Tastemirova ZH.A

A.Baitursynov Kostanai State University., Kazakhstan

Contract farming as an Innovative form of agro formations in the transition to a "green economy"

The adopted strategy "Kazakhstan-2050" is a new policy of an established state which sets clear guidelines for the construction of a sustainable and efficient economic model, based on the country's transition to a" green " way of development in the field of agriculture.

Within the framework of the Concept of Kazakhstan’s Transition to the " green economy " and preparations for the forthcoming International Exhibition " Expo -2017 " actualized initiative to attract foreign investors to set up model farms on the basis of long-term contractual relations between farmers and buyers of agricultural products (contract farming ), which proved itself as a successful mechanism of cooperating in many countries. Kazakhstan has sufficient prerequisites for the effective application of this model to its advantage.

Contract farming is defined as "an as an agreement between one or more farmer(s) and a contractor for the production and supply of agricultural products under forward agreements, frequently at predetermined prices.

Contract farming has become very important in recent years both in the developed and developing countries. Buyers qualify it as a means to strengthen control down the supply chain to meet the growing need for traceability of production and standardization of food, due to higher relevance question about the quality and safety of food and expressions of concern by buyers about the environmental and social aspects of production. Contract farming can help to minimize the risks of enterprises in terms of changes in supply and demand, and provides them with the possibility of introducing safety standards and other requirements imposed on the quality of products. Contracts also give enterprises the opportunity to make up the most optimal delivery schedules based on their production needs that they can not control when using the spot market.

Under contract farming, enterprises assign duties for the organization of farmer’s work and costs may be lower due to the fact that the contract workers, i.e farmers often use unpaid workers from among the family. In addition, enterprises applying the system of contract farming, can carry more flexible operation, because they are not related by fixed assets. Although operating costs are large enough, this model allows to share the risks between a significant number of suppliers (ie, the buyer would not be at risk if a major source of supply does not fulfill its obligations) and provide the flexibility of supply, easily tolerating fluctuations in the volume and quality.

A significant number of small-scale farmers have become participants of such schemes. Contract farming is often the only viable option to improve their livelihoods, since such agreements guarantee access to markets for their products and the ability to provide technical advisory services and facilitate access to certification systems and compliance with standards.

Contract farming can also facilitate the process of receiving loans because they are offered them by firms themselves and banks take their contracts as collateral. Depending on the type of transaction, contract farming can guarantee that the income of farms are relatively stable and protected from market price fluctuations.

Governments generally support contract farming. They consider it as one of the ways to increase farmers' income, attracting foreign investment and reduction of its financial burden, as buyers come into long-term contractual relationships with manufacturers and often provide services and support which are traditionally provided by governments. Therefore, a common practice is the financial incentives for the development of contract farming created by government for companies such as tax incentives and tariff reduction.

Concept of Kazakhstan's transition to a "green economy", stimulated the need to reconsider the existing forms of management in agriculture and creation of model farms on the basis of long-term contract (contractual) relationship between farmers and buyers of agricultural products.

Current state Kazakhstani agro-industrial complex let to determine the basic premises of underdevelopment of contractual relations as conducting state agricultural policy aimed at stimulating activity of small farms and not taking into account the degree of interdependence of all subjects of agriculture; denationalization of procurement and sales; poor use of explicit contracts in the sale of products ; the complexity of products realization by individual farms; high risks and transaction costs increase due to the absence of contractual relations culture and other informal institutions in the agricultural sector.

Trends in the development of contractual relations in the domestic agricultural sector are connected with the formation of the power relations asymmetry between farmers and companies in other industries (eg, food industry, processing industry); increasing transaction costs and risks due to the lack of culture of contractual relations and other informal institutions in the agricultural sector ; activation of contractual relations within the integrated structures stipulated by to the desire of farmers to reduce uncertainty in the economic environment .

The strongest point of contractual relationships, which defines the terms of the contract are not farmers themselves, but their partners (processing plants, trading companies , etc.); Information and power asymmetry creates a possibility for opportunistic behavior of economic agents at the stage of ex ante, and at the stage ex post.

The main benefits that farmers receive from contracting include reduction in the degree of uncertainty and risk; business marketing of products; optimization of supply; reducing transaction costs.

The key institutions of formation and regulation of contractual relations in agro-industrial complex are self-regulatory system and the system of state order. Creating self-regulatory organizations will help to reduce the level of uncertainty and the power asymmetry between the participants of economic activities, the establishment of new relationships between entities.

The state order is a "specific asset", the possession of which makes economic entity more competitive and sustainable. Nevertheless, at the present stage the role of public procurement in the AIC is negligible. Active use of public procurement in the industry can contribute to the solution of several problems: providing sells of agricultural products; reduction of uncertainty and economic activity; overcoming the resource constraints (covering the cost of production of agricultural products); development of organizational, legal and economic relations between the entities.

Prerequisites for the formation and direction of contractual relations in Kazakhstani Agro industrial Complex (AIC)

Prerequisites for the formation of contractual relations	Interaction Problems of subjects in the AIC	Forms of interaction	Directions of development of contractual relations
Lack of adequate public policy that takes into account the degree of interdependence of entities in agriculture	Complexity of the interaction of farmers with other entities, rupture of economic ties	Self-regulatory organizations	Advisory assistance to agricultural subjects , liaising with authorities
Privatization of the state product sales system	Difficulties in selling products	Conclusion of Government contracts	Providing guaranteed sales of agricultural products and ensuring the minimum level of income
High risks and transaction costs in agricultural activities	Resource constraints	Franchise	Reduction of transaction costs related to the choice of suppliers of raw materials, equipment, organization of sales
	Lack of funds to upgrade the material and technical base, poor technical equipment of agricultural producers	Lease contracts	Increase of technical equipment of agricultural production
Relations of power asymmetries between agro-industrial enterprises	Shortage of circulating assets, high degree of dependence on agricultural trade organizations	Factoring	Improving financial sustainability, reduce cash gap

Promising forms of interaction between the subjects in the domestic AIC are conclusion of franchising, factoring and leasing contracts. Using franchise contracts can reduce transaction costs connected with the selection of raw material suppliers, equipment, organization of the marketing of products, reduction of the uncertainty degree of economic activity.

Conclusion of factoring contracts contributes to solving the problem of working capital shortage of agricultural suppliers. Development of leasing relations stipulates the raise of the technical equipment of agricultural producers.