A collaborative research project financed by ACIAR in East Java (Indonesia) shows the success of contract farming between PT Pioneer (an MNC) and smallholder farmers in seed corn production. The MNC was able to reduce transaction costs while the smallholders had access to an established international seed corn market. In addition, smallholder farmers received high quality information and technical assistance from the MNC in a situation where it was unlikely that assistance could be provided by government extension services. One possible reason for the success of this contract is the crop being contracted, which is durable and although sensitive at certain stages in the growth cycle, the variation in yield is not high. Accordingly, coordination within the contract is easier and costs associated with 'complexity' are likely to be low compared to contracts for highly perishable products such as fruit and vegetables. Results of the SWOT analysis offers strategies to improve the supply chain for the benefit of both parties.
