Performance-Based Contracting Helps Farmers Boost Productivity

EghtesadOnline: An official with the Ministry of Cooperatives, Labor and Social Welfare said performance-based contracting has been put in place for a total of 10,000 farmers over the past one and a half years and this has improved their productivity, ensured the sales of their products and consequently boosted their income.

News ID: ۷۴۹۶۵۴

09 February 2020

Reza Taziki added that Novin Saffron, Mostafavi Saffron and Rojin Taak Agro Industries signed contracts with 10,000 farmers before the harvest season and guaranteed the purchase of their products at a specific price, Fars News Agency reported.

“Performance-based contracting resulted in higher quality of products, extra income of up to 10 million rials ($74) per kilogram of saffron for farmers and removal of middlemen,” Financial Tribune quoted him as saying.

Noting that banking facilities are being granted to products rather than producers as per performance-based contracting, the official said, “The companies were required to sign a contract with one farmer for a loan of 250 million rials [$1,851] and employ one agricultural engineer to help improve the quality of their product. Therefore, about 30 agricultural engineers were employed and 4,000 farmers participated in performance-based contracting for banking facilities worth 10 billion rials [$74,074]. On top of that, 3,000 new customers were attracted to banks and there were no deviations in the lending process.”

Taziki noted that 8% of farmers in Khorasan Razavi and most farmers in Khuzestan are using performance-based contracting.

“We aim to carry out performance-based contracting with 100,000 farmers and create jobs for 1,500 agricultural engineers,” he said.

According to the official, 45% of farmers in the US and 70% of those in Brazil use performance-based contracting.

"By applying performance-based contracting, we can encourage farmers to contribute to economic growth and value added generation," he said.

Taziki added that he is against mechanization of saffron harvesting, as it eliminates employment.

According to Hossein Zeinali, executive manager of the Agriculture Ministry's National Medicinal Plants Project, about 50% of saffron cultivation process in Iran are now mechanized and the whole process is expected to become mechanized in two years.

Iran: World's Biggest Saffron Producer

Iran is the world’s biggest producer of saffron and accounts for about 90% of global production.

Per capita consumption of saffron in Iran stands at 1 gram. Annually, 80 tons of saffron are consumed domestically.

A total of 404 tons of saffron were produced from 113,000 hectares in Iran last year (March 2018-19).

Land under cultivation of saffron is increasing each year, as its production grew to 382 tons in 2018 from 336 tons in 2016.

Mohsen Ehtesham, the head of Iran's National Council of Saffron, estimates 2019 production to have reached 450 tons.

“Area under saffron cultivation has exceeded 115,000 hectares in Iran, which is 20 times bigger than the total land dedicated to growing saffron in the whole world,” says Iran’s Deputy Agriculture Minister Ali Tahmasebi, adding that Iran is annually increasing the area by 5,000 hectares.

According to the official, saffron cultivation is no longer restricted to the three provinces of North Khorasan, South Khorasan and Khorasan Razavi located in eastern Iran.

Farmers now also harvest saffron from various parts of the country, including Chaharmahal-Bakhtiari Province, a cold and mountainous region in central Iran, as well as in Khuzestan, a southern province known for its hot and humid climate.

Experts say Iran is not properly benefiting from the lucrative international business of saffron mainly because of bulk production methods and increased smuggling to neighboring countries.

Officials say two-thirds of Iran’s annual production of saffron, around 300 tons, go to the bulk sale, while others suggest around 20 tons are being smuggled outside the country and mainly to the neighboring Afghanistan.

Sources within the industry say smuggling to Afghanistan has increased mainly because traditional customers of Iranian saffron, like Spanish companies, seek to avoid direct imports due to the American sanctions imposed on the country.

Experts believe Iran could have a much higher share of the international trade of saffron, if more work is done on branding and marketing of the product inside the country.

The saffron industry has created about 200,000 jobs along the pre-harvest, harvest, post-harvest, processing, sorting and packaging chain.

Latest data show 132.75 tons of saffron were exported from Iran during the first eight months of the current Iranian year (March 21-Oct. 22, 2019).

“The volume of exports show a 13% decline compared with the similar period of last year,” Gholamreza Miri, the deputy head of Iran National Saffron Council, said.

It is estimated that exports during the period under review were valued at $86 million.

Iran exports saffron to 10 countries and 86% of its exports are conducted through the UAE.

Spain, Hong Kong, Vietnam, Italy, Afghanistan, Qatar, India, Germany and France are the other export destinations for Iran's saffron.

Saffron exports hit 280 tons worth $351 million in the last fiscal year (March 2018-19).