Why Does Contract Farming Call for Third-Party Participation?

From garlic and ginger in previous years to maca and pineapple this year, farmers have been badly hurt in the collapse of agricultural product prices. As an important means of producing according to sales, contract farming plays a certain role in stabilizing agricultural product prices, ensuring farmers' reasonable returns, and withstanding market price risks. However, a reporter's investigation found that in actual operation, contract farming has become difficult to promote because some farmers have a poor sense of contract and maliciously default, which in turn harms merchants and farmers... (People's Daily, July 6)

In some places, because some farmers default, contract farming struggles to move forward. On this, Liu Zhixiong, associate professor at the Business School of China University of Political Science and Law, said, "There are currently no effective measures to solve this problem." I think we should not be so pessimistic. Isn't it often said that "there are always more solutions than difficulties"? Why not think of some ways to solve the problem?

Here, not fearing my shallowness, I suggest that contract farming should have "third parties" participating in it.

In contract farming, buyers and sellers sign a production and sales contract in advance, but some farmers, even if they could sell each jin for two or three yuan more, are not afraid of defaulting, because once they default, the loss to the purchasing enterprise falls on relatively scattered farming households, and each household's output and output value are not high. The enterprise's cost of collecting from one household after another is high, and if it resorts to the courts, the lawsuit is easy to win but enforcement is extremely difficult, and "if enforcement is really carried out, once farmers band together to resist and it turns into a mass incident, the government often can only take a conciliatory attitude." In other words, the cost of default for these farmers is almost zero, and this is exactly where the problem lies!

Suiting the remedy to the case, whether buyer or seller, in contract farming, when signing a contract, a "third party" should also be involved to strengthen supervision and ensure contract enforcement, protecting both the legitimate interests of the seller and the legitimate interests of the buyer, so as to seek a "win-win" and make the road of "contract farming" broader and broader.

The "third party" here may be a government agency. In contract farming, whether buyer or seller, when signing a supply and marketing contract, both parties must pay a certain "credit deposit" to be kept by the government agency as the "third party." If, when the contract is to be honored, one party defaults because of changes in market conditions, either not purchasing at the contract price or not selling at the contract price, then sorry, according to the contract, the defaulting party's deposit is treated as the "cost of default," and the third party is responsible for compensating the other party. In other words, default requires paying the cost of default, and default requires paying a price.

The "third party" here may be an insurance company. In contract farming, whether buyer or seller, when signing a supply and marketing contract, both parties must insure with the insurance company, and once market conditions change and one party defaults, either unwilling to purchase at the contract price or unwilling to sell at the contract price, then sorry, the injured party claims compensation from the insurance company, so as to reduce its "loss from injury" to the minimum as far as possible.

Not only garlic, ginger, maca, and pineapple, but also many "famous and special products" in agriculture, forestry, animal husbandry, and fisheries, including live pigs, should have "third parties" participating in this "contract farming," so as to ensure that there are no more "sharp rises and falls" in market conditions and to blaze a path of modern agriculture with Chinese characteristics.