Baby corn business under the contract farming system.

Author:Thanyakhan, Sutana

    Among fruits and vegetables exported to foreign countries, baby corn is one of the major export crops of Thailand. The export of baby corns draws thousand million baht to Thailand each year and is on the rise. The US, Australia, Japan and some European countries are the major baby corn importers of Thailand. These countries have a strict policy in grading the quality of the products, especially the contamination of pesticide. Consumers' consumption behaviors have changed to be more health conscience these days and the Department of Agricultural Extensions (DAE) have been promoting producing toxic-free vegetables nationwide in responds to the health needs of the customers both domestically and internationally. DAE works with the private sectors and farmers to promote contract farming between farmers and product collectors or purchasing companies for high quality vegetable productions (Department of Agricultural Extensions, 1994).

    Contract farming plays a crucial role on farmers which benefits the farmers in selling their products since they have risk assurance in price, marketing and other production factors, which lead to a stable income (Bauman, 2000). The purchasing companies on the other hand gain in terms of stability in input prices and the amount of inputs supplied to the factories. In addition, the products meet the required standard quality without investing in costly quality control projects. Pornsuwan (2003) study shows that contract farming allows the companies to purchasing raw materials at a small cost and to transfer knowledge and technology to farmers. The farmers are pleased with the contract systems since they received the supports for production inputs, price insurance, and product purchase.

    Contract farming refers to the production and supply of agricultural produce under advance contracts, the essence of such contracts being a commitment to provide an agricultural commodity of a type, at a time and a price, and in the quantity required by a known buyer. The contract farming can divided into five types: (i) the centralized type, (ii) the nucleus estate type, (iii) the multipartite type, (iv) the informal type, and (v) the intermediary type (Eaton and Shepherd, 2001).

    However, farmers have the responsibility to adhere to the contract farming regulations, such as hygiene in managing production process and the product quality which have to meet the required standards. These requirements may increase the cost of production, which increases the farmers' investment risks. Kaewmaneechai (2001) study on asparagus production shows that the total investment cost in the production process of the farmers under the contracts was higher than those without contracts. In addition, contract farmers are exposed to higher risks in farm's net profit than non-contract farmers.

    Beside price and income influencing the farmers' decision enter contracts with the companies, there other factors that should also be taken into the consideration in the farmers' decision making process. These factors include production credit, production inputs supply, production knowledge and technology transfer, and so on. Thus, this study aimed at analyzing the production costs and returns between contract and non-contract farmers on baby corn production. This includes analyzing the procurement costs of the company between contract and non-contract (open market) channels.

    The paper is organized as follows. Methodology and data collection are described in section 2 and section 3, respectively. Section 4 presents the results, and the last section, section 5, is conclusion and suggestion.


    2.1 The analysis of cost and return

    This study uses the total cost (TC), total revenue (TR) and profit (PF) to assess the production efficiency of the farmers by examining the relationship between the investment cost and the revenue of baby corn production as follows:

    TR = P x Q = NCI + CI (1)

    TC = TFC + TVC = NCC + CC (2)

    PF = TR - TC = TR - TFC - TVC (3)

    GM = TR - TVC (4)

    NCP = CI - CC (5)

    where TR = total revenue (baht), P = price of product (baht/kg.), Q = total quantity of products sold (kg.), NCI = non-cash income (baht), CI = cash income (baht), TC = total cost (baht), TFC = total fixed cost (baht), TVC = total variable cost (baht), NCC = non-cash cost (baht), CC = cash cost (baht), PF = profit (baht), GM = gross margin which refers to the income over the variable cost...

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