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Deputy Minister Highlights Justifications, Challenges of Contract Farming in Iran

TEHRAN (Tasnim) – Iranian Deputy Minister of Agriculture-Jihad Hossein Shirzad underlined the necessity for the promotion of contract farming in Iran.

Speaking to Tasnim News Agency’s English website, Dr. Hossein Shirzad, who is also Director of the Central Organization of Rural Cooperatives (CORC) of Iran, emphasized the need to focus on and promote contract farming, the implications and necessity of using the contract farming approach, and outlined the positive reasons and challenges for contract farming in Iran.

The text of Tasnim’s interview with Dr. Hossein Shirzad is as follows:

Tasnim: What's the definition of contract farming? What are its components? What is the meaning of this lexical composition, and why has it not so far received the general favor of the farmer community given its advantages?

Shirzad: Contractual agricultural status is understood as every phenomenon of public acceptance in the context of conditions and situations of possibility and refusal. In simple agricultural terms, a contract is a legal contract that binds the buyer to the producer through a binding contract (a UIFA) and specifies the quantity and quality of the type of goods to be produced. In fact, contractual production, or custom production, is a form of agricultural production that is concluded by a written contract based on the sharing of interests between the producer and the seller and between the real or legal buyer. Contractor including the document of the quality of sex, quantity, price, form, method of production, date of delivery of the product which covers the subject of the contractual production and is signed between the parties. Perhaps in a more precise definition of contract farming is defined as an economic position that is the distance between spot markets and vertical integration, and a kind of intermediary entity that responds to market failures and reduces transaction costs.

On the other hand, agriculture is a systematic and purposeful contract of exchange of money-flow in agriculture, whereby producers sign a contract with a local firm or company in order to exchange a particular product or high-value product for the contracting party. To this end, the farmer or agricultural firm agrees to provide the conditions required by the contractor. If the farmer fails to meet the terms of the contract, the firm may reject the crop without payment or reduce payments to the farmer. Contract agriculture is a mechanism that coordinates the relationships between agriculture and the related industries of conversion, complementary and even maintenance in the chain, leading to the strengthening of the activities of the processing and conversion industries. This process has led to positive developments in the food supply chain and highlights its role as an effective strategy. There have been experiences of using this approach for decades to develop crops such as oilseeds and sugar beet (by specialized companies) in the country. This approach has been successful in the early stages of product development called "cash crops" but for many reasons so far, there have been no generalizable models in line with current conditions and, in turn, agricultural sector policies have led to the elimination or inefficiency of such companies.

the conventional cultivation method is used by some private companies (such as tomato paste producers, medicinal plants) in a limited and often semi-formal manner. The sugar chain in our country has a long history and has been based on conventional agriculture, but at this historical juncture, there is room for agronomic chains to be analyzed, redefined and pathologized, and examined in more specialized workgroups.

Tasnim: Are there any specific historical records in our country of contract or similar farming? Which crops are cultivated under contract farming? And what effects did it have?

Shirzad: Yes, we have at least two cotton and sugar beet crops in written, substantiated and almost comprehensive historical records of contract farming with the help of foreign businessmen and companies operating in Iran. From a historical point of view, in fact, after Nassereddin Shah's third visit to Europe in 1889, a large group of European investors had a keen desire to conclude cultivation and export contracts and invest in beet cultivation, the establishment of sugar factories, the development of sugarcane and sugar beet cultivation, cotton. And they even showed up. Russian businessmen were active in developing conventional cotton cultivation and promoting its high quality seed in Khorasan, financing farmers and establishing the first Iranian cotton clearing plant in 1902 in Mazandaran Bar.

In 1923 the Iranian and Russian cotton joint stock companies introduced a number of new cotton varieties, such as American Express, at Akalaw's expense and cultivated them in favorable areas such as Khorasan, Gorgan and Mazandaran. From this year onwards cotton cultivation and cultivation in Iran expanded. That is, before the establishment of the Iranian-Russian Mixed Cotton Company in 1923, the "Cotton Clearing Corporation" was established in 1904 on the basis of a Russian borrowing bank plan in Iran to contract, collect, clean and pack cotton in Iran. In the implementation of the project, the Affirmation Institute and its partners and the Trikovich and Aliyev Institute in Neyshabur set up factories that used oil engines. The Amol Cotton Clearing Factory was established by the Russians in 1945, as well as other factories in Neyshabur, cargo ship Bandar-e- Gaz.

The rise of the Iranian cotton crop was encouraged in various ways by the promises made by the feudal system. The lending of the Russian bank to the cotton farmers and the activity of Russian agents among the cotton farmers was an example of the prevalence of conventional cotton cultivation in Iran. In such a way that cotton farming in the country through economic cultivation through contractual cultivation of traders with farmers began practically from 1923 to the pre-existing cotton fields in Iran, but was restored and mechanized from 1923 onwards. It took. In this year, cotton seed from different types of medium American fibers was introduced and tested. This was done by the "Iranian-Russian Mixed Cotton Company, which obtained the privilege of cotton cultivation." By 1934, large numbers of cotton fields in various districts and several cotton clearing mills were also established in cultivation centers such as the Livani cotton clearing factory in Bander-e-gaz.

