By David Norman, Challenge Director, Business Fights Poverty
Many global companies buy significant amounts of the crops they need from smallholder farmers in Africa, Asia and Latin America. They may source either directly from smallholders or indirectly, through traders. Companies choose to work with smallholder farmers for many reasons. Smallholders are often the main producers of a given crop and may be the only source for securing, improving, or expanding supply. In some cases, investing in local smallholder supply chains reduces sourcing costs and minimises price volatility and currency risks. Developing smallholder supply chains may also be linked to a company’s sustainability strategy and may have benefits for their brand, reputation and license to trade.
In the traditional model for smallholder sourcing programmes, companies buy from smallholder farmers, often via long and indirect supply chains. These programmes may include support for yield improvements, but it can be challenging for companies to identify who the farmers are and the impacts of the supply chain on farmers’ productivity and livelihoods. Companies may adopt standards that are sometimes linked to third party certification, but the links between these schemes and livelihood benefits are often difficult to measure and may be questioned by farmers themselves.
While some good progress has been made in understanding and enhancing smallholder supply chains, significant challenges remain. Millions of smallholder farmers are steeped in poverty and unable to meet their basic needs. From a business perspective, smallholder supply chains are often difficult to manage, with challenges such as low and variable yields, poor quality and side-selling (i.e. selling outside the contract, to a different buyer). For these reasons and others, a newer model is emerging, which redefines success for sustainable sourcing programmes.
Under the new model, a company sees its role not only as providing a market for crops grown by smallholders but as a catalyst for improving agricultural productivity, competitiveness and the livelihoods of farming communities. This means playing an active and engaged role, often in partnership with others, in activities such as:
Increasing transparency along the value chain to understand who the farmers and other actors in their supply chain are
Supporting farmers to improve yields, which in turn can help to increase incomes, where there is a market for increased production
Working with relevant stakeholders to facilitate access to the skills, inputs, technology and financial services needed by farmers
Investing in programmes to improve livelihoods, food security and women’s empowerment
Developing approaches to measure the impact of the company’s trading relationships with farmers
Finding ways to move beyond pilot projects and implement effective models at scale.
There are many reasons for companies to take a more engaged approach towards managing and strengthening their smallholder supply chains. These include:
Promoting long-term supply chain security, ensuring that farming of the crops needed by global companies is viable into the future;
Increasing production and achieving higher quality levels
Aligning with companies’ values and purpose and meeting the imperative to address the Sustainable Development Goals (SDGs);
Strengthening the transparency of supply relationships, building the resilience of those relationships in the face of future pressures;
Strengthening relationships with governments;
Helping to meet rising expectations from local and international stakeholders.
The Sustainable Development Goals agreed in 2015 set out an increased role for business as an enabler of poverty eradication. Donors and development agencies are increasingly seeking public-private partnerships, with expanded development roles for business. Civil society groups have become more focused and demanding; they expect to see evidence that companies’ programmes are making a measurable difference. There is pressure on global companies to play a greater role in inclusive growth, finding ways to tackle the rise in inequality that has often accompanied development.
Businesses are increasingly aware of these rising expectations and of the positive business and societal impacts that can be achieved by strengthening smallholder competitiveness and incomes. Many businesses have already set goals related to the sustainable sourcing of commodities and to improving farmer livelihoods.
Sustainable Food Lab and Business Fights Poverty have been collaborating to advance learning on how to improve the economic benefits of trade for smallholder farmers and their families. The report we are launching today aims to clarify the roles and levers for companies and other actors, often working together, to help increase smallholder farmers’ incomes. The paper is based on interviews and other contributions from experts within business, NGOs, donors, UN bodies and research organisations.
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