Contract method - International economic relations

Contract method

Apparently, the contract method was the most convenient for agriculture from the point of view of TNCs. Contract farming can be defined as a contractual relationship without equity participation between farmers and TNC affiliates (or agents acting on behalf of TNCs). With such a contract, farmers commit to supply TNCs with a certain quantity of products at an agreed price, with observance of relevant quality standards, delivery terms and other conditions. This form is attractive to TNCs, as it allows better control over compliance with product specifications and delivery requirements than, for example, the use of spot markets. At the same time, the contract is less capital-intensive, less risky and more flexible than long-term lease of land or possession of land.

TNCs in the agriculture of the PC. TNCs actively participate in the implementation of infrastructure projects in agricultural and transition countries, including using the contract method. From the perspective of farmers, contract farming can provide predictable revenues, market access and support to TNCs in areas such as credit and know-how.

TNCs that use agricultural contracts and other unite forms of participation in agriculture are active in more than 110 countries in Africa, Asia and Latin America. For example, Nestle (Switzerland), a world leader in the food industry, has contracted at least 600,000 farms in more than 80 developing countries and countries with economies in transition as direct suppliers of various agricultural products. Similarly, the company Olam (Singapore) has a global network of agricultural contracts involving approximately 200,000 suppliers in 60 countries (most of which are developing countries).

Contract farming is not only widespread, but also has a significant concentration in many emerging market countries and in poorer countries. For example, in Brazil, 75% of poultry meat production and 35% of soybean production is provided through contract farming, including those involving TNCs. In Vietnam, a similar picture: 90% of cotton and fresh milk, 50% of tea and 40% of rice is purchased on the basis of agricultural contracts. In Kenya, using this method, about 60% of tea and sugar are produced.

Agricultural contracts cover a wide range of goods, including livestock products, food and export crops. The above-mentioned company "Olam purchases worldwide 17 types of agricultural products (including cashew nuts, cotton, spices, coffee, cocoa and sugar). Up to 2/3 of the raw materials for the production of the corporation "Unilever" (The Netherlands) are agricultural crops, which include palm and other types of edible oils, tea and tinctures, tomatoes, peas and a wide range of other vegetables. They are purchased from 100,000 small farmers and larger farms in developing countries, as well as from suppliers representing third parties.

Agricultural contracts allow TNCs of various types to operate in successive links in the value chains of the agro-industrial complex, including food producers, biofuels, retail chains and many others, to ensure guaranteed supplies of agricultural products by local farmers in different host countries.

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