Russian and American businessmen were highly innovative in contracting by gaining the trust of rural masters, prepaying money, establishing a cotton-clearing factory, distributing seed and raising production. For example, near the Gulf of Esterabad, merchants who had a cotton cleaning machine. They made it a practice to pay farmers in advance without paying a price for the unprocessed cotton. When collecting the crop, they were told that the price of cotton had fallen in Russian markets, and since there were no other cotton milling machines around, farmers had to sell their crop at a lower price. During this period, pre-harvest sales contracts, known as Salaf, were common in the northwestern part of Iran, and Iranian merchants, such as the Aramian business, the Aslanyan business, were gradually singing along with foreign capitalists. Contracts between Adam Oser, Bagdaniens and Panyans with landowners also played an important role in financing farmers, promoting cotton seeds, and setting up three cotton wool factories at Bar Sellers. Russian Sadegh Aliyev, along with Karapetyan and Petrosian, also promoted new techniques of cotton cultivation in Amol, Bandarqs, Ashraf (now Behshahr), and modernized cotton mills in the country's north and the development of transportation and The movement and export of cotton played an important role in that cotton constituted Iran's most important product and one-fifth of Iran's exports, and during the four years of the American Civil War (the era of abolition of slavery), cotton was considered a declining institution and cotton in Iran.

According to Jamalzadeh-persian author and researcher- Iranian cotton exports amounted to 12 million British Liras a year. In the case of conventional beet cultivation, after sugar beet seed was imported to Iran by Dr. Pollack in 1896Mirza Ali Khan Amin al-Dawlah Sugar Factory in Kahrizak was one of the agricultural conversion industries established during the Mozaffari period in Tehran.

It is noteworthy that it took about five years from the time of the sugar production agreement (between Amin al-Sultan and Edward Datti) to the construction of that plant, due to the search for suitable land ownership and shareholder theories, and during these five years, Both Belgians and some officials at the time were looking for a way to acquire land along the Tehran-Qom (Kahrizak) road, which would be suitable for sugar beet cultivation. Million francs, Belgian aid (Belgian sugar company in Iran) and B machinery Zhyky with a capacity of 150 tons per day began, first to grow beets on land contract payments Kahrizak, but the product came on the market but could not compete with Russian sugar. But considerable investment began in upgrading production technology in sugar beet farming, and in the winter of that year, he selected Amin al-Dawlah estate in Kahrizak as a sample farmer and set up a sugar beet refinery there. Belgians imported five modern plows from Europe and pledged them to the peasants in exchange for seed and money. Dozens of sugar factories were established in Iran for five years and began contracting with farmers. After the land reform, we witnessed the full-scale growth of conventional sugar beet cultivation in Iran. Regarding the development of Breeding silkworm in nineteenth-century , there are neatly arranged arrangements between farmers, or better to say the feudal system with Russian and European traders such as the Rally Brothers, the Pascal Brothers, among the Qajar papers.

Tasnim: What are the goals of contract farming? And what alternatives are you looking for in the agricultural sector? Can it be mentioned in terms of alternative agriculture?

No, in my view, the concept of contract farming cannot be referred to as alternative farming because it is not specific to the founder or originator of a particular paradigm in agriculture. But special attention should be paid to contract farming as a useful element in improving chain management and food and agricultural supply. The supply chain of agricultural products includes elements, both natural and legal, and formal and informal relationships that cover post-pre-production operations and relationships to the marketing and consumption of agricultural products. Even comparative studies and review of international experience suggest that, under appropriate conditions, the potential benefits of a contractual approach would improve the quality of activities and production of agricultural crops and conversion industries. In contract farming; developing contract farming to achieve certain goals such as increasing productivity and quality of agricultural products and creating stability and stability in agricultural production of crop production based on accredited research and production management standards and reducing agricultural market risk, crop production based on standards. Accredited, Produces Risk Management and Market Risk Management Plans Adopts and guarantees producer revenue and guides other risk management practices and programs throughout the supply chain, regulates markets through market mechanisms without direct government intervention, reduces market margins. This is followed by lower operating costs and the cost of exchanging day-to-day knowledge transfer to sector producers and stabilizing the agricultural supply chain. In fact, in our country, the main purpose of managing the production chain is to reduce the cost of each unit of production for the society and to distribute the profits among all the members of the chain along with the reduction of transaction costs and to respect the principle of competitiveness, even competition with intermediaries, to bring part of the profit margin to market producer.

