Certain forms of contracting offer alternatives to traditional sources for production credit and, to a lesser extent, development capital. As development loans arranged by or through contracting firms are self -liquidating, repayment risk is likely to be low. Similarly where production credit in the form of seed, feed, chickens, fertilizer, machine use, etc. is advanced, and the growing process is scheduled by the firm, the firm is in effect scheduling repayment of its own loans. From the grower’s viewpoint, production and loan repayment are co ordinated. An obvious danger to the grower exists where he has borrowed outside the contract framework and committed himself to an inflexible repayment programme.
Loans made by suppliers of factors for capital items designed to benefit the supplier (through increasing factor demand, or decreasing handling cost, etc.) can, if repayment is scheduled to grower returns, also reduce grower income uncertainty-at least over the life of the loan. Here again the credit source is committed to ensuring that grower returns are sufficient for loan liquidation. It may do this by negotiating on the grower’s behalf with a third party to purchase grower’s output, or otherwise develop market outlets for growers