transparency and efficiency in funding agro ventures, support rural employment, reduce farm production costs, give technical assistance to farmers…
As per 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.
Responsible contract farming can be a powerful tool for small scale farmers in developing countries to move towards larger scale commercial production.
It can help create wealth, contribute to supply chain efficiency through the production of higher quantities of better quality products and contribute to food security objectives.