Tasnim: What are the requirements for establishing a contract farming system in the country? Why does this type of agriculture not have a suitable or desirable position in Iran's national agricultural exploitation systems? What are the challenges?

Shirzad: Contract agricultural development policy as one of the effective approaches and mechanisms to regulate the relationship between production and market is a historical obligation of ours today and requires a political will to break the past. In this context, of course, we have legal backwardness, and we need firm rules and specific rules of trade (especially relying on new derivative instruments) and regulatory oversight mechanisms in the agricultural sector to support the validity and reliability of commodity exchanges. Until the passage of the Law on Concentration of Agricultural Sector Duties, the responsibility of the Ministry of Jihad was limited to production and producer support until the enactment of the Law on Agricultural Market to agricultural and agricultural commodities, like other commercial commodities. They are paid and there is no role for the Ministry of Agriculture in these laws. The contradictory and sometimes contradictory perceptions of the laws resulting from the inconsistency of the laws have led to numerous problems for the agricultural commodity market and its value chains and, in particular, for conventional farming. But more importantly, one of the most effective mechanisms of contract farming in the country is the establishment of a precise and reliable agricultural information system, agricultural contract insurance and collateral risk insurance, contract guarantees and contract-based value chain financing, The basis of agricultural development is contractual, and given the shift in the approach of the Agricultural Bank and the Funds for Investment Promotion in Agriculture to finance contract-based value chains, it is expected that specialized departments and provinces will be able to use this capacity created to achieve the goals set in agriculture. Contractual benefit. On the one hand, given that conventional agriculture is expanding in traditional ways and in different ways in the country, it is important to establish a national code of procedure for the development of appropriate regulations, procedures and processes (technical, legal, financial, regulatory and regulator ) is a key priority in this regard.

The contract farming system is a set of legal and institutional mechanisms that enable legal and formal communication between agricultural holders, processing and exchange companies, trading companies, stock markets and consumers. Derivative trading instruments such as futures, forward and futures contracts, bargaining contracts (trading option and option group) and similar are more or less components of the conventional farming system and are considered as tools for the realization of modern economic relations in the agricultural sector. Thus, the formulation and design of a contract farming system can determine the status and role of each of these sub-systems in the overall structure of the country's agricultural economy. It is used in most developed and developing countries as a national strategy in agricultural development, market risk management (especially prices), security and income stabilization for farmers, quality improvement and standardization of crops and the like. The existence of contractual systems is one of the most effective market mechanisms to replace government interference (such as pricing policy, guaranteed purchases, back-up agreements, subsidies insurance and other non-market tools) in managing agricultural markets. To do this, we need the ontological ability to institutionalize and form federations, unions, farmers' clusters. These clusters are cumulative formations or a state of strategic alliance in which farmers are geographically clustered. These clusters lead to increased productivity and expanded market links, resulting in local halls of fair and equitable discovery of product prices to There is a higher value for agricultural products.

Assistance in establishing clusters, market-based cooperatives, specialized unions and new commodity organizations, and providing part of the initial capital needed for the organizations, providing dynamic agricultural market Atlas using GIS, organizing trade unions in the value chain of agricultural commodities and networks. Clustering, Creating and Developing Local Market Priorities with Least Expandable Village Centers, Creating E-Marketing Offices Through Rural and Rural Organizations, Increasing the Share of Commodity Exchanges in Domestic Trading, Creating Pie Occasionally market information for agricultural products through monitoring and gathering market information and easy access of users to the database, informing market participants about government policies adopted and their impact on the value chain of agricultural products and helping to create specialized commodity standardization companies, services Marketing and marketing within these clusters are essential strategies for enhancing conventional agriculture. The products delivered by these clusters should not go beyond the standards set forth in the contract, and should in no way, in any way, contain errors, tricks, fouls, fouls, disease, contamination with harmful organisms mixed with other products that compromise the commercial value of the product. Will be affected; However, with the help of clusters, it is possible to set local-national standards, standards set by the Codex system or other mandatory standards set by the buyer. According to the legal terms and conditions, people approved and designated by the buyer will be allowed to control the production site at any stage of the work.

At present, due to the lack of specific rules and regulations for such contracts and the absence of a specific strategy in the macro level, so far this market mechanism has not been able to be used as a suitable tool in market regulation and macro agricultural policies. Contract farming can be used as a strategy in the agricultural sector to strengthen production systems, diversify crops, create special crop areas (create regional and regional advantages such as production clusters and hubs or specialized crop areas), The unbalanced supply and demand of agricultural products in the market, the attraction of domestic and foreign investment and the like have a significant impact. In order to establish a contractual farming system in our country, we need formal and comprehensive rules that cover the whole subject matter, principles and legislation of agricultural production contracts concluded between producers or growers of agricultural horticultural crops or associations and production units. Includes the natural and legal persons who buy their products.


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