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Living Income
An Introduction to Guaranteed Offtake Agreements
1 Dec 2025
•
4 minutes read
by
Diewertje Hendriks,
Addisu Mulugeta
What is this document and why does it matter?
Guaranteed offtake agreements help companies secure a reliable, long-term supply of produce - reducing sourcing uncertainty and procurement risk, while enabling competitive advantage by strengthening supply chain relationships.
This guide offers actionable steps for designing and implementing Guaranteed offtake agreements. Practical and evidence-based, it draws from the direct experiences of companies that have successfully or unsuccessfully implemented these agreements in various contexts. By providing a detailed framework, this guide aims to assist companies and support organizations in strengthening their Guaranteed offtake agreements, ensuring they are both effective and beneficial to all parties involved.
This guide is primarily for:
- Companies implementing or looking to implement Guaranteed offtake agreements
- Development or support organizations that help companies in strengthening their Guaranteed offtake agreements
What is a Guaranteed Offtake Agreement?
A Guaranteed offtake agreement is a contract between a producer and a buyer that ensures the purchase of an agreed amount of future produce under an agreed pricing mechanism. This agreement helps meet supply commitments and secure new markets for companies while building trust with farmers. For farmers, it reduces risks incentivizes new investments in the farm, and enables better production planning. For example, a coffee company might agree to purchase a specific volume of coffee beans from a farmer upon harvest, allowing the company to meet downstream procurement obligations and providing the farmer with the confidence to invest in high-quality inputs.
Guaranteed offtake agreements are often conflated with Contract Farming. Contract farming is a comprehensive system of engagement and collaboration where agricultural production is carried out based on an agreement between a buyer (often a company or processor) and farmers. Contract farming usually contains a guaranteed off-take contract at its core with pre-agreed quantities and qualities, as well as a pricing mechanism; but it goes beyond just the sourcing agreement and often includes the provision of inputs (on credit) and training. Thus, the difference lies in the depth of involvement at various stages of the production process. A guaranteed off-take contract is often a necessary part of a broader contract farming arrangement, operating as the market guarantee element; however, a guaranteed off-take contract does not alone constitute contract farming.
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How does this typically work?
This guide provides an overview of the key aspects a company should consider when designing or strengthening Guaranteed offtake agreements. Below are the key steps typically involved:
- The company offers a farmer or farmer organisation to offtake their produce.
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The offer should contain the following key terms, which may be subject to negotiation between the parties:
- guaranteed volumes,
- quality specifications, such as grade levels, aflatoxin levels, or organic certifications, and specified crop varieties
- mechanism and timing of pick-up or delivery of produce,
- pricing mechanism
- and payment terms, such as the mode and duration of payment.
- Upon agreement, the contract should be signed by both parties.
- The execution of the agreement should be monitored to ensure compliance with the agreed terms.
Why implement it?
Please click below for more detail on the benefits that Guaranteed offtake agreements can bring for different actors in the value chain:
Company
Company
- Reduces side-selling over the long-term by increasing trust with farmers. When companies consistently honour Guaranteed offtake agreements, they position themselves as reliable buyers in competitive markets. This reliability builds long term loyalty, reducing the likelihood of side selling even in competitive markets. As trust grows, so does supply chain stability, enabling better planning, lower sourcing risks, and stronger relationships. The agreement isn’t just a contract; it’s a commitment that, when fulfilled, becomes a strategic advantage. For example, in competitive markets with active middlemen, side-selling can be a significant issue. Here, a Guaranteed offtake agreement assures farmers of a steady buyer, thus decreasing the temptation to side-sell to opportunistic buyers who might offer higher prices sporadically.
- Helps meet supply commitments. Guaranteed offtake agreements can increase buyers' revenue by ensuring a stable and predictable supply of produce, which supports a track record of reliable sourcing and consistent sales and helps fulfil market commitments. By investing in long term relationships and enabling better production planning, these agreements can attract more buyers and open opportunities to secure new markets and expand sales channels. They also enhance supply security in volatile markets. When conditions are unpredictable, such as during price drops or supply chain disruptions, these agreements help ensure that companies continue to receive the produce they need without interruption. For instance, a cocoa company with established offtake agreements can more easily secure long-term contracts with chocolate manufacturers who demand consistent supply.
