Analysis of the Impact of Out-Grower Schemes on the Wellbeing of Small-Scale Tobacco Farmers

A Case of Mugubbudu Tobacco Out-Grower Scheme in Chipata District, Eastern Province, Zambia

Master's Thesis, 2020

93 Pages, Grade: 2.98


Table of Contents





1.1 Introduction
1.2 Background of the Study
1.2.1 What are Out-grower Schemes?
1.2.2 Types of the Out-grower Schemes
1.2.3 The Zambia National Agricultural Policy (NAP)
1.3 The Statement of the Problem
1.4 Objectives of the Study
1.4.1. Overall Objective
1.5 Research Questions
1.5.1 Overall Research Question
1.6 Significance of the Study
1.7 Scope of the Study
1.7.1 Profile for Eastern Province
1.8 Conclusion

2.1 Introduction
2.2 Literature Review
2.2.1 Out-side Zambia
2.2.2 With-in Zambia
2.3 Conclusion

3.1 Introduction
3.2 Theoretical Review of the study
3.2.1 Theories of Contract farming/Out-grower Schemes
3.3 Conceptual Framework
3.4 Definition of Key Operational Terms
3.4.1 Out-grower Scheme/Contract Farming
3.4.2 Small scale Farmer/Smallholder
3.4.3 Agribusiness
3.4.4 Contract
3.4.5 Household Economic Well-Being
3.4.6 Agricultural Extension
3.4.7 Poverty
3.4.8 Impact
3.5 Conclusion

4.1 Introduction
4.2 Study Design
4.3 Study Population
4.3.1 Sampling Design and Sampling Procedure
4.4 Data Collection Techniques
4.4.1 Personal Interviews (face to face interview)
4.4.2 Document Review
4.4.3 Questionnaires
4.5 Data Analysis
4.5.1 Chi-Square Test of Independence
4.6 Ethical Considerations
4.6.1 Veracity
4.6.2 Privacy
4.6.3 Confidentiality
4.6.4 Fidelity
4.7 Limitations of the Study
4.7.1 Resources
4.7.2 Competition
4.7.3 Gender
4.7.4 Seasonal Calendar
4.7.5 Loan Repayment
4.8 Conclusion

5.1 Introduction
5.2 Demographic Distribution of Respondents
5.2.1 Gender Distribution of Small Scale Tobacco farmers
5.2.2 Age Distribution of Small Scale Tobacco Farmers
5.2.3 Education Status of Small Scale Tobacco Farmers
5.2.4 Marital Status of Small Scale Tobacco Farmers
5.3 Impact of Tobacco Out-grower Scheme on the Well-Being of Small Scale Tobacco Farmers
5.3.1 Status of Income Levels of Farmers before and after joining the Tobacco Out-grower Schemes: N=
5.4 Level of Knowledge by Farmers about Tobacco Out-grower Schemes
5.4.1 Relationship between Education Level and Knowledge about Contract Content by Small Scale Tobacco Farmers
5.5 Agricultural Extension Services Provided by Tobacco Out-Grower Schemes
5.6 The Impact of Tobacco Out-grower Schemes on the Environment
5.7 Conclusion

6.1 Introduction
6.2 Impact of Tobacco Out-grower Schemes on the Wellbeing of Farmers
6.3 Farmers’ Level of Knowledge about Tobacco Out-Grower Schemes
6.4 Agricultural Extension Services Provided by Tobacco Out-Grower Schemes
6.5 Impact of Tobacco Out-grower Schemes on the Environment
6.6 Contextualizing the Findings
6.7 Conclusion

7.1 Introduction
7.2 Conclusion
7.3 Recommendations




I dedicate this Dissertation to my beloved family, my wife Florence and my sons Sunday Jr., Daniel, and Alfred


I wish to sincerely thank all the people that contributed in one way or another to the writing of this report, without their support it was going to be difficult if not impossible to write it. Most sincerely, I wish to thank Dr. J.M. Chileshe, my Supervisor and lecturer for guiding me conscientiously in the writing of the report. I will remain greatly indebted to him for his commitment and dedication to academic work. Iam also thankful to the other lecturers who taught me namely Mr. J.K. Njolomba, Prof. L. Siaminwe, Mr. Mwalusaka, Dr. J.M. Chileshe, Mr. N. Chisupa, Mr. L. Zulu, Mr. P. Mukalula, Mr. M. Chifunda, Dr. Banda, and Prof. J. Tembo. My sincere gratitude to University of Lusaka support staff for their tireless support

