linking smallholder farmers to markets: international lessons
Post on 18-Oct-2014
253 views
DESCRIPTION
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:TRANSCRIPT
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
Prod
uct fl
ow
Prod
uct fl
ow
Prod
uct fl
ow
Prod
uct fl
ow
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
• Text text
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: tci.cals.cornell.edu Blog: blogs.cornell.edu/agricultureandnutri'on/