- Drives supply chain standards. By committing to purchase products that meet defined standards, such as specific crop varieties, quality grades, or production protocols, companies can actively influence on farm practices that align with their sourcing strategies. These standards may include traits that enhance resilience to climate related risks or meet certification and traceability requirements. Such commitments create strong incentives for farmers to adopt practices that improve consistency, reliability, and compliance. For companies, this alignment supports long term supply security, strengthens brand positioning, and ensures readiness for evolving regulatory and market demands. Over time, these agreements become a strategic tool for shaping supply at its source
- Reduces the risk of non-repayment. Ensuring guaranteed farmers' income through the guaranteed offtake agreements lowers the risk of non-repayment of input loans or other credit, thus minimizing the impact of farmer defaults and reducing a buyer's credit losses. This dynamic can encourage companies to invest more heavily in specific segments of the farmer base by offering them more comprehensive service packages. These tailored packages can also serve as extra incentives for farmers to remain engaged with the company.
Farmers
Farmers
- Provides security of offtake market. Guaranteed off-take agreements offer farmers assurance that their produce will be purchased, addressing a major challenge for smallholders' farmers, which is uncertain market access. This security reduces the risk of post-harvest losses and creates a strong incentive for farmers to invest in production. For example, a farmer might decide to invest in an irrigation system or higher-quality seeds if they are assured of selling their produce at a decent price.
- Enables better production planning. With a guaranteed market, farmers can align their production schedules with the buyer's needs. This synchronization helps in optimizing labour and resource use, ultimately increasing efficiency and yield. Evidence from farmer surveys commissioned by IDH shows that farmers with offtake agreements tend to achieve higher yields and earn more.
- Gives pricing transparency and certainty on payment timing. Offtake agreements give farmers confidence and clarity in their transactions. When payment and pricing terms are clearly communicated, farmers feel respected and fairly treated. For example, when buyers commit to paying farmers within a specific timeframe based on agreed upon quality standards, it reinforces trust and reliability. Similarly, when there is an established pricing mechanism, it creates more predictability for the farmer as to how much they may receive. This approach supports long term and mutually beneficial relationships between farmers and buyers.
- Facilitates access to finance. By having a guaranteed market for their produce, farmers can secure loans and other financial support more easily by using the contracts as collateral for loans, enabling further investment in the farm. For example, a farmer might use the guaranteed offtake agreement as collateral to secure a loan for purchasing new equipment or expanding their operations. This can formally take place in a tripartite financing agreement
- Enables access to complementary services: Through guaranteed offtake agreements, farmers can gain access to complementary services provided by the buyer: often as part of a broader contract farming arrangement. To ensure consistent supply and quality, buyers often support farmers with inputs, training, or mechanization services. These services help farmers improve their production and meet the buyer’s standards, making the agreement more beneficial for both sides. In addition, some buyers offer support for climate resilient practices such as drought tolerant seeds, soil conservation techniques, or water-efficient irrigation systems. These interventions not only enhance productivity but also help farmers adapt to changing climate conditions and reduce vulnerability to environmental shocks.
Farmer Organisations
Farmer Organisations
- Note: Farmer organizations are not always involved in setting up guaranteed offtake agreements.
- Encourages participation and strengthens collective position. While farmer organizations are not always involved in offtake arrangements, when they are, guaranteed offtake agreements make farmer organizations more attractive to both new and existing members by offering reliable market access and opportunities to benefit from services linked to the agreement. As membership grows, the organization can coordinate production more effectively and negotiate from a stronger position. The agreement reinforces the organization’s role as a trusted intermediary between farmers and buyers through which farmers can access better terms, services, and support from the buyer. For example, a cooperative can leverage the collective volume of produce to secure higher prices and more favourable payment terms, providing individual farmers with benefits they might not achieve on their own. This collective approach reduces the power imbalance between smallholders and large buyers, thereby ensuring that farmers receive a greater share of the value created along the supply chain.
- Facilitates access to complementary services. Farmer Organizations can use Guaranteed offtake agreements as leverage to obtain technical training and resources from buyers. For instance, a coffee cooperative might negotiate for training sessions on best practices in coffee cultivation and post-harvest handling, funded by the buying company. This support helps improve the quality of produce and the overall productivity of the farmers, leading to increased incomes and sustainable farming practices.
