Linking Smallholder Farmers to Markets: International Lessons

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Information about Linking Smallholder Farmers to Markets: International Lessons

Published on March 12, 2014

Author: K_Ricketts



In February 2014, TCi convened a two day workshop in Hyderabad, India with ICRISAT looking at how new aggregation models could help supply and deliver micronutrient and protien-dense food for the malnourished in India. Check out a blog post about the event here:

Interna'onal  Lessons:  Models  for   Linking  Smallholder  Farmers  to   Markets   TCi  2014©       Prabhu  Pingali   Professor  of  Applied   Economics   &  Director,  Tata-­‐Cornell   Ini'a've  for  Agriculture  &   Nutri'on,  Cornell  University     Bhaskar  MiJra   Associate  Director,   Tata-­‐Cornell  Ini'a've  for  Agriculture   and  Nutri'on,  Cornell  University  and       Tata-­‐Ins'tute  of  Social  Sciences  (TISS)     Ka'e  RickeJs   Research  Associate,   Tata-­‐Cornell  Ini'a've  for   Agriculture  and  Nutri'on,   Cornell  University  

Why  might  companies  choose  to  source  from   smallholder  farmers?     TCi  2014©    

The  business  case:   Supply:   •  Inves'ng  in  supply  base  and  seeking  to  expand  procurement   network   •  Increase  produc'vity,  quality  or  supply  chain  efficiency  by   inves'ng  in  smallholder  farmers  and  traders   •  Develop  new  products,  develop  local  supply  sources  and   reduce  dependency  on  import  markets  (i.e.,  lower  costs)     Brand,  Marke'ng  and  Reputa'on   •  Market  differen'a'on   •  Develop  strategic  partnerships  (rural  communi'es,   governments,  NGOs,  civil  society  groups)   •  Strengthen  local  demand  and  image  through  smallholder   sourcing  projects   TCi  2014©    

4   ©Tata-­‐Cornell  Agriculture  and  Nutri8on  Ini8a8ve  (TCi),  2013   Women’s   empowerment   Pathways  to  improved  nutri'on:     TCi  conceptual  framework   TCi  2013©    

5   ©Tata-­‐Cornell  Agriculture  and  Nutri8on  Ini8a8ve  (TCi),  2013   1.  Increases  rural  household   incomes  (food   affordability)     2.  Expansion  of  the  local   food  supply  (food   availability)  through   increased  produc'vity   and/or  responding  to   demand  for  dietary   diversity  demand   INCREASED  MATERNAL   HEALTH  AND  REDUCTION   IN  CHILDHOOD  STUNTING   TCi  2014©     Linking  farmers  to  markets  can  create   nutri'onal  impacts  through…  

Farmers   Tradi'onal   retailers   Traders  &   intermediaries   Input   companies   Consumers   Provide:   •  Seeds   •  Fer'lizer   •  Crop  insurance   •  Animal  health/ nutri'on   •  Food  ingredients   Produce:   •  Dairy/meat   •  Hor'culture   •  Seed   Provide:   •  Purchasing   •  Transporta'on   •  Price  informa'on   •  Basic  processing   •  Corner  stores   •  Wet  markets   •  Roadside  stands   •  ‘mom  and  pop’   stores   Food  markets  can  provide:   •  Low-­‐priced  fruits  and   vegetables   (micronutrients)  plus   cereals  (calories..     •  Employment  (income)  for   poor  rural  households.     Direct  selling  to  market   Farmers   produce  for   input  markets   Direct  selling   Agri-­‐food  value  chains   Modern   retailers   •  Supermarkets  in   urban  and  peri-­‐ urban  areas   •  Mul'na'onal   trading  companies   •  Mul'na'onal  food   manufactures   Supply/input  coordina'on   Direct  selling   Quality  standards   Quality   standards   Sell   Sell   Sell   Sell   Sell   Sell   TCi  2013©    

In  prac'ce,  smallholder  farmers  can  be   integrated  by:   Independent   farmers   Regional   ‘hubs’   Coopera'ves  and   farmer-­‐based   organiza'ons   Lead-­‐farmer/nucleus   clusters   TCi  2014©     Buyer  Buyer  Buyer  Buyer   Product  flow   Product  flow   Product  flow   Product  flow  

