Contract cultivation can stabilize income by alleviating growers' business risks through pre-contract-based stable vegetable sales/procurement, and contribute to stabilizing vegetable supply and demand and prices. Moreover, contract cultivation becomes a basis to create added value in industries that use vegetables as raw materials, and this can become an important means to improve non-price competitiveness in global markets. Nevertheless, contract cultivation has not been well promoted yet in Korea, and there are only a very limited number of relevant statistics and past studies. Therefore, this study was conducted to identify the current situation of contract cultivation and find a way to promote it.
Because there are not enough past studies, this study surveyed and analyzed contract cultivation through diverse methods, and put data together to reach a conclusion. A survey was performed on 500 farms who have contract cultivation experience in order to identify their perception toward and the actual condition of contract cultivation. Also, a zero-inflated poisson regression model was estimated using count data to analyze the farms' selection factors regarding contract cultivation. Meanwhile, an interview survey was carried out on 16 organizations including the National Agricultural Cooperative Federation (NACF), farming association corporations, food companies and local distributors to identify the actual condition of business operators' contract cultivation. Among them, an additional in-depth survey was conducted on eight organizations. The contract cultivation methods by the type of business operators were compared by using the survey results on business operators.
According to the results of this study, only 22.1% of the entire survey subjects had contract cultivation experience, and the farms' perception and the actual condition of contract cultivation are as follows: First, the farms took into account minimum support price, credibility of contract counterparts and high purchase price when entering a contract. In the case of preference for contract cultivation business operators, that for the NACF was as high as the current contract level, and that for food/distribution companies was higher than the current contract level, but a preference for local distributors and middlemen such as food supply companies was low. In the case of the actual situation of contract cultivation, 19.3% of the farms carried out contract cultivation without knowing the content of contract, and 10% of them did not draw up a contract. The preference level of advanced payment was higher than the current level. Although the level of awareness of standard contract terms was low, 62.5% of the farms gave affirmative answers to the registration of standard contract terms to prevent contract cancellation.
The following implications were drawn as a result of surveying the actual situation of contractors' contract cultivation. First, it is necessary to systematize the contract management system or cooperate with other organizations in order to expand the size of contract cultivation business and broaden business areas. Also, businesses are required to have cultivation technology development/acquisition, commercialization and supply/demand judgment abilities in order to expand contract cultivation. A long-term contract can be maintained and transaction costs can be reduced when contract parties have trust in each other. Establishing a reward/punishment/incentive system such as providing incentives for achievement and awarding penalties for the breach of contract is also important for the continuance and expansion of contract cultivation.
This study made the following seven proposals for promoting contract cultivation. First, improve the awareness of controversial items, such as contract price change/adjustment, final delivery/disposal of contracted goods and who is responsible for cultivation management, and include them in the contract. Second, simplify contract conditions for a business and a producer to have a clear awareness of their contract. Also, develop/recommend contract specifications of a profit/loss-sharing method so that contract parties share risk and profit. Third, make, distribute and spread a contract cultivation manual for guidelines for the support for and management of the introduction of contract cultivation. The manual for the support of the introduction of contract cultivation should include producers' marketing directions and the necessity of contract cultivation, factors that are required to continue with contract cultivation, explanation/training methods for producers, and precautions for businesses. The manual for the management of contract cultivation should include business subjects, conclusion of contract, contract management, sales of contracted goods, settlement, incentives and penalties, and reserve fund management. The development of public education programs and the development/distribution of a promotional app are necessary to proliferate the purpose and know-how of contract cultivation. Fourth, introduce a contract cultivation helper system and build an information sharing system in the mid to long term. It is recommended for an institution, which can provide public services, to supervise contract cultivation helpers, and operate in a platform method by appointing retirees from relevant areas with expertise in law, finance, field technology and organizational support as expert members. Proliferate standardized information through the information sharing system when information on contract cultivation is accumulated. Fifth, producer organizations become core foundations for the promotion of contract cultivation. It is necessary to nurture producer organizations and by promoting council activities among them, they will be able to lead contract cultivation. Sixth, encourage companies to participate through a win-win cooperation program. For this, educational/consultation support for contract cultivation, financial support to reduce risks at initial entry and expanding policy project participation opportunities should be considered. Seventh, sale price fluctuation risks for business operators in producing areas can be reduced by introducing a scheduled transaction system, and the introduction and utilization of a mediation organization should be reviewed so that local distributors can expand contract cultivation through a three-party contract with an end user and a producer.

Researchers: Lee Yongsun; Song Sunghwan; Lee Hyungyong;
Park Jiwon
Research period: 2015. 1. ~ 2015. 10.
E-mail address: yslee@krei.re.kr