- Enhances stability and planning. By securing a guaranteed market for their produce, farmer organizations can engage in more effective planning and risk management. This stability allows them to implement long-term strategies for growth and development. For example, a farmer organization with a Guaranteed offtake agreement might plan and invest in infrastructure improvements, such as building storage facilities or purchasing advanced farming equipment such as tractors, knowing they have a reliable buyer for their produce.
- Improves access to finance. Guaranteed offtake agreements can strengthen the financial position of farmer organizations. With a secured market and predictable income streams, these organizations are better positioned to access credit or attract investment. Lenders and financial institutions are more willing to engage when there is reduced risk and clear evidence of stable demand, enabling farmer organizations to invest in infrastructure, services, or inputs that benefit their members.
Financial Institutions
Financial Institutions
- Supports customer acquisition. Off-take agreements open the door for financial institutions to expand into rural and agricultural markets with greater assurance. The presence of such agreements can foster strategic partnerships between financial institutions, agribusinesses, and farmer groups, leading to bundled services, co-financing opportunities, and long-term growth in agricultural finance.
- Lowers lending risk. Off-take agreements reduce the lending risk for financial institutions by ensuring that farmers have a committed buyer for their produce. This agreement assurance translates into predictable income, which enhances the farmers’ creditworthiness. For finance providers, this means greater confidence in loan recovery, enabling them to extend credit to agricultural clients who might otherwise be excluded due to perceived risk.
- Facilitates product innovation. With off-take agreements in place, financial institutions can design loan products that are better aligned with the farmers’ cash flow cycles. Knowing when farmers will receive payments from off-takers allows lenders to structure repayment schedules that match income timing, reducing default rates. This alignment not only improves portfolio performance but also allows institutions to offer more tailored financial solutions, increasing customer satisfaction and retention.
Context matters: what are enabling conditions for Guaranteed offtake agreements?
Context also plays a major role in the viability of Guaranteed offtake agreements. From implementing innovations across businesses in different contexts, we can identify the conditions in which Guaranteed offtake agreements flourish:
Value chain Perishability Geographical dispersion of farmers Degree of Farmer Organization Policy environment Digital infrastructure Rural infrastructure
Why not? Key limitations, risks and unintended consequences
From the perspective of the implementing organisation, there are several risks and limitations that should be taken into consideration before implementing Guaranteed offtake agreements, including:
Limited flexibility Quality control challenges Contract enforcement Financial risks Fluctuating supply and climate pressure Operational complexity
Similarly, there are unintended consequences that can emerge because of Guaranteed offtake agreements. These can impact (certain segments of) farmers, the environment, local community, partner organizations, and other stakeholders. For instance:
Increased production costs for farmers Exclusion and change in social dynamics Dependency on buyer Over-standardisation and crop homogenisation
Smarter design choices can help mitigate some of the limitations, risks, and unintended consequences of implementing Guaranteed offtake agreements. Read on further to see how to smartly design your intervention.
How to design Guaranteed offtake agreements
This section first outlines the steps involved in establishing Guaranteed offtake agreements, before providing key recommendations on how Guaranteed offtake agreements can be optimized to improve key performance outcomes. Click on each of the sub-headings below to reveal more details.
How to get started?
Designing a Guaranteed offtake agreement involves several critical steps to ensure that the agreement is beneficial for all parties involved and can be sustainably implemented. From our work supporting companies in the design and initial implementation of Guaranteed offtake agreements, we propose the following five steps:
Assessment and analysis
Assessment and analysis
- Needs assessment: Begin by gaining a clear understanding of your company’s internal needs and strategic priorities. This includes identifying the secured demand such as confirmed contracts with buyers or long-term market commitments and reviewing past performance in meeting those obligations in terms of quantity, quality, and delivery timelines. It is also important to define the specific product varieties and the quantities the company intends to source, ensuring that these align with the market needs.
- Internal Capacity Assessment: A company must carefully assess its own capacity to ensure it can meet its commitments reliably. This includes evaluating its storage and processing capabilities, recognizing that having these facilities allows the company to hold produce for longer periods after purchase, which reduces exposure to price fluctuations. It is also important to examine the company's working capital, particularly its ability to make purchases at the end of the season. This should be considered alongside the payment terms offered by downstream buyers, as these will affect cash flow and purchasing power.