Interna'onal  models  for  integra'on  and  aggrega'on   Individual   farmers   linked   through:   Company   Product(s)   Key  Implemen'ng   Partner(s)     Country   Corporate  mo'va'on   Regional   “hub”   Starbucks   Coffee     N/A   Global   Expand  supply,  invest   in  quality.     Armajaro   Cocoa     Source  Trust  (sister   NGO  organiza'on)   Global   Expand  supply,  invest   in  quality.     Coopera'ves   &  farmer-­‐ based   organiza'ons   (FBOs)   Unilever   Black  soy     Local  university   (extension  services)   Indonesia   Capture  new  market   ops,  reduce  costs.   Coca  Cola   Mangos     NGO  (Technoserve)   Uganda,   Kenya   Capture  new  market   opportunity,  expand   supply.   Sysco   Broccoli   NGO  (Oxfam,  ADAM)   Guatemala   Expand  available   supply.   Lead  farmer/ nucleus   clusters   Tate-­‐Lyle   Sugarcane   Rabobank,  local   government   Vietnam   Capture  new  market   opp.,  reduce  costs.   Heineken   Sorghum     NGO  (Technoserve)   Sierra  Leone   Capture  new  market   opp.,  reduce  costs.   Chiquita   Passion  Fruit   NGO  (Rainforest   Alliance)   Costa  Rica   Expand  supply.     TCi  2014©    

Model  1:  Regional  ‘hub’   Starbucks   Crop:  coffee     Mo'va'on:  To  ensure  responsible  produc'on  prac'ces,   support  the  produc'on  of  high  quality  coffee,  and   monitor  the  needs  of  the  farmers  Starbucks  started   C.A.F.E.  Prac'ces–  now  reaching  141,000  farmers  in  20   countries.     Regional  ‘hub:’   •  Farmer  Support  Centers  (FSC)  link  growers  to   necessary  services.   •  Extension  access,  lead  farmer  training     •  Credit  access   •  Quality  trainings  and  quality  experts     In  2012,  Starbucks  has  purchased  more  than  90%  of   their  supply  through  the  program.       Armajaro  Ltd.   Crop:  cocoa     Mo'va'on:  Armajaro  LTD  faced  growing  demand  for   cocoa  and  were  dependent  on  a  farming  system   characterized  with  low  produc'vity,  persistent  poverty   and  child  labor.  The  firm  created  Source  Trust  to   implement  regional  hubs  for  service  provision,  quality   control,  aggrega'on,  and  community  care  &   empowerment.       Regional  ‘hub’:   •  Farmer  Development  Centers  (FDCs)  operated  by   the  NGO  Source  Trust  (created  by  Armajaro)  offers   extension  services  to  help  farmers  improve   livelihoods  through  beier  crop  yields  and  quality.     Specifically,  FDCs:   –  Provide  extension,  courses,  and  informa'on   –  Develop  premium  cocoa  opportuni'es  for   growers   –  Seedling  nurseries  and  clean  plan'ng   materials   –  Farm  inputs/credit   –  Village  resources  (malaria  preven'on,   community  infrastructure).   TCi  2014©    

Regional  hubs:  Take-­‐aways   Regional  “hubs”  demand:      1)  Long  term  commitment  in  infrastructure   and  human  capital  development  and      2)  Large  investments.       This  model  tends  to  work  where:   •  Clearly  established  demand  with  strong  growth   prospects.   •  Supply    needs  to  be  safeguarded  and  sustained.   TCi  2013©    

Model  2:  Coopera'ves  &  farmer-­‐ based  organiza'ons  (FBOs)     Unilever   Crop:  black  soy     Mo'va'on:  Unilever  expanded  sourcing  to  capture  new  market  opportunity  in  Indonesia  for   black  soy  and  expand  locally  available  supply.  Star'ng  with  12  farmers  in  2001,  they  expanded   produc'on  to  source  from  6,600  farmers  that  were  organized  into  coopera'ves  with   government  and  local  NGO  assistance.  These  farmers  now  supply  30%  of  the  market  demand   covered  by  Unilever.       Coopera've  model:   •  Leveraged  government  and  academic  partners.     •  Coopera've  planorm  allows  farmers  access  to  loans,  improved  seeds,  agronomic  assistance.     •  Yields  for  farmers  have  doubled  since  the  program  began  8  years  ago.     Local  brand  designa'ng  locally  sourced  soy  has  improved  reputa'on  throughout  Indonesia.     TCi  2014©    

