Ethiopia: updated legal framework for contract farming

As Ethiopia continues to seek ways of modernizing its agricultural sector, the first and foremost step has been improvements in the law governing farming. This aims to encourage output efficiency and technological change.

In a significant development this July 2023, Ethiopia introduced a groundbreaking legal framework known as the Agricultural Production Contract Proclamation No. 1289/2023, hereafter referred to as “the Proclamation,” aimed at regulating agricultural production contracts. This legislative milestone comes as a response to perceived shortcomings in existing legislation, particularly the 1960 Civil Code, which lacked comprehensive coverage of matters pertaining to agricultural contracts. The Proclamation is designed to specifically govern agreements between contractors and producers in the context of supplying agricultural produce. A comprehensive report by Aman & Partners, a leading corporate legal service provider in Ethiopia, sheds light on the key takeaways from this legislative initiative:

1. Categorization of Contracts: The Proclamation categorizes contracts into four distinct types: Out-grower, Centralized, Multipartite, and Intermediary. Each category serves a unique purpose in the realm of contract farming.
2. Rights and Obligations: The Proclamation delineates the rights and obligations of both contracting parties, placing emphasis on the necessity for contractors to be registered and licensed. It allows contractors to visit farms and facilitates producers in receiving technical training from contractors.
3. Written Contracts: All agricultural production contracts are mandated to be in writing and must incorporate the working language of the regional state, ensuring transparency and compliance.
4. Quality and Quantity: The Proclamation addresses issues concerning the quantity and quality of agricultural produce. It establishes standards for measurement, quality verification mechanisms, as well as packaging and labeling standards.
5. Input Supply: The legislation outlines rules for the supply of inputs, whether by the contractor or the producer, and ensures that input prices are reasonable when compared to local market rates.
6. Price Clarity: Contracts should specify the total/unit price of agricultural produce, production costs, and provide details about price revisions due to quality changes, which are crucial for financial planning.
7. Force Majeure: The Proclamation expands the definition of force majeure to cover unforeseeable circumstances or events beyond the control of the contracting parties, including instances like producer illness or disease outbreaks. It offers guidelines for addressing these situations.
8. Dispute Resolution: In cases of disputes, the Proclamation recommends a sequence of negotiation, mediation, and arbitration, with legal action as a last resort. However, it leaves certain aspects of this process to be clarified through practical implementation.
9. Subsidiary Laws: The Proclamation alludes to forthcoming subsidiary laws that will delve into details such as licensing requirements and incentives for participants in contract farming. Stakeholders in the industry should closely monitor these developments.

This legislative advancement marks a significant step in regulating the agricultural sector and ensuring fair and transparent practices in contract farming within Ethiopia. A move that aims to revitalize a sector that remained stagnant for a long time.

For an in-depth exploration of the specifics mentioned above, read the full report