- Market analysis: Conduct a thorough market analysis to understand demand trends, price fluctuations, and competitor activities. Additionally, identify potential risks, including market volatility, climate impacts, and supply chain disruptions. For instance, assessing the risk of drought in maize-producing regions and its impact on yield.
- Production assessment: Evaluate the production capacity and capabilities of potential suppliers. This includes assessing their ability to meet quality standards and volume requirements. For example, assessing the capacity of the smallholder coffee farmers the company is generally working with to produce enough high-quality organic coffee beans.
- Engaging with farmers or groups: Assess the interests, expectations, prior experience, production plans, and readiness of farmers or farmer groups to participate. It is also important to understand any existing commitments they may have, along with the challenges and opportunities they face in supplying the selected crop or crops under the agreement. After this assessment, identify farmers or farmer groups who are capable of meeting the off-taker’s needs. These may include farmers with whom there is an existing informal relationship, or new farmers who have not been previously engaged.
Define contract terms
Define contract terms
- Define volume and quality specifications: Clearly specify the expected volumes and the varieties of crops that the company plans to source. This includes identifying the types of crops or product groups, such as maize, wheat, or horticultural produce, and detailing the particular varieties within those groups that are preferred or required. In addition to volume and variety, it is important to outline the typical quality specifications relevant to each crop group. These may include moisture content, size, colour, cleanliness, presence of foreign matter, and grading standards. For example, in cereals, acceptable moisture levels and purity percentages are often critical, while in fruits and vegetables, visual appearance and firmness may be prioritized.
- Define pricing mechanisms: Many guaranteed off-take contracts do not specify an exact price at the time of signing but rather state a clearly defined pricing mechanism. This flexible pricing is especially relevant in markets that are less predictable, to avoid getting locked into fixed prices during volatile periods. One way that off-takers can manage market risk is by aligning the pricing mechanism they offer to farmers with the one they themselves face from their buyers. For example, if the off-taker has a fixed price agreement with a buyer, it becomes more feasible to offer a fixed price to farmers. On the other hand, if the off-taker is subject to variable pricing from buyers, offering a fixed or floor price to farmers could expose the company to losses if market prices fall. Therefore, understanding and mirroring pricing structures across the value chain can be a strategic way to balance risk and maintain fairness. On a similar note, it is critical to avoid vague statements such as “the price will be decided later.” Common pricing mechanisms include:
- Market-based pricing: The price is the prevailing market price at the time of purchase, or the market price plus a set margin. Example: If the market price is $1,000 per ton and the margin is 5%, the price will be $1,050 per ton.
- Forward pricing: The price is set at the market price on a certain date before harvest. Example: The price is set at the market price one month before harvest—for instance, if the market price at that time is $1,200 per ton, then $1,200 per ton is the contract price, regardless of later market changes.
- Floor price: The price paid is the market price, but it is never less than a set minimum price. Example: The minimum price is $1,100 per ton. If the market price is $1,200, the price paid is $1,200. If the market price is $1,000, the price paid is $1,100.
- Cap pricing: The price paid is the market price, but it does not exceed a set maximum price. Example: The cap price is $1,300 per ton. If the market price is $1,200, the price paid is $1,200. If the market price rises to $1,400, the price paid is capped at $1,300. In many cases, cap pricing is combined with a floor price. Together, the cap and floor create a pricing band that ensures stability for both parties—buyers are shielded from excessive costs, and producers are guaranteed a minimum income.
- Tiered pricing (with premiums): Mechanism where the price of a product depends on its quality or certification level. Instead of offering a single price for all goods, sellers present a range of prices based on specific standards. For example, a buyer might pay $7,500 per ton for coffee that is certified organic, $7,000 per ton for Fair Trade-certified coffee, and $6,500 per ton for standard-grade coffee. This system allows off-takers to choose products that align with their values and budget, while motivating producers to improve quality or obtain certifications to access higher-paying tiers.
- Payment terms: Specify the payment terms, including the mode and timing of payments. Payments can be made through various methods such as cash, bank transfers, or mobile money platforms (like M-Pesa or Telebirr in East Africa), depending on what is most accessible and secure for producers. The timing of payment can vary widely, ranging from immediate payment upon delivery to several days, weeks, or even months later. However, offering faster payment terms, such as paying within twenty-four to forty-eight hours, can significantly discourage side selling by ensuring producers receive timely compensation, improving their cash flow, and strengthening their commitment to the buyer.