Model  2:  Coopera'ves  &  farmer-­‐ based  organiza'ons  (FBOs)       Crop:  frozen  broccoli     Mo'va'on:  Sysco  wanted  to  make  investments  to  expand  their  supply  and  ensure  long-­‐term   sustainability.  The  company  iden'fied  Superior  Foods  (who  has  links  to  small  scale  farming   opera'ons/prodcut  in  La'n  America)  as  a  key  partner  to  do  this.  Superior  Foods  worked   together  with  a  local  exporter,  Sumar,  and  local  NGOs  to  link  indigenous  smallholder  farmer   coopera'ves  in  Guatemala  to  this  new  broccoli  value  chain.       Coopera've  model:   •  16  coopera'ves  par'cipa'ng   •  Technical  support  is  given  by  local  NGOs  who  assist  the  coopera'ves  with  quality  upgrading   and  business  development   •  Volume  contracts  were  established  with  the  coopera'ves   •  NGO  partners  invested  in  basic  infrastructure  investment  (seedling  produc'on  and  packing   sheds)   TCi  2014©    

Linking  through  coopera'ves  and  FBOs:   Take-­‐aways     Successful  coopera've  models  demand:   1.  Provision  of  necessary  services  to  meet  quality  and  quan'ty   demands   2.  Partnership  with  technical  service  providers  (NGOs,   academic  ins'tu'ons,  or  public  sector)     This  model  tends  to  work  where:   •  Strong  NGO/public  partnerships  can  assist  with:   –  Organiza'on  of  new  coopera'ves  (if  not  yet  established)     –  Technical  service  provision   –  Co-­‐investment  for  necessary  infrastructure     TCi  2014©    

Model  3:  Linking  through  lead   farmers  and  nucleus  clusters     Crop:  cane  sugar     Mo'va'on:  Tate  &  Lyle  invested  in  a  new  cane  processing  plant  in  Vietnam  to  capture  strong   na'onal  demand  for  sugar.  There  was  high  cane  imports  and  legal  prohibi'on  of  large  holdings,   so  they  began  a  smallholder  sourcing  program  with  the  government  and  the  Rabobank   Founda'on  (RF)  to  reduce  import  costs  and  capture  new  market  demand  for  sugar.       Lead  farmer  model:   •  Created  network  of  respected  field  managers,  lead  farmers  that  work  with  20,000  farmers.   •  SMS  data/GPS  system  communicates  when  to  harvest  &  deliver,  and  conveys  quality  and   payment  informa'on  to  farmers,   •  Partnership  with  Rabobank  enabled  access  to  credit  and  took  advantage  of  public  subsidies   for  new  agriculture  endeavors.  Credit  system  is  now  self-­‐sustaining  and  default  rate  is  4%.   •  IT  system  allows  for  quick  communica'on  about  projected  supply.   TCi  2014©    

Model  3:  Linking  through  lead   farmers  and  nucleus  clusters     Crop:  sorghum     In  2005,  Heineken  started  a  local  sourcing  program  for  sorghum  as  a  subs'tute  for  malted   barley  for  beer  markets  in  Nigeria,  Ghana,  and  Sierra  Leone.    In  addi'on  to  developing  new   product  lines  for  growing  beverage  markets,  shorter  supply  chain  for  primary  materials  would   lower  import  bill  (safeguard  against  price  shocks).  1,600  farmers  now  sell  into  this  supply  chain.       Lead  farmer  model:   •  Iden'fica'on  and  training  of  nucleus  farmers  who  organized  the  collec'on  of  sorghum  from   village-­‐level  groups.     •  Interven'ons  in  a)  credit  facilita'on  for  nucleus  farmers  and  b)  micro-­‐credit  to  farmer  groups   were  enacted  in  order  to  assist  cul'va'on.     •  Insufficient  training,  credit  access  and  poorly  communicated  quality  parameters  leq  farmers   and  company  frustrated.  New  approach  is  now  being  undertaken  with  addi'onal  partners   (NGOs  and  local  research  ins'tute).   TCi  2014©    

Linking  through  lead  farmers  and  nucleus   cluster  mechanisms:  Take  aways   Nucleus  clusters  and  lead  farmer  models  require:   1)    Iden'fica'on  of  suitable  lead  farmers/nucleus  farms   and  adequate  training   2)  Nucleus  farms/lead  farmers  to  be  well-­‐known  and   respected  individuals  in  the  community     This  model  tends  to  work  where:   •  There  is  strong  alignment  of  expecta'ons  on  quality  and   volume  standards.     •  Local  capacity  building  is  a  priority  and  development  of   local  leaders  is  possible.   TCi  2014©    

