Financial losses due to contract farming are poised to be addressed with renegotiation according to the Ministry of Agriculture's bill drafted to tie up loose ends on implementation. Officials hope to revolutionise the agricultural sector with the bill curtailing the seven-month-old law, which is expected to eliminate side hustles resulting in millions of birr losses.

Farmers often find themselves at a disadvantage during pre and post-harvest periods or sudden scarcity of resources, limiting their output without legal recourse to renegotiate prices. The lack of well-defined modalities for renegotiating prices based on changes in production quantity and quality has been at the core of the problem.

Recent instances in Amhara Regional State, where four million quintals of produce were abandoned by investors claiming a sharp fall in international prices and dwindling exports, serve as stark examples of the challenges.

The bill currently under consideration introduces competency certification, bank statements, investment licenses, and offices as prerequisites for engaging in contractual farming agreements with farmers which is expected to bring accountability. Sultan Mohammed, contract farming director at the Ministry, emphasised the importance of legal structures to safeguard the interests of both parties involved.

"Inept investors had taken advantage through loopholes," Sultan underscores.

The Director observes that some farmers also use inputs for purposes outside their initial agreements for consumption or putting it on the market. With the bill, renegotiations are possible when failure to deliver quality inputs and technical assistance or shortcomings to meet the demand without unprecedented disruptions.

Studies estimate the income variation between contracted farmers over those operating freelance can reach up to three quarters. The integration of small-scale farmers into global agricultural value chains brings technical assistance, market access, and reliable inputs.

Known for its lush coffee and tea farms, the Southwest Regional State has ventured into contract farming, doubling the yield from a couple of years ago. Last year, around two million quintals of crops were produced through contract farming arrangements between 409 investors and close to 1,750 farmers across three zones.

While farmers' livelihoods are reaping significant benefits, conflicts persist. Mitiku G. Mariam from coffee tea & spice directorate in the regional state, points to the lack of contractual clarity on prices and quality standards as the primary cause.

"Accountability can only come from clarity," he told Fortune.

While contract farming creates a stable market for farmers and a reliable supply for buyers, the development of technical expertise and a strong judicial system to offer recourse in case of contract breaches are critical pillars, according to industry players.

Tongo Import & Export has maintained a steady supply of red kidney beans and soybeans for nearly 421 farmers for the past 12 years. Although 12,000qtl of yield was harvested last year, nearly 20pc of the yield was rejected for the United States and Dubai markets due to quality issues.