- Transparent communication: Engaging in open and transparent communication with farmers and farmer organizations is key when setting contract terms. Clearly explain the terms of the agreement, including quality standards, volumes, pricing, and payment terms.
- Negotiation: Contract negotiation processes are often imbalanced; therefore, it is key to ensure that the negotiation process is fair and inclusive, allowing farmers to voice their concerns and preferences. This can help build trust and commitment to the agreement and improve farmer protection.
- Delivery terms: Define the expectations around when and where produces should be delivered, as well as who is responsible for transportation and the costs involved. These terms typically include specific dates or timeframes for delivery and clearly identify the delivery location, whether it is a buyer’s warehouse, a central collection point, or a processing facility. Clarify which party is responsible for organizing transportation, including loading, and unloading, and outline any related costs such as fuel, labour, or third-party logistics.
Incorporate support mechanisms
Incorporate support mechanisms
- Contractual support: Provide support to farmers or farmer organizations to ensure all actors involved understand what they are signing, both in terms of the criteria to comply, the benefits of the agreement as well as the potential risks in non-compliance (through penalties). Especially if the agreement is a legal binding document and not an MoU, this mechanism carries high importance to reduce the risk of grievances or unintended consequences.
- Technical support: Provide technical assistance to farmers to help them meet quality standards. This might include training sessions, extension services, and access to better inputs. For instance, a fruit sourcing and processing company could provide training on management of pests and diseases, as well as provide harvesting teams to ensure proper harvesting practices.
Establish monitoring and enforcement mechanisms
Establish monitoring and enforcement mechanisms
- Regular monitoring: Implement regular monitoring to ensure compliance with the agreement terms. This can be done through field visits, audits, and self-reporting. For example, a coffee company working with organic-certified cooperatives may conduct visits every two months during the growing season. During these visits, agronomists inspect crop health, verify that no synthetic inputs are being used, and provide guidance on maintaining organic standards. In addition to field visits, the company may also require cooperatives to submit monthly self-reports on farm practices and participate in periodic audits conducted by third-party certifiers.
- Dispute resolution: Include clear dispute resolution mechanisms in the contract. This ensures that any disagreements can be resolved amicably and promptly. For instance, establishing a dispute resolution panel comprising of representatives from both the company and the farmer organization. The panel should follow a structured process that includes reviewing the issue, facilitating dialogue between parties, and working toward a mutually acceptable solution. If the panel is unable to resolve the matter, the contract should outline a secondary mechanism, such as mediation by a neutral third party.
- Legal framework: Often contracts in smallholder farming are based on Memorandum of Understanding (MoUs) to reduce the risk for both parties, however this also reduces their benefit towards securing supply. Therefore, it is advisable to implement a contract that is legally binding and enforceable within the local legal framework.
Build long-term relationships
Build long-term relationships
- Trust and transparency: Foster trust and transparency between all parties through regular communication and updates to help build strong relationships. For instance, holding quarterly meetings with farmer representatives to discuss progress and address any concerns.
- Mutual benefits: Ensure that the agreement is mutually beneficial, with clear advantages for both the company and the farmers. In such a case, longer term contract compliance by both parties is likely to be upheld
- Adaptability: Design the agreement to be adaptable to changing circumstances. This might include clauses for renegotiation in the event of significant market changes. For instance, allowing for price adjustments in response to substantial increases in production costs due to inflation.
How to optimise your Guaranteed offtake agreements?
From our work supporting companies on the ground, we have identified several enhancements that can be made to improve outcomes for businesses, farmers, and Farmer Organizations
Improving efficiency
Improving efficiency
- Streamline logistics to reduce costs: By organising the supply chain more efficiently, arranging reliable transportation, selecting optimal routes and vehicles, and investing in better storage, companies can help ensure that the produce is picked up on time, quality is maintained during transit, and losses are minimized, thereby reducing overall costs.
- Streamline processes: Simplify administrative processes to reduce delays and improve efficiency. For example, (re)-use fixed contract templates to reduce the time and effort needed during the negotiation process. Including pre-agreed pricing mechanisms in the agreement enables payments to be processed immediately after delivery volumes are confirmed. When combined with digital payment systems, this approach minimizes paperwork, accelerates transactions, and improves overall operational flow.
