How to implement an inclusive strategy in the global market for smallholder farmers, who are key players in the value chain for food security? The solution may lie in promoting the multi-stakeholder cooperative model, which is already being hailed as the example to follow: indeed the FAO considers this model as a major ally in the fight against hunger. In fact, this model will be at the heart of the next Summit to be held in October 2014 in Quebec, and will also be the focus of several symposiums and books on the future and advantages of the multi-stakeholder cooperative model… As a result agricultural cooperatives could be integrated as part of an approach geared at positive economy, a trend which is becoming increasingly popular in a context of sluggish economy, since this approach promotes solidarity, outsourced contracting, and a long term vision.
We recommend reading these excerpts of one of the latest reports of the Rabobank Group, drawn up by the senior economist of the group’s Economic Research Department, August R. Sjauw-Koen-Fa1
. In this study, he proposes a practical analysis of the role of cooperatives in supporting smallholder farmers and inclusive strategies involving all players in the value chain. This report proposes to achieve the right balance between large and smallholder farms in a win-win logic, where investments as well as public and private shareholders all play a crucial role. To this end, the study advocates both a global and local approach based on well-developed and well adapted marketing and management strategies.
More generally speaking, at a time when the agricultural market is particularly unstable due to the progressive dismantling of all regulation tools, farming and interprofessional organizations are being put forward as a means of countering the volatility of prices for agricultural commodities. However, even though farming organizations such as cooperatives may help better prepare farmers to overcome the challenges they face, in no way do they act as a substitute for public mechanisms aimed at regulating the market.
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The challenge is how to link smallholder farmers to markets and integrate them into value chains, and how to do so in a cost-effective manner. Producers’ organisations and co-operatives are identified as crucial instruments to address the obstacles observed, to facilitate the process of value chain development as well as smallholder finance.
The key elements of this study are:
- Identification of new (market) opportunities for increased food production.
Small-scale agriculture is the dominant agricultural system in developing regions, on which local communities depend for their food security. It will become increasingly indispensable as a reliable food source and a driver of the rural economy, as the world is facing resource scarcity (land, water) and greater price volatility. Integrating them into value chains offers downstream agribusiness companies an opportunity to strengthen their long-term sourcing strategies in a globalising market. Moreover, increasing food production by existing smallholders will reduce the demand for new land including water use. The result is less deforestation and land use changes, thus mitigating climate change through lower GHG emissions. The development of smallholder agriculture can be a ‘win-win’ proposition, benefiting the livelihood of millions of farmers, improving food security and nutrition, vitalising rural non-farm economies and aiding poverty reduction. For saving the planet, however, food challenge can only be met if environmental sustainability and social responsibility are integrated in business models for value chains.
- Full use of this potential will not be possible unless smallholders are linked to markets in a way that boosts farm income, facilitates farm investments and strengthens entrepreneurial initiative in the sector.
- A second major precondition is an effective process of capacity development of small farmers in a business-like approach that will not be possible in a costeffective manner unless it is done through producers’ organisations and farmer co-operatives.
- The third essential component in the strategy is the facilitation of effective smallholder finance. There is scope for smallholder finance by exploiting the opportunities of effective farmer organisation (including co-operatives) and the merits of value chain finance methodology.
Resolving the current and future imbalances in food supply is virtually impossible without tapping into the underused agricultural production potentials of small-scale farms at the bottom of the pyramid.
Obstacles to link smallholders to markets and to integrate them into value chains do exist. Small farms face major disadvantages with respect to accessing modern market supply chains. These disadvantages include low volumes of produce to sell, variable quality, high transaction costs, poor market infrastructure and limited ability to meet the high credence requirements of many high value outlets. This stands in sharp contrast to conventional business drivers of food supply, such as stringent product standards for quality and consistency, economies of scale, global sourcing and competition. Bridging these two worlds is a precondition for smallholder inclusion into value chains.
Based upon the findings of this study a framework consisting of a few fundamentals and interventions for generating an inclusive corporate food strategy can be identified. This may help stakeholders along the supply chain to shape inclusive business models, thus making themselves ‘part of the solution’ for one of the most pressing global issues in decades to come. The good news is that a growing number of stakeholders around the world are considering a more holistic approach that meets the challenge of food security and sustainable management of resources within a framework of inclusive business models. The question is: ‘How to make the difference?’
Chain actors and MNEs can make a big difference, when they succeed to adapt a number of elements to their sourcing strategies and business model. The following key elements may be considered for shaping an inclusive food resource strategy:
Take leadership in the value chain:
A clear market demand and value proposition for customers are the key drivers of an inclusive food strategy. A multi-stakeholder partnership and leadership within the supply chain are needed to overcome challenges to link smallholders to markets and to integrate them into value chain.
Ensure farm value creation:
Conventional business models can be ‘upgraded’ to share value and risks more equitable and fairly along the value chain. Smallholders must be able to support and feed their families and make investments in their farming businesses for growth. According to this approach smallholder farming needs to become aself-propelling business.
