Contract farming approach to essential oil production in the Eastern Cape province of South Africa

Abstract

Based on empirical evidence from small scale growers and a processor, this study evaluated contract farming of rose geranium (Pelagonium graveoleus) production in a rural setting of Eastern Cape Province of South Africa. With the aid of interview schedules and observation, cross sectional data were collected from the growers and processor of geranium oil on their 2007 production activities. The analytical tools employed descriptive statistics and farm budget model. The contract rose geranium growers in the area supplied the land for planting while the processor supplied the other inputs from land preparation to the harvesting of the plant. The contractual agreement was, however, unwritten with no signed contract between the parties. Further analysis revealed some ambiguities in the contractual arrangement. With an average of US $4 785.61 as production and processing costs on a hectare of rose geranium, the processor receives US $3 862.39 as net profit, while the contract growers received US $833.33. This arrangement appears unsustainable. Although contract farming is essentially private in the area, the arrangement can become an integral policy, where the government, together with the growers and agro-industry, join to create a conducive production environment. Sustainable contract farming of essential oil plants in South Africa, calls for a policy option that enforces well documented and clearly explained agreements between the farmers and the processors.