- Implement long-term contracts: Working with long-term contracts instead of short-term ones (e.g., one year or one season) provides stability and reduces renewal delays. Especially long-term contracts with pre-agreed pricing mechanisms eliminate the need for seasonal renegotiations,
- Integrate technology: Leveraging technology improves monitoring, communication, and data management. For example, Farm Management Information Systems (FMIS) enable real-time tracking of production, quality, and delivery schedules, helping companies and farmers coordinate more effectively. Digital platforms support timely updates and quick resolution of issues, reducing delays. Additionally, these systems streamline data collection and reporting, enhancing transparency and enabling better decision-making throughout the contract process.
Increasing impact
Increasing impact
- Incentivize compliance: Introduce incentives for farmers who consistently meet or exceed the agreement's terms. This can include bonuses for high-quality produce or additional support services. Farmers who consistently meet quality standards might receive preferential access to training programs or inputs through graduating to higher segments. For example, in Kenya, many smallholder tea farmers who meet quality standards receive premium prices and access to extension services, boosting productivity and income.
- Provide holistic support: Combine offtake agreements with comprehensive services such as input supply, training on good agricultural practices, in addition to financial services such as credit provision, advance payments, or access to affordable loans through partnerships with financial institutions. By integrating these services, farmers can further improve productivity and meet quality standards, strengthening the sustainability and impact of the offtake agreement. Additionally, facilitating access to crop insurance helps protect against climate related risks, enhancing farmers’ resilience and encouraging continued investment. Logistical support, including transportation, storage, and processing infrastructure, ensures that produce reaches its destination in good condition and meets market requirements.
- Provide market diversification: Support the development of alternative markets for sub-standard produce to reduce side-selling risks. The company, farmer cooperatives, or other stakeholders can initiate these markets. For example, lower-grade maize and soybeans can be processed into animal feed. These alternative channels absorb produce that would otherwise be rejected, providing farmers with a more consistent income and reducing the temptation to side-sell outside of offtake agreements.
- Support farmer income diversification: In strategies to advance regenerative agriculture or programs to support farmers to reach living income targets, crop diversification is a key practice. As farmers diversify into multiple crops, enabling market access becomes crucial. Companies can focus on supporting initiatives such as building partnerships, facilitating market connections, and in capacity development to help farmers access market opportunities through a variety of channels.
Mitigating Risk
Mitigating Risk
- Shortening payment terms: Reducing the time between when a farmer delivers their produce and when they receive payment. This approach helps mitigate financial risk by improving farmers’ cash flow, reducing their dependence on informal credit, and increasing trust in formal market arrangements. By ensuring quicker access to income, companies can strengthen supplier relationships and reduce the likelihood of side-selling.
- Non-compliance management: When farmers do not meet agreed standards, companies should begin by offering targeted support such as training, technical assistance, and corrective action plans to help address the issues. These proactive steps reduce the likelihood of repeated noncompliance. If these efforts do not result in improvement, companies may reserve the right to reduce future offtake volumes or terminate agreements. Any additional penalties should be applied in a transparent and proportionate manner, and only after all reasonable remediation options have been explored.
- Build trust: Invest in trust-building activities, such as transparent communication, fair negotiation processes, and consistent fulfilment of contractual commitments. For example, companies can demonstrate reliability by consistently making timely payments and providing support as promised.
- Include flexible pricing mechanisms: Pricing is one of the most critical success factors in guaranteed offtake agreements, which is why including flexible pricing mechanisms is key to adapt to market fluctuations and reduce financial strain for the company to the extent possible. Introducing floor pricing helps safeguard farmers from sudden price drops, while mechanisms like price caps can protect buyers if market prices rise sharply. More examples on flexible pricing mechanisms can be found under the section on How to design.
- Establish contingency plans for unforeseen events: Having a backup plan ensures stability during disruptions, while enabling companies to comply with their part of the agreement. One maize company was able to manage unexpected price volatility by storing their produce in a warehouse until market prices went up again, to ensure they could pay the agreed upon price to farmers as per the contract.
- Incorporate climate risk-sharing arrangements: Develop risk-sharing arrangements to protect both farmers and buyers for adverse climatic events. For example, to manage weather and market risks, buyers can implement flexible quality thresholds during adverse seasons accepting slightly lower grade produce instead of rejecting it outright. For instance, during deficit production seasons induced by droughts some companies in the edible oil sector process and sell lower-quality oil at reduced prices. Companies can also partner with farmers and financial institutions to co-invest in crop insurance schemes that provide protection against climate-related losses.
