Value Chain Actors, Farm-gate Price and Farmer Loyalty in Strategic Vertical Coordination in the Maize Out-Grower Farming in Sri Lanka

Abstract

Purpose : Maize is a popular field-crop in Sri Lankan agriculture and it is a key ingredient of animal feed. Its cultivation under out-grower farming arrangements is considered to be a win-win strategy for farmers and agribusiness firms to overcome the limitations in farming and marketing of the commodity and to use the farmer loyalty over competitive price offers. The purpose of the study was to explore the key players in the maize value chain and to assess the relationship between the buying price and the out-grower farmer loyalty towards their out-grower firm. Research Method : The study was conducted in Monaragala and Anuradhapura; major maize farming districts in Sri Lanka. Primary data was collected from intermediaries: collectors and, stockists, and ordinary farmers and out-grower farmers using interviewer administered structured questionnaires. Value chain analysis, Farmer Loyalty Index and Spearman’s rank correlation tests were adapted in analysis of the maize value chain, assessment of out-grower farmer loyalty and to check the relationship between the buying price and out-grower farmer supply of produce to out-grower firm respectively. Findings : Input and service providers, ordinary and out-grower farmers, collectors, stockists, feed millers, retailers and poultry farmers were the key players in the maize value chain. Farmers sold their harvest mainly in two forms as wet and dry. Restricted control over the buying (farmgate) price has increased the side-sales of out-grower farmers with middlemen. This has caused a 45 percent of negative deviation from the targeted supply of out-grower firms from their out-grower farmers. According to the out-grower farmer loyalty assessment, which was based on their opinion, majority (67 percent) of them claimed to be loyal towards their out-grower firm. Therefore, out-grower farming seemed to be a good strategy for the out-grower firms. However, in actual fact, only 33 percent of out-grower farmers have supplied the whole harvest to their out-grower firm. Their significant response in selling towards the highest available market price had concluded that the maize out-grower farming as a practically less effective strategy to continue for an assured supply of maize for out-grower firms. Research Limitations : The study was conducted with the limitations of time and facilities to approach a sample which was spread-out in the two districts. Originality / Value : The study showed that out-grower farming was an ineffective strategy in maize cultivation as the farmers have higher consideration on available higher market prices than the price offered by their out-grower firms. Policy implications are required to legally enforce the out-grower contracts, formation and adaptation of national level price formula for maize procurement and supportive insurance scheme to address crop failures to positively support the out-grower farming in maize production under outgrowing and enhance the national production.