n South African Journal of Economic and Management Sciences - Contract farming risks : a quantitative assessment
|Article Title||Contract farming risks : a quantitative assessment|
|© Publisher:||University of Pretoria|
|Journal||South African Journal of Economic and Management Sciences|
|Affiliations||1 Eastern Mediterranean University, Canada and 2 Eastern Mediterranean University, Canada|
|Publication Date||Jan 2016|
|Pages||35 - 52|
|Keyword(s)||Monte Carlo simulation, Outgrower scheme, Paprika smallholder farmers, Risks, Sustainability and Zambia|
ISI Social Science
The objective of this study is to identify the key risks facing each of the stakeholders in the export-focused paprika value chain in Zambia. Although a deterministic cost-benefit analysis indicated that this outgrower scheme would have a very satisfactory net present value (NPV), a Monte Carlo analysis using an integrated financial-economic-stakeholder model identifies a number of risk variables that could make this system unsustainable. The major risks include the variability of the real exchange rate in Zambia; the international price of paprika; and the farm yield rates. This analysis points out that irrigation systems are very important for both stabilising and increasing yields. The analysis also shows the limitations of loan financing for such outgrower arrangements when at the sector level it is difficult or even impossible to mitigate the risks from real exchange rate movements and changes in international commodity prices. This micro-level analysis shows how critical real exchange rate management policies are in achieving sustainability of such export oriented value chains.
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