I, also thank my employer U.S Peace Corps Zambia for allowing me to take leave to attend residential school at University of Lusaka and subsequently write examinations. My sincere gratitude to Mr. Siandula, the Regional Manager for Tobacco Board of Zambia (TBZ), for providing me with all the information that I needed to support my study. Special thanks go to my wife Florence, my sons Sunday Jr., Daniel, and Alfred for the support they gave me and indeed all my friends too many to mention who helped me with little things that I could not have done without in my studies


Table 5.1: Statistics of sponsored and independent small scale tobacco farmers

Table 5.2: Status of income levels before joining the tobacco out-grower schemes

Table 5.3: Status of income levels after joining the tobacco out-grower schemes

Table 5.4: Change in income levels attributed to the joining the tobacco out-grower schemes

Table 5.5: Increase or reduction in assets owned and housing characteristics since small scale tobacco farmers started growing tobacco in an out-grower scheme

Table 5.6: Increase or reduction in consumption expenditure since small scale tobacco farmers started growing tobacco in an out-grower scheme

Table 5.7: Consumption expenditure attributed to tobacco out-grower schemes

Table 5.8: Contract with tobacco firms

Table 5.9 Understanding of contract content

Table 5.10: Prior awareness of contract content before signing

Table 5.11: Language in which the contract is written

Table 5.12: Preferred language for contract administration

Table 5.13: Relationship between education level and knowledge on contract content

Table 5.14: Price announcement

Table 5.15: Preferred time to announce tobacco price

Table 5.16: Tobacco marketing system

Table 5.17: Effect of the pricing system on participation in tobacco farming

Table 5.18: Loan default

Table 5.19: Awareness of consequences on loan default

Table 5.20: Provision of extension services by tobacco firms

Table 5.21: Extension services provided by tobacco firms

Table 5.22: Measures taken to mitigate environmental degradation


Figure 3.1: Conceptual framework

Figure 5.1: Gender distribution of small scale tobacco farmers

Figure 5.2: Age distribution of small scale tobacco farmers

Figure 5.3: Education status of small scale tobacco farmers

Figure 5.4: Marital status of small scale tobacco farmers

Figure 5.5: Number of years in tobacco farming

Figure 5.6: Adequacy of extension service provided


Abbildung in dieser Leseprobe nicht enthalten


Out-grower schemes as an appropriate model for improving livelihoods of people in rural areas need to be recommended. This is because out-grower schemes provide access to agricultural inputs and market to the rural farmers. These services seem to be scarce especially in the liberalized economy like Zambia. However, there are debates as whether out-grower schemes have been beneficial to farmers or not.

Therefore, this study aimed at investigating the impact of tobacco out-grower schemes on the economic well-being of farmers at Mugubudu tobacco out-grower scheme of Chipata District. To do this, the study employed non-experimental cross sectional research design. 150 questionnaires were distributed to solicit data from 150 randomly selected small scale tobacco farmers using a tobacco farmers’ register as sample frame.

The salient findings of the study were that tobacco out-grower schemes had improved the well-being of small scale tobacco farmers. Indicators for this improvement were that small scale tobacco farmers had acquired assets and their consumption expenditure had increased. However, the study established that lack of information as regard to contract contents, insufficiency of extension services, pricing system, environmental hazards and debt from inputs loans as factors that can choke the strides made by out-grower schemes.

The study recommended that information is be provided in local languages as this will reduce the current difficulties as many of agro-literature is published in English. It is necessary that there is improved collaboration, dialogue and negotiation among all stakeholders namely the Ministry of Agriculture through the regulatory body Tobacco Board of Zambia (TBZ), out-grower firms and farmers association on issues such as pricing, dissemination of information and loan management.

The quantity of extension services should be increased and quality improved to enhance productivity which would consequently improve income well-being. Finally, government should make it as policy for tobacco out-grower schemes to embrace efforts of sustainable environmental management as failure to do so have the potential to erode strides made so far in improving the well-being of small scale tobacco farmers.


1.1 Introduction

Agriculture has been the major economic activity for people living in rural areas. Statistics show that about 70 percent of the population lives in rural areas (Living Condition Monitoring Survey – LCMS, 2010). It is disappointing to note that the poorest live in these rural areas. Therefore, improving the lives of people in the rural areas is the right step in bringing national development. Owing to the above reason, the government of Zambia has in the past tried a myriad of rural development models aimed at improving lives of the people in rural areas. One of the rural development approach adopted by the government of Zambia has been the out-grower schemes. As such, this study sought to unravel the impact of tobacco out-grower schemes on the well-being of small scale tobacco farmers of Mugubudu tobacco out-grower scheme in Chipata district.