Cri'cal  ins'tu'onal  considera'ons   •  Crop-­‐specific  processing  infrastructure  for  smallholder  farmers   and  value  chain  par'cipants  needs  to  be  developed.   –  Perishable  crops  requires  immediate  processing   –  Fresh  produce  requires  intense  labor   •  Ownership  structures  throughout  the  developing  world  are   diverse.   –  Can  range  from  fully  controlled  state  schemes  to  full  private   agribusiness  control.   •  Contractual  arrangements  vary  considerably.  Range  includes:   –  Seasonal  credit  and  liile  interven'on  from  buyer   •  Use  of  market  specifica'on  and  resource  contracts   –  Quasi-­‐planta'on  system  where  outgrowers  labor  as  quasi-­‐wage   workers  (extreme  produc'on  contracts).   •  Regulatory  environment  depends  on  market  focus   –  Export  markets  demand  compliance  to  interna'onal  and  import   standards  (pes'cide  load,  labor  standards)  and  tariffs.   –  Procurement  for  modern  retailers  (supermarkets)  require   compliance  with  elevated  quality  standards  of  mul'na'onal   retailers.   TCi  2014©    

In  the  interna'onal  context…  experience   shows  that  companies  need  to  ask:   18   •  What  is  the  business  benefit(s)  sought?   •  Is  sourcing  from  small  scale  producers  feasible  with  this  crop?   –  How  does  the  crop  fit  into  the  local  farming  systems?   –  Can  the  crop  be  grown  efficiently  and  cost-­‐compe''vely  in  this  par'cular  region  and   by  this  set  of  farmers?   –  What  investment  is  needed  at  farm  and  processing  and  market  levels  to  meet   required  volumes,  quality  and  standards,  and  to  get  the  sourcing  model  to  the  point   where  it  is  self-­‐sustaining?     –  Who  will  make  this  investment?  How  long  will  it  take?   •  What  could  go  wrong?   –  Are  the  risks  to  the  company,  smallholders  and  other  affected  par'es  manageable     (e.g.  climate  change,  changing  consumer  preferences,  currency  movements)?   •  What  could  be  the  development  impact?   –  Are  other  investments  needed  to  reduce  risk,  increase  development  benefits,  or   promote  sustainable  farming  prac'ces?     TCi  2014©     Adapted  from  Sustainable  Food  Lab  ©  2013  

Moreover,  companies  need  to  consider  the   household,  community,  value  chain  and  market   context…     19   Important  Ques'ons   •  Is  there  a  good  case  for  farmers  to  invest  in  this  crop?   •  If  there  is  a  farmer  group  (e.g.  coop)  and  do  they  have  the  business  skills  &   assets  to  be  capable  trading  partner?     •  Are  there  intermediate  suppliers  and  what  influence  do  you  have  on  them?   •  What  else  beyond  the  value  chain  is  needed  for  success?   •  Are  there  are  any  major  ecological  or  social  concerns  from  the  produc'on  of   this  crop?   Adapted  from  Sustainable  Food  Lab  ©  2013   TCi  2014©    

Food  &  nutri'on   insecurity     There  are  many  well-­‐known  problems  related  to  smallholder  sourcing,  which  create   commercial  and  reputa'onal  risks  for  companies  if  not  handled  well.    Examples  from  the   cases  (and  informal  interviews  around  failure  points)  include:     Women’s   exclusion   Child  Labor   Low  produc'vity  &  quality   (therefore  low  crop  income,   high  costs)   Poor  environment   prac'ces  (soil  erosion,   deforesta'on,  etc)     Poor  health  &  safety  on   farm  e.g.  pes'cide   management  etc   Over  dependency  on   one  crop  /  buyer   Side  selling   Labor   condi'ons   No  ability  to  make   claims  based  on   verifiable  impacts   Poor  management   and  profitability     Unreliable   delivery   Farmers   (produc'vity,   quality,  income)   Aggregator  /   Trader   Processor   Branded  Firm   Farming   Households   Across  smallholder  farmer  aggrega'on   models,  various  risks  are  common…     Adapted  from  Sustainable  Food  Lab  ©  2013   TCi  2014©    

       Thank  you!   21   Website:     Blog:'on/    

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