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The role of contractors in Italian agriculture

The crisis in the sector of agriculture has resulted in a decline in investments and the outsourcing of some operations. An analysis completed by Nomisma with the support of Confai and Unima disclosed that recourse to agro-mechanical enterprises has benefited farmers not only financially but also as regards the quality of the work performed and the availability of qualified personnel.

by Stefano Baldi e Denis Pantini
January/February 2015 | Back

The stagnation of farm income over the past decade, the increasing volatility of prices and growing cost of such input as fuel, fertilizer, plant treatment products and the like have, on the one hand, impacted the ability of agricultural enterprises to set aside financial resources and, on the other, triggered a process of optimizing efficient management of farms. All this has resulted in a decline of investments and the outsourcing of some operations. Considering that in addition there is the growing need for qualified workers and machinery capable of performing complicate operations it is easy to understand the reason why farming enterprises are often turning to contractors.

The increasing importance of contractors, however, has not kept pace with an understanding of this sector and information available. For this reason, Nomisma has completed a study which provides a general picture of the sector of professional agro-mechanics in Italy.

The first factor which the study strongly brought to light is the widespread nature of the passive services provided by contractors (the use of services and machinery on farms provided by contractors) in Italian agriculture. In fact, according to the data produced by the most recent agricultural census, there were about 534,000 farming enterprises which made use of contractors’ services equal to 33.4% of the total and accounting for 5.6 million hectares or 44% of the nation’s utilized agricultural area (UAA). In detail, an examination of the conduct of these enterprises with analyses of the evolution of the average number of days worked per farm, it can be noted that the demand for contractors’ work has grown considerably. In 2000, a farm sought recourse to a contractor on average for 3.8 days for the year, a figure which rose to 7.5 days by 2010. The reasons for this gain in relying on agro-mechanical enterprises for farm work can be found in part in the growing demand for innovation and technologies in agriculture (which means a growing need for understanding crop operations and a professional approach) and in part the requirement to cut production costs by eliminating waste and increasing production efficiency.

Another interesting factor disclosed by the data regards the types of services requested which show that contractors need not simply have available mechanization skills but also be able to totally take over the management of farms. Out of the total of farms which call fall for contractors’ services, 32% of them, 10% of all Italian farms, rely on agro-mechanical enterprises for the complete management of their holdings, from the selection of crops, work performed, business administration and on to marketing production.

Though much information is available on the demand for contractors’ services, the same cannot be said for the supply. In fact at present, due to the extreme variability of data on those who identify themselves as agro-mechanics, it is extremely difficult to calculate the number of enterprises which perform contracting activities as professionals. In general, it has been determined that there are 31,000 contractor firms (coded as ATECO 01.61) listed by Chambers of Commerce, through not all of them are professional agro-mechanical enterprises. Among them, more than 18,000 are farming businesses which perform one or more phases of work on the land for third parties using their own machinery and work 921,548 days on third-party farms, according to the agricultural census data. This means about 23% of all the days put in by contractors in agriculture. Thus the other 77% is accounted for by enterprises which can be defined as professional agro-mechanical businesses because of their specializations and dominance of third-party work. 

In this sphere of business, Nomisma, with the support of Confai, the Italian Agro-mechanical and Farmers Confederation, and Unima, the National Union of Agricultural Mechanization Enterprises, conducted a survey of 377 enterprises aimed at identifying the major characteristics for defining the sector. Other than defining a profile of the sector, the results shed light on the way contractors are able to offer a wide range of services, manage machinery five to ten years old and finance their own investments  mainly with access to bank credit (39,5% of the sample) and through instruments provided by dealers or manufacturers (33%). 

The survey also disclosed a number of critical issues for these businesses, beginning with their difficulties with the terms of payment by their customers, and the prices of production essentials. On the other side, the contractors offered some ideas to consider from the farmers’ point of view, especially the reasons which drive farming enterprises to seek recourse in the types of services of contractors. In fact, farmers turn to agro-mechanical enterprises for support because of the lack of financial resources for acquiring machinery and equipment (48% of them), contractors’ services at costs lower than those of work performed by the farmers themselves (30%), and the higher quality of work carried out by contractors (12%).

A cross-check of the results made it possible to gain a final understanding of the way the phenomenon of contractors’ businesses have grown, not so much as regards the number of farms relying on their services but in the number of days dedicated to farm work. This  intensity of business in agriculture provides evidence of the growing need for their support for farmers requiring specific crop operations and, in some cases, for taking over the complete management of the farm, from selecting crops to harvesting and marketing. Noted in general is that the demand for contractors’ services is associated mainly with financial considerations; in many cases, due to the reduction of the average size of farms in Italy there is no longer room for the investments needed for building a machinery inventory for work. In all cases, it would be important for agricultural enterprises to carefully evaluate the hourly costs of the worksites they intend to set up to have an understanding of the best strategy to adopt for achieving maximum economic efficiency without compromising the productivity or quality of their operations. In conclusion, recourse to contractors is not simply a financial question but also one of quality as well.   

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