1.2 Background of the Study

Contract farming in Zambia can be traced back to the late 60s and early 70s when the government set up Lint Company of Zambia (LINTCO) with the explicit objective of increasing the production of cotton through contractual arrangements with the small- scale farmers. This was followed by the setting up of Tobacco Board of Zambia (TBZ), also aimed at involving small- scale tobacco growers through the out-grower schemes. A significant non- government initiative was for growing of sugar where Zambia Sugar Company Limited partnered with Commonwealth Development Cooperation (CDC) and Development Bank of Zambia (DBZ) by setting up Kaleya Smallholder Limited to contract smallholder producers to supply sugarcane to Zambia Sugar Company (ZSC) for processing. In the same vein the Coffee Board of Zambia (CBZ) was formed but it was soon realized that coffee did not take off quickly with small- scale farmers as a cash crop due to various reasons such as the long gestation period (3 years) (Likulunga 2005).

Following the liberalization of the Zambian economy in the early 90s, key players from the private sector came on board such as Lonhro (later succeeded by Dunavant), Clark Cotton, Agriflora (export vegetables), Cheetah and Bmzi (Paprika). Thus new commodities were introduced on contract farming arrangement but mainly through private sector driven initiatives (Likulunga 2005).

Kunda (2008) posits that in an era of market liberalization, globalization and expanding agribusiness, there is a danger that small-scale farmers face difficulties in participating in the market economy. He observes that in Zambia such farmers could become marginalized as large scale farming becomes increasingly necessary for a profitable operation. As a consequence there will be a continuation of the drift of populations to urban areas. Therefore the introduction of out-grower schemes was an attempt by government and developmental agencies to arrest this drift and provide access to agricultural inputs which the government could not afford under the liberalized economy.

In Mugubbudu area, where the research was conducted, the most common type or model of out-grower scheme applied is the Centralized Model. Out-grower firms that include Japan Tobacco International (JTI), Alliance One, Pemba Leaf tobacco and others provide inputs and other extension services on loan basis to farmers by signing contacts. The farmers have to use their own land for growing tobacco. Out-grower firms are obliged to provide markets to the farmers and farmers are also obliged by the terms of contract to sell their crop to out-grower firms who provided inputs loans. Dishonest by any party in the contract amounts to a breach of contract (Tobacco Board of Zambia – TBZ Report 2013).

1.2.1 What are Out-grower Schemes?

Out-grower schemes are business organizations or a model that provides production and marketing services to farmers on their own land. According to Glover and Kusterer (1990), these generally connote a government scheme with a parastatal enterprise, purchasing crops from farmers, either on its own or as a joint venture with a private firm. Further, Glover and Kusterer also use the term contract farming to refer to the same arrangement in the private sector, where a farmer and firm engage in a forward agreement of production and marketing.

It also refers to a system whereby a central processing and exporting unit purchases the harvests of individual farmers, and the terms of the purchase are arranged through contracts. It’s a range of initiatives taken by private and public firms to secure access to smallholder produce.

In Zambia, out-grower scheme sometimes referred to as contract farming may be defined as a range of initiatives taken by private and public firms to secure access to smallholder produce under forward agreements. Contract farming compels farmers to commit themselves to provide a specific commodity in quantities and at quality standards determined by the purchaser while the company commits itself to purchase the commodity at agreed prices and to support its production through provision of inputs (seed, fertilizers and pesticides) on credit and technical advice (extension services). Costs are recovered when the produce is sold, in effect making the contract non-transferable. The term out-grower scheme is often used interchangeably with contract farming (Hantuba, 2004).

The terms of the contract vary and usually specify how much produce the contractor will buy and at what price. The contractor often provides credit inputs and technical advice. Contracting is a way of allocating the risks between producer and contractor; the farmer takes the risk of production and the contractor the risk of marketing. The basis of such arrangement is the commitment of the farmer to provide a specific commodity in quantities and at quality standards as determined by the purchaser and the commitment of the company to support the farmer’s production and to purchase the commodity (Eaton and Shepherd, 2001).

Out-grower systems have significant benefits for both farmers and agro-industrial firms. Some of the benefits as highlighted by Abwino and Rieks (2007) are as follows:

- Markets are known and more or less secured.

- The agro-industrial firm usually provides inputs and production services, often on credit.
- Out-grower system often introduces new technology and also enables farmers to learn new skills.
- Farmers’ price risk is often reduced as many contracts specify prices in advance. (Pre-planting price).
- Out-grower system opens new markets, which would otherwise be unavailable to small-scale farmers.
- A central buying place close to the out-growers.
- Donors use out-growers as a tool for targeting vulnerable groups of farmers.