- Foster collaboration: Regular meetings and open communication channels strengthen trust, encourage shared problem-solving, and align expectations. This partnership approach enhances cooperation, ensures smooth transactions, and supports sustainable, mutually beneficial relationships throughout the supply chain.
- Farmer (organisation) segmentation and graduation: Combining off-take agreements with farmer (organisation) segmentation and graduation strategies allows the company to group farmers (or farmer groups) into performance tiers, with each tier receiving tailored contract and pricing terms as well as tailored support packages (training, inputs, credit, etc). High-performing farmers (and/or farmer groups) access larger service packages and more favourable contract terms, while underperforming ones receive phased support and closer follow-up. This prevents over-investment in high-risk farmers and encourages improvement through a clear graduation path. By matching resources to reliability, companies improve repayment rates, reduce side-selling, and strengthen the overall supply chain.
Scaling
Scaling
- Leverage cooperatives, unions, and federations: Partnering with organized farmer groups such as cooperatives, unions, and federations allows companies to reach more producers with less effort. These structures help aggregate supply, coordinate service delivery, and facilitate consistent communication. By embedding off-take agreements within these networks, companies can streamline sourcing, reduce transaction costs, and replicate operations more easily across regions, making scaling more practical and sustainable.
- Securing working capital: Scaling operations requires upfront investment in logistics, processing, and farmer support. By securing working capital through blended finance, credit lines, or reinvested revenues, companies can ensure they have the liquidity needed to fulfil off-take agreements and expand sustainably.
- Transparency through published terms: Publicly sharing standard offtake agreement terms such as pricing models, quality requirements, and delivery timelines helps attract new farmers by setting clear expectations. This transparency reduces negotiation time, builds trust, and enables farmers to assess their readiness to participate. It also improves operational efficiency by minimizing misunderstandings and aligning all stakeholders around consistent standards.
Recovering Costs
Recovering Costs
- Secure repayment via harvest proceeds: Offtake agreements should enable companies to recover the full value of support services such as onboarding, inputs, extension, and transport by deducting costs from the farmer’s harvest proceeds. These agreements can often specify a committed amount of produce that reflects the value of the support package provided and typically embeds repayment within the delivery process, helping reduce the risk of side selling and non-repayment. While farmers may engage with other buyers, this structure ensures that the company’s investment is tied to actual output, improving cost recovery without requiring farmers to make upfront payments or access formal credit.
- Revenue from post-harvest services: Offering services such as transport, storage, or warehouse receipt systems after harvest provides an opportunity to generate additional income. These services not only support farmers in managing their produce but also allow the company to charge service fees, creating a complementary revenue stream that strengthens the financial sustainability of the off-take model.
How to complement your Guaranteed offtake agreements?
The successful implementation of innovations can often be supported by other innovations being implemented simultaneously. From our experiences, the following innovations work well alongside Guaranteed offtake agreements:
- Tripartite Financing Agreement: An agreement involving three or more parties to facilitate the provision of credit to smallholder farmers. Typically, such agreements include the farmer (or farmer group), an off-taker, and a financial service provider. Central to the tripartite financing agreement is guaranteed off-take between the farmer and off-taker that is used as collateral to secure the loan.
- Farmer Organisation segmentation and graduation: Grouping Farmer Organisations based on their prior performance or capacity and providing tailored support to help them progress over time works well with guaranteed offtake agreements as it reduces the risk of the company over-investing in low-performing Farmer Organisations and optimises their resources usage by ensuring that the right level of support is given to meet quality and volume commitments
- Farmer Information Management Systems (FMIS): By collecting, managing, and analysing farmer data, the FMIS helps buyers better plan logistics, monitor farmer performance, manage traceability risks, and ensure contract compliance. Ultimately strengthening coordination between farmers and buyers, making the guaranteed offtake agreements more effective.
- Digital payment systems: Digital tools can streamline payment transactions, ensure more timely payments and lead to improved trust. For example, mobile applications can enable farmers to track their deliveries, monitor quality assessments, and receive payments directly.
- Holistic service delivery: Providing a package of services that include training on agronomical practices, mechanisms to access to inputs and finance, access to mechanisation or professional labour services, contributes to farmers' ability to meet quality and volume requirements and to comply with the offtake agreement requirements.
