Why do multinationals partner with small scale agriculturists for trade?

The agriculture sector of developing nations is continually falling into the investment radar of large multinationals owing to the huge potential for development and availability of rich resources. However, these nations are not able to accommodate such investments due to inefficient facilities and more importantly a highly unorganized production procedure.

Nevertheless, recently the involvement of large multinationals with small agribusiness in such nations has increased considerably through the adoption of out-grower schemes also known as contract farming.

Let us see what the prime advantages are to both parties while engaging in out-grower schemes

Increase control in the supply chain

Put-grower schemes allow the small scale farmers to have a strong hold of the farming produce supply. Therefore, as the produce is rare and geography specific, huge multinationals will be willing to invest in such partnerships owing to the value of the product in the global market. Large organisations also invest in the production phase by improving cultivation infrastructure and technology, thus creating adequate quantity of good quality produce.

Understanding the grass root level

Contract farming allows exploration of the markets at the grass root level which in turn is an attractive option for big corporations as this paves ways to understand the local demand. This allows big organisations to grasp the need of the local population and adapt them as to cater to the domestic market. Engaging with the local market involves minimal costs in transactions and production and ensures added protection against price volatility as well.

What the future holds for contract farming

Once the initial glitches of establishing the partnerships are overcome, this mode of partnership is highly effective to affect supply and maintain product quality. Contract farming seems to be an ideal way of converting developing agriculture businesses into becoming more market oriented.

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