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Adapting business models to incorporate smallholders into supply chains

Summary

Food and beverage companies are facing a rapidly changing world. Global demand is rising as the world’s population grows. Yet the planet’s ability to meet this demand is threatened by factors such as droughts and other expected consequences of climate change, together with land degradation and biofuel production. At the same time consumers everywhere are growing more knowledgeable and concerned about the ethics of where and how their food and drink are produced.

A number of innovative companies have begun integrating smallholders into their supply chains. There is evidence that this strategy can attract customers and manage supply risks. The investment by a company can be relatively modest if the company collaborates with farmers’ organizations, government, and other non-commercial actors. This approach to investment can have broader impacts on the rural sector, ensuring that trade benefits men and women farmers who are normally marginalized from wealth creation.

Ensuring a smallholder sourcing program can deliver both commercially viable products and value to the smallholder, requires a number of structural challenges to be overcome. An increasing number of new business models are emerging of global and domestic companies that have adapted to overcome these challenges.

Key principles

Five principles to underpin sustainable trading relationships that ensure both corporate and smallholder value:

Chain-wide collaboration and innovation
Market linkages
Fair and transparent governance
Equitable sharing of costs and risks
Equitable access to services

This briefing builds on the Sustainable Food Lab work on ‘New Business Models for Sustainable Trading relationships’ and Oxfam agricultural market programs.

Authors: David Bright (Oxfam GB), Don Seville (Sustainable Food Lab) and Lea Borkenhagen (Oxfam GB)

New Business Models for Sustainable Trade posts a blog:

Part 1, ...."Following the money often leads to interesting insights. If you work in international development, you've likely noticed a good deal of money being channeled to the hands of social entrepreneurs..."

Part 2, ..."Businesses that are shifting procurement and buying practices to include small farmers tend to recognize their participation in a comprehensive business ecosystem. In this ecosystem, chain-wide collaboration is a key business strategy...."

Part 3 ..."This post explores the issue of transparency in chain governance, and the role it plays in meeting expectations, standards and commitments to buy and sell volumes of a certain grade, as well as equitable processes of risk management..."

Publications:

Linking worlds: New Business Models for Sustainable Trading Relations between Smallholders and Formalized Markets
Agrifood Industry Transformation & Small Farmers in Developing Countries, Reardon, T., C.B. Barrett, J.A. Berdegué, and J.F.M. Swinnen. Forthcoming. World Development, International Assessment of Agricultural Knowledge, Science and Techonology for Development. September, 2008.
Corporate Social Responsibility in the Agri-Food Sector: Harnessing Innovation for Sustainable Development. Report prepared for the Food & Agriculture Organization of the United Nations, March 2008.
The International Institute for Sustainable Development (IISD) published a paper on, Trading Practices for a Sustainable Coffee Sector, Context, Strategies and Recommendations for Action by Jason Potts and others, 2007
Assessing Smallholder Participation in the French Bean Supply Chain in Guatemala (The Juan Francisco Project). A CIAT report, October 2007.

Books

Peter Senge, long time friend and colleague and author of the The Fifth Discipline and other bestselling books, has come out with a new book, The Necessary Revolution: How Individuals and Organizations Ae Working Together to Create a Sustainable World. The book reveals the revolution already underway in companies around the world creating an alternative to "business as usual" tactics. The Food Lab is featured repeatedly throughout the book, as one of the epicenters of innovation helping to move this revolution forward.