Supply chain strategy | Opinion

Smallholder supply chain sustainability is (currently) not sustainable

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Access to markets remains a key factor

Significant reform of how business engages with producer communities and rethinks supply chains structures is necessary, new Innovation Forum research suggests

Innovation Forum set out on the first Innovation Accelerator project to try to understand better what was needed to create genuinely sustainable agricultural supply chains based on smallholder farmers. The aim was two-fold. Firstly, to share learnings from across a range of different supply chains, and secondly to bring in new perspectives from areas like development economics and political economy. Our new report draws on nearly 80 interviews covering a wide range of supply chains including cotton, fruit and vegetables, dairy, coffee, soy, palm oil and maize.

When it comes to smallholder farming communities themselves, we know quite a lot. Furthermore, there is a high degree of commonality between different supply chains. Farmers need support in improving their agronomic practices; they need better access to market to maximise their prices; they need to diversify their production; and, they need better support from financial institutions.  

Cooperative collaboration 

A key tool in addressing these challenges is to bring farmers together to collaborate in cooperatives or other collective associations. These vehicles provide a basis, for example, for farmer field schools to improve farming practices. They also allow farmers to aggregate their production in order to access larger markets and get better pricing, and provide the basis for better access to finance. 

However, cooperatives are not a magic bullet, and their governance processes are key. These groups are not necessarily inclusive, and can reflect existing divisions in the local society. They are also open to the challenge of elite capture, and the very poor, and women are often under-represented in leadership positions.

We know much less about what happens from when goods leave the farm to when they arrive at a port. We lack insights into the environmental impacts of this part of the supply chain, and about the income levels and working conditions of those working as traders, in the transporting of goods, or those employed, for example in horticultural pack houses. If we’re worried about the incomes of farming families, why not about those working in other parts of the supply chain?

However, also clear from our research that the creation of sustainable smallholder supply chains hinges also on a range of wider and complex contextual factors.

Engage origin governments 

The first is the need to engage better with governments of origin countries. Many of these countries lack coherent policy on the development of agricultural communities, and often extension services are underfunded. Extension services are particularly important since these structures could be the conduit to reach farmers at scale, whereas, at present, the approach is very project based. 

There is also a need to engage better with governments of what we might term ‘destination markets’ such as the UK, US and the EU. Most obviously, there is a need to collaborate better with the development agencies of these countries, for whom agriculture is a huge area of focus. 

There are also some rather more difficult issues to address as well. Firstly, initiatives such as the European Commission’s work on cocoa in west Africa need close scrutiny to ensure they are practical. Secondly, there is a need to address the tariff structures, which means that most value-addition to agricultural commodities happens in destination countries, not origin ones. 

Exchange the model 

Then there is the issue of agricultural markets per se. International spot and futures commodity exchanges operate on the basis that they are trading largely-undifferentiated commodities. It is not clear how these structures are compatible with sustainability, which accords greater value to reductions in environmental degradation and better incomes.

If we are to tackle these issues effectively, we need to look closely at how we are going about effecting change. At the moment, it is clear that current approach to creating sustainable smallholder supply chains is not, itself, sustainable, for the following reasons:

·      The current approach is a project-based one. A more systemic approach is needed if we are to get to scale. 
·      Even those projects do not join up effectively and efficiently. There is a need for greater collaboration on the ground to create synergies and avoid wasted effort.
·      We’ve yet to grapple with some of the big systemic issues which have largely been avoided so far, such as if smallholder farms can ever be sustainable, and if we need to look for other models of rural agricultural development. And, how can we properly assess and address issues of capacity and capability in host governments?
·      Large parts of the business world still see the sustainability agenda as largely irrelevant. We need to engage much better in particular with procurement teams and those working in public policy. 
What’s next?

These are significant challenges which will not be solved easily, or in the short term. An obvious next step would be to develop a practical agenda to enable sustainability to become sustainable. This could involve identifying a small number of geographically-specific projects at local level that identifies projects – run by companies, NGOs or government agencies – exist, and how might they collaborate more effectively.

There is a clear need to engage better with the host government – at all levels – to understand the challenges they face and help to build workable processes to address these.

A key gap at the moment is any means for matching sustainably-produced goods with buyers wanting them. A ‘sustainable goods marketplace’ could map what sustainably-produced goods are being produced, in what quantity, and where.

Sustainability needs to be much better embedded into other business functions, in particular procurement. It’s important that this be achieved in ways which make business sense.

Finally, our research has demonstrated how important the public policy agenda is, but also how extensive. More analysis is needed to ensure that the right pressure and influence can be brought to bear.   

For the past six months, Innovation Forum has been running an action research programme, led by Peter Stanbury, to develop a cross-commodity understanding of how to create durable smallholder agricultural supply chains. The report on findings to date is now launched and can be downloaded here

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