1.2.2 Types of the Out-grower Schemes

Multinational corporations, smaller private companies, parastatals, individual entrepreneurs and farmer cooperatives can all act as agro-industrial firms and financial investors for out-grower system activities. In nearly all cases, the agro-industrial firms are responsible for management of the venture. Out-grower systems through contract farming can be structured in a variety of ways depending on the crop, the objectives, and resources of the firm and the experience of the farmers. Contracting out production is a commercial decision to facilitate an adequate supply within a designated period and at an economic price. Any production can theoretically be contracted out using any of the models; however, certain products favor specific approaches. For example the informal model is usually linked with short-term crops such as vegetables. Generally, any out-grower scheme can fall into one of the following types; centralized model, nucleus estate model, multipartite model, informal model and intermediary model (Eaton and Shepherd, 2001). The Centralized Model

This is a vertically coordinated model where the agro-industrial firm purchases the crop from farmers and processes or packages and markets the product. The agro-industrial firm takes care of the organization structure in a centralized model; it provides management, administration and technical support. These efforts are invested into the scheme, plan, development, mission and task of the whole out-grower system (Abwino and Rieks, 2007).

The centralized scheme is generally associated with vegetables, tobacco, cotton and sugar. Under this model the level of involvement by the firm in the production can vary from a minimum where only the correct type of seed is provided, to the opposite extreme where the company provides land preparation, irrigation system, seedlings, agrochemicals (in organics it could be manure or compost) and even harvesting services. The extent of the involvement of the firm in production is rarely fixed and depends on many different factors e.g. its financial circumstances. The Nucleus Estate Model

This model is a variation on the centralized model. In the nucleus estate model the plant owner has an estate plantation, which is usually close to the processing plant. The estate is often fairly large in order to provide some guarantee of input for the plant, but it can be relatively small, primarily serving as a trial and demonstration farm. A common approach is that the firm starts with a pilot estate and then, after a trial period, introduces the technology and management techniques of a particular crop to interested farmers (Abwino and Rieks, 2007). Out-growers are usually included to enlarge the production potential of the processing plant of the estate. This involves a dependency on both sides, for the nucleus estate and the out-growers.

Nucleus estates have often been used in connection with resettlement or transmigration scheme. Farmers in the surrounding area of the estate produce crops on their own land and/or on the estate land (which has not been utilized for some time) and sell their crops to the estate for further processing. Farmers may encounter the problem that the processing of the produce of the estate has priority and that they have to wait. This often decreases the quality of the product from the farmers. Beneficial aspects for farmers are that the estate is providing inputs, training, and transport and social and medical benefits (Bijman, 2008). The Multipartite Model

The multipartite model usually involves statutory bodies and private companies jointly participating with farmers. Multipartite out-grower system may have separate organizations responsible for credit provision, production, and management, processing and marketing. In some cases farmers are expected to belong to associations or cooperatives and the public institutions become involved as providers of credit and extension.

However, the extension service provided by the public is usually not very effective and this results in lack of management skills on the part of the farmer associations and cooperatives. What contribute to the ineffectiveness of the extension system are the different messages that the producers may receive from the different actors involved (Eaton and Shepherd, 2001). A company that receives the product may demand certain specifications, which may be different from what the public extension system provides. Unless these functions are well coordinated, the system fails. The Informal Model

This model applies to individual entrepreneurs or small companies who normally make simple, informal production contracts with farmers on a seasonal basis, particularly for crops such as fresh vegetables, watermelons and tropical fruits. Crops usually require a minimum amount of processing. Material inputs are often restricted to the provision of seeds and basic fertilizers (for organics, this could be drums for manure teas and manure), with technical advice limited to grading and quality control matters. It is done through verbal agreements with individual developers. No technical inputs are provided but in most cases the developers advance credit for seed, fertilizer and plastic sheeting. All agronomic advice to farmers is given by government agencies that also organize training courses for the growers (Eaton and Shepherd, 2001).


Excerpt out of 93 pages


Analysis of the Impact of Out-Grower Schemes on the Wellbeing of Small-Scale Tobacco Farmers
A Case of Mugubbudu Tobacco Out-Grower Scheme in Chipata District, Eastern Province, Zambia
University of Lusaka
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ISBN (eBook)
ISBN (Book)
analysis, province, eastern, district, chipata, scheme, mugubbudu, case, farmers, tobacco, small-scale, wellbeing, schemes, out-grower, impact, zambia
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Sunday Silungwe (Author), 2020, Analysis of the Impact of Out-Grower Schemes on the Wellbeing of Small-Scale Tobacco Farmers, Munich, GRIN Verlag,


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