Help strengthening of producers’ co-operatives and POs:
Effective inclusion of small-scale farmers, and strengthening of their farming systems is inconceivable without farmer organisation. Chain actors can play a conducive role if the farmers’ organisation is able to communicate market requirements to their members and enforce supply contracts.
Seek PPP for transformation and investments:
A shared holistic development view, a concrete investment plan and long-term commitment of private and public stakeholders are basic requirements for the transformation of smallholder agriculture.
Engage in B2B Coaching:
The private sector can play an invaluable role in linking farmers to markets and integrating them into value chains by offering farm services and technical assistance required for production improvements and growth. Business-to-business coaching provides a uniquely cost-effective approach to farm extension, making agriculture a more viable opportunity as chain partners have the intimate knowledge of products and markets required to create more value and rewarding opportunities.
Ensure environmental sustainability:
Agricultural practices should be environmentally sustainable. To achieve these goals it is crucial that local agricultural systems comply with local environmental sustainability requirements. Moreover, food losses and waste must also be addressed in this approach. This requires improved environmental awareness throughout the chain, from farmers to end consumers. In addition, this approach requires chain partners to be frontrunners.
Balanced food security:
Local and global food security must be in concert. In this view exploitation of local and global food supply systems must be in balance.
In order to maximise their impact, chain actors may consider to build one or more interventions into their sourcing strategy.
Value chain mapping:
Successful long-term partnerships are based on a good understanding of the food chain concerned. A basic food value chain map should answer questions such as: What is the structure in this value chain? Who are the key players, and what is the current role of smallholder farmers? How do products and services reach intermediary markets (farmers, traders, processors, retailers) and what channels are available to reach end markets?
Help facilitate farm business investments and attract investments in agriculture:
Farm business investments improve productivity and product quality, and lower production costs.
Create access to affordable farm services: Access to farm inputs and affordable financial services reduce production costs and improve productivity. This also includes improved access to land (land tenure system), water and energy in particular for smallholders.
Facilitate horizontal integration and institutional infrastructure:
Producers’ organisations can reduce marketing risk, improve product quality, lower transaction costs and increase bargaining power.
Facilitate value chain finance:
Use a valuable chain approach to mitigate risk and facilitate access to financial services for smallholders and other chain actors.
Seek to promote investment in physical infrastructure:
Physical infrastructure required to connect smallholders more effectively to markets, such as road, ports, terminal, power grids and IT communication and information. Investments in storage, transport and processing facilities, and in sustainable water and energy supply and management reduce food losses and secure sourcing schemes.
Help shape an enabling environment:
The private sector should actively participate in advocating the creation of an enabling environment, including regulations to facilitate land ownership rights (title deeds) as well as investment in smallholder agriculture and downstream sections of the value chain. This should also facilitate the embedding of interventions in a sound regional and sectorial development agenda.
The dynamics of food markets is shifting towards producers, thus creating a conducive climate for inclusion of smallholders. Various routes exist to increase food production: improving yield per hectare, cropping intensification, reducing post-harvest losses, storage and transport losses, improving irrigation technology and reversing land degradation.
Smallholders form the largest underexploited potential in global agriculture, especially in Asia, Africa and Latin America. Transforming the smallholder sector requires a massive effort in terms of technical assistance, market linkages, farm investment and finance. Realising these gains will require an exceptional level of collaboration among stakeholders in the agricultural value chain, including governments, companies and civil society organisations, farmers and consumers.
To ensure long-term success, the transformation of smallholder agriculture should be based on a holistic approach. Interrelations and impacts at local and global level, and between the farm and non-farm sector must be taken into account.
Effective producers’ organisations are a conducive pathway for smallholder inclusion, since interventions aimed at smallholder transformation can be performed more efficiently. Solid long-term supply arrangements are not conceivable unless they guarantee a competitive reward for producers in value chains, based upon fair terms of trade and a long-term collaboration perspective.
Co-operatives have proven to be historically the most successful institutional mode of producer organisation, and they still are, even under conditions of competitive markets and globalisation. Small farmers are risk averse, in view of their limited capabilities to absorb shocks. Co-operatives offer unique possibilities to mitigate risks associated with farming and their links to the food value chain (thus facilitating external finance).
A value chain approach offers good opportunities for inclusion of smallholders, as a pathway for symbiotic partnerships within a longterm perspective, for mitigation of finance risks, and thus, for access to finance by smallholders.
Corporate business in the agrifood industry increasingly target smallholder farmers, especially those that have been able to organize themselves and attune their mode of working (farming) to the needs of the market. A new vision for corporate responsibility in the global food supply chain is emerging with target setting for rural economic growth, food security and environmental sustainability.
Existing sourcing practices in the F&A sector can well be made consistent with an inclusive food strategy, provided a number of fundamentals (basic criteria) for inclusiveness and appropriate interventions are embedded in the sourcing strategies and business models.
1 The full report is available here https://www.rabobank.com/en/images/framework-for-an-inclusive-food-strategy.pdf