Sustainable supply chains: Time to treat smallholders as businesses

Martin Summers, in a guest post, argues that large companies should evolve current approaches to smallholder farmer engagement in the supply chain.

Well run, prosperous countries and businesses typically have the resource, ability and inclination to become sustainable, a difficult goal for counterparts who struggle to get by each day.

This is true of smallholder farmers too, which is why almost all sustainable agriculture interventions now have ‘livelihoods’ components.

But the sustainability community now needs to prioritise making smallholders successful as businesses.

Fortunately, three developments are driving a much more business-focused approach.

The first is that multinationals are increasingly contracting directly with farmers, often because they are seeking greater traceability, sustainability, security or diversity in their supply chain, which is more difficult to achieve when sourcing from third parties or on the open market.

Since 2012 Diageo has, for example, achieved reliable supplies of malt barley in Ethiopia by contracting directly with farmers. Governments are increasingly promoting contracting.

Martin Summers

Martin Summers

Direct contracting introduces a more explicit and direct focus on farmer productivity than most certification schemes or NGOs bring.

Nestle, for example, works with farmers to help them become ‘agripreneurs’ – “successfully, business-orientated farmers who are farming by choice.”

The second development is that the Sustainable Development Goals (SDGs) leads on eliminating poverty and hunger. 80% of the world’s extreme poor live in rural areas, where most are dependent on agriculture.

The UN’s Food and Agriculture Organisation makes the point that “Agricultural growth in low-income and agrarian economies is at least twice as effective as growth in other sectors in reducing hunger and poverty.”

A productivity-based approach to sustainable agriculture is therefore needed to achieve the SDGs.

The third development is a growing recognition that economic incentives and institutions have a crucial impact on farmers’ environmental and social impacts, which highlights their similarities with other, non-agricultural businesses.

The UN Conference on Trade and Development’s recent report argues that “sustainable development of smallholder farming is not possible without a strong enabling national environment” and that it is “important to reverse the policy neglect of issues related to the profitability and sustainability of the smallholder model.”

Land tenure is a great example of a once neglected policy area where huge progress has been made recently. Without secure property rights, land can’t be used as collateral for loans or sold on, so farmers don’t have the incentives or the means to invest – possibly in diversified crops, which can improve biodiversity, or in mechanisation, which can reduce the incentive to use child labour.

Furthermore, as Landscapes for People, Food and Nature argues, “Without tenure security and appropriate resource rights, stakeholders in a landscape are systematically marginalized from management decisions, and have less incentive to invest in landscape management platforms or interventions.”

Land issues are still considered politically sensitive and administratively difficult, and business has understandably steered clear, but the World Bank’s Enabling the Business of Agriculture project shows how countries like Rwanda have created land registers and made it much easier and cheaper to register land.

The project has also documented the impact of policies on access to finance, improving seed systems and fertiliser supply, and transporting and selling agricultural goods.

It shares its benchmarking approach and several topics with the Bank’s Doing Business programme, which illustrates the need for a cross-sector approach rather than the commodity-specific approach that has characterised sustainable agriculture to date.

Just as a cross-commodity ‘integrated landscapes’ approach is gaining traction, so it’s time to appreciate that a nation’s farmers occupy a common ‘institutional landscape’.

How business can map and act to reform institutional environments has been outlined by this author elsewhere, but recent developments have given business and sustainability community the tools, data and incentives previously absent in the agricultural sphere.

An approach to sustainable agriculture whose starting point is that smallholders need to become successful businesses will bring not only economic benefits.

It should also help hardwire sustainable environmental and social practices into how smallholders and their customers do business.

Innovation Forum’s forthcoming conference on smallholder security and resilience should provide a good platform to explore this agenda.

Martin Summers is director, Maginot Consulting. martin.summers@ymail.com

Read his recent article: Why business needs to embrace institutional reform at long last.

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