Supply chain strategy | Opinion

The role of a sustainable commodities marketplace for procurement

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Scope 3 emissions, rural development, contributing to the SDGs, protecting and restoring forests and ecosystems are all increasingly important to sourcing companies and agri-business. Procurement strategy and reform will be vital

Innovation Forum’s recent research into smallholder farming reached the unavoidable conclusion that the current model used to achieve sustainability in this sector is itself unsustainable. 

There are a number of reasons for this: there is little join-up between projects in any given location, which means that resources are being wasted. And there has been too little engagement with large systemic issues, such as whether smallholder farming is a sustainable model.

There are large parts of the value chain, most obviously between farm gate and port, which have largely been ignored, and there remains too little engagement between businesses’ sustainability teams and their procurement departments.

Perhaps the key issue, however, is a clear market failure in linking goods produced to sustainable standards with those wanting to buy them. No comprehensive mapping process exists to identify what sustainably-produced commodities are produced, and where; nor of buyers of these commodities. There are landscape and jurisdictional opportunities being developed, but these must be combined with a narrative for companies around local sourcing, and the needed visibility, at village or sub-regional level.

A typical example of this challenge is where a company’s programme to source sustainable supplies of a particular product. This might be a programme to source, for example, coffee, cocoa, or palm oil. As part of these programmes, farmers are, sensibly, encouraged to grow other crops, both for agronomic reasons and to diversify household incomes.

Given that they are produced as part of a sustainability programme, it is logical to consider that these additional crops can also be considered to be ‘sustainable’. However, because the corporate programmes are geared only to the development of sustainable supply of the primary commodity, they have no need, or means, to provide a market for the additional goods produced – be those legumes, spices, fruit or a wide range of other crops.

Better marketplace

There is a clear need, therefore, to develop a mechanism that allows those serious about sustainability to be able to buy sustainably-produced goods in an efficient and market-based way, and which would allow farming communities straightforward access to end buyers.

Our aim, therefore, is to scope the development of a ‘sustainable commodities marketplace’ as an interactive platform to bring together sellers of sustainable crops with buyers of them. Farming communities would be able to upload what crops are available, in what quantity, and where; sellers would be able easily to access the sustainable goods they need. It would also facilitate companies being able to buy multiple sustainable commodities from the same location.

Carbon as ‘product’

Such a structure would also provide a means to encourage smallholder farmers in protecting high carbon value areas. It is clear that the behaviour of these communities will be key in attempts to preserve forests and other habitats which capture carbon. Were farming communities to benefit from the carbon offset market, this would provide a very significant incentive to them to protect these areas.

Similarly, were companies to have easier and more transparent access to carbon credits, it would greatly assist them in achieving their carbon reduction targets. A sustainable commodities marketplace would be a natural vehicle for this trade. 

For example, a better long-term sourcing relationship established by increased sourcing of more than one crop, where possible, may help drive the transparency needed for ecosystem protection and enhancement.

Proving the concept

What is proposed is a complex undertaking and needs to be addressed one step at a time. The following stages provide such a route.

Step 1: Country pilots

Firstly, identify three different locations that are currently part of international supply chains of large-scale commodities such as palm, coffee and cocoa, and in which farmers have been encouraged to grow other crops, be that for agronomic and/or income diversification reasons. To begin with, these locations need to be relatively small so the process is manageable. In each location examine three sets of issues:

Crop availability

  • What other crops are produced in addition to the primary one, and in what quantities? What might production levels be over the next 2-3 years.
  • What seasonal and other reasons will affect availability of these crops?
  • To what quality, sustainability and other standards have these crops been produced?

Onward supply chain

  • What processing facilities are available locally that would allow each crop to be further refined and processed?
  • What transport facilities are available to enable the raw and/or processed goods to be taken to a port for export?
  • What issues of concern might there be in labour rights terms within this onward supply chain which could affect claims that goods are sustainably produced?

Governance

  • What cooperatives or other structures are in place which could act within international supply chains? If none exist, what could be established?
  • Within existing cooperatives, what governance structures exist to ensure that the organisation operates transparently and equitably.
 
Step 2: Engaging international buyers 

Having established what products are available within the initial pilot process, then explore how the purchasing of these might be achieved within the procurement functions of international buyers. To that end, work with two or three large buyers of tropical commodities, specifically working with the procurement teams responsible for the specific products which are available from the pilot areas. With these partners, explore:

  • What impediments would currently make it problematic for these products to be bought through a shorter supply chain directly into the pilot areas, rather than though ‘normal’ procurement arrangements.
  • In each case, how each of these challenges might be addressed in ways that still answer the priorities of procurement professionals.
  • What other models for supply chain management and procurement, for example the Nespresso approach that has much closer relationships with those farmers producing for the brand, might be brought to scale, and how this might be achieved
  • How more direct engagement with small scale farmers can be leveraged to help brand companies deliver on public commitments on issues like carbon reduction.
 
Step 3: Transport and logistics

A sustainable commodities marketplace could have a procurement structure that has fewer intermediaries, and in which the link between seller and buyer is shorter. This necessarily means that transport and logistics arrangements would have to be developed to support this structure. To establish a marketplace, work with two or three companies operating in this space – these could be existing commodities traders or large-scale transport companies, to examine the following issues:

  • What will be needed to establish viable logistics structures be service a more direct supply chain?
  • How could existing structures be re-purposed to this end?
  • How can traceability of the sustainable product be maintained, and cross-contamination with other product be avoided?
 
Step 4: The role of technology

For a marketplace to be a success, it would need to demonstrate end-to-end traceability of the farm goods produced. Furthermore, if the carbon-offset potential of the structure is to be realised, then verification methods will be needed to demonstrate protection of high carbon-stock landscapes. To achieve this, work with two or three technology companies or platforms to explore:

  • How can technology be combined with on-the-ground support to demonstrate forest protection?
  • What approaches, be that blockchain or others, can be used to demonstrate traceability of goods?

Where next?

The central issue is that if smallholder supply chains are ever to be sustainable, an alternative market mechanism such as that proposed above must work. Only by aiming at systemic change in the way these supply chains are handled can issues such as a living income and environmental degradation be properly addressed. We believe that a sustainable commodities marketplace could achieve this.

Innovation Forum is already working with a number of companies and other organisations to take this work forward. They are providing both financial support, and access to their operations. We are now actively seeking other partners to help push this project forward, and to develop an approach that can durably and sustainably address the challenges faced by smallholder farmers, the countries in which they live, and the natural environment in which they operate.

In conclusion, the research process proposed here seeks to uncover and explore the possibility of linking smallholder grower communities and their products, with international sourcing company procurement. Whilst we are conscious that direct sourcing is not a new idea, our recent research uncovered many opportunities for efficiency which we believe are significantly under-researched.

Therefore, we propose to explore how products from rural smallholders can be integrated into global purchasing, uncover the roadblocks, analyse the challenges and provide a rigorous assessment of what can be done, and how.

The impetus began with poverty alleviation, transparency and resilience. Add climate change mitigation to this recipe and there are powerful drivers for companies to begin to act now. What we offer is rigorous on the ground research combined with business knowledge of sourcing, to help make this happen. We hope you can join us.

For more information contact Peter Stanbury here

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