- Weather-Indexed Insurance: Protects farmers and companies from climate-related risks by triggering payouts based on measurable weather data, such as rainfall or temperature. It ensures financial support when adverse conditions affect yields, helping farmers recover and companies maintain supply commitments under off-take agreements.
- Safe and adequate warehousing: Ensures the produce is kept in optimal conditions for quality preservation, safe from theft while guaranteeing easy and controlled access for inspection by buyers, financiers, and other interested parties.
What is the impact of Guaranteed offtake agreements?
There are a number of ways in which employing Guaranteed offtake agreements can impact outcomes:
Gross investment per farmer
Gross investment per farmer
Using data from 133 inclusive business analyses, of which 46% implement guaranteed offtake agreements, we find that buyers with contracts spend more on average per farmer. Companies that provide services without guaranteed offtake agreements spend on average, $71.4 per farmer per year on delivering services. Companies that use offtake agreements spend on average $131 per farmer per year on delivering services. While this analysis is correlational, some of the reasons for this increased investment are believed to be:
- Guaranteed offtake agreements are often used in combination with the provision of other services to incentivize farmers to increase their volumes and quality. As the provision of a wide range of support services enables compliance with the agreement by farmers.
- Guaranteed market access can provide more certainty to the buyer to provide access to higher risk services (such as input provision on credit) in addition to a standard support service package including training, as the risk of defaulting or delayed repayment by the farmer is reduced through the legal agreement in place and the payment of the service can be automatically deducted from the proceeds of the produce.
Value creation at farm-level
Value creation at farm-level
Currently, we do not have sufficient data to make conclusive statements about value creation at farm level by guaranteed offtake agreements. However, through our farmer surveys we have evidence that business models where contract farming is combined with offtake, farmers overall yield and income are higher, and their post-harvest losses are lower. By guaranteeing a market, these agreements enhance the value of farm produce. Farmers can focus on quality and reaching the agreed production volumes, knowing they have a buyer ready to purchase at harvest.
Yield Increase: Data from 2,978 farmers shows that the existence of a contract is correlated with higher crop yields, though results vary by crop and country. In Kenya, potato yields rise from 4,131 to 6,844 kilograms per hectare when farmers have contracts—a 65 percent increase. Rice farmers in Nigeria and Tanzania also benefit, with yields increasing from 7,197 to 8,304 and from 4,256 to 6,797 kilograms per hectare, respectively with the existence of contracts. Contracted sorghum farmers in Nigeria nearly double their output, from 825 to 1,643 kilograms per hectare compared to those without contracts. These gains suggest that contracts may improve access to inputs, technical support, and market incentives. Some crops show mixed results, such as mango in Kenya and rice in Ghana, indicating that contract design and local conditions play a key role.
Farmers Income Increase: The presence of contracts are also correlated with increased farmer income in several crops. In Kenya, French bean farmers with contracts earn an average of $608 compared to $244 without—a 149 percent increase. Rice farmers in Ghana also benefit, with income rising from $195 to $376. Even in higher-income crops like tomatoes in Kenya, contracts offer a modest gain, increasing earnings from $1,650 to $1,744. While some crops show mixed results, such as maize in Uganda and mango in Kenya, the overall trend highlights the value of well-structured contracts in improving farmer livelihoods.
Increase the Likelihood of Recommendations: Having a contract makes a meaningful difference in how farmers view and speak about the company. Based on our data, farmers with a contract are more likely to say they would recommend the company to a friend or peer compared to those without a contract. Specifically, 55% of contracted farmers fall into the “most likely to recommend” category, compared to 45% of uncontracted farmers.
Where to find more inspiration?
Case Studies
- SDM case report: Africa Improved Foods, Maize, Rwanda
- SDM case report: Wi-AGRI, Cashew, Côte d’Ivoire
External Resources
In this article
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What is this document and why does it matter?
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What is a Guaranteed Offtake Agreement?
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Short on time? Watch this animation to get all the key information in a few minutes.
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How does this typically work?
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Why implement it?
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Context matters: what are enabling conditions for Guaranteed offtake agreements?
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Why not? Key limitations, risks and unintended consequences
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How to design Guaranteed offtake agreements
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What is the impact of Guaranteed offtake agreements?
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Where to find more inspiration?
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