Adapting business models to incorporate smallholders into supply chains  

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Food and beverage companies are facing a rapidly changing world. Consumers everywhere are growing more knowledgeable and concerned about the ethics of where and how their food and drink are produced.  At the same time, development organizations are increasingly seeing the critical role of the private sector in creating sustainable economic opportunities for small scale farmers.  Two-thirds of the worlds rural households - many of whom live in poverty - depend on smallholder agriculture for their food and incomes.

This briefing paper lays out the case for companies and development organizations to partner together to create more supply chains that are inclusive of smallholders.  The paper further lays out principles and strategies for increasing the impact on development by adapting supply chain business models to the needs and context of smallholders and by public co-investment in farmers, farmer organizations, and needed infrastructure.

This paper is a New Business Model for Sustainable Trading Relationships publication and written for Oxfam's briefing for business series.

Authors: David Bright (Oxfam GB), Don Seville (Sustainable Food Lab) and Lea Borkenhagen (Oxfam GB).  May 2010

Key tool 3 - The New Business Model Principles.pdfABSTRACT

Agriculture is a source of livelihoods for an estimated 2.5 billion people globally, provides jobs for 1.3 billion smallholders and landless workers and, as a result, has enormous potential to reduce rural poverty.

Yet agribusinesses are usually built around a small number of large-scale suppliers, ignoring that small-scale producers manage 85% of the world’s farms. Smallholders are excluded from modern agribusiness channels due to a lack of access to services, high transaction costs and poor infrastructure which combine to increase the perceived risks and costs associated with purchasing from large numbers of dispersed producers. While successful examples of smallholder inclusion into modern supply chains can be found, these remain the exception rather than the norm. Facilitating more of these successful partnerships is the goal of the LINK methodology.

Review of the role of commodity exchanges in supporting smallholder farmer market linkages and income benefits

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Recently the government of Ethiopia mandated that all of the navy bean trade is to done through the new commodity exchange.  But the new business models for sustainable trading relationships team has been working on this crop in Ethiopia since 2008 to develop direct and transparent trading relationship to the final buyer.  What are the implications?  What is the potential for the commodity exchange to benefit small scale producers?

To gain insight into how the project might work with the new commodity exchange and still benefit small scale producers, the project commission a study of the 5 working country level exchanges in Africa. The results are provocative -- while commodity exchanges have the potential to benefit producers through clear prices signals and uniform and regulated warehousing and trading system, none of these exchanges to date have made the investments infrastructure that would allow the small scale producers to achieve the potential benefits.

A New Business Model for Sustainable Trading Relationships publication

Author: Peter Robbins July 2010.

New Business Models for Sustainable Trading Relationships

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The development case (potential for reducing poverty) for including smallscale producers in global supply chains is clear. Companies are increasing willing to invest in incorporating smallholders into their supply chains -- to access new supplies, create product lines for ethical shoppers, and be part of achieving the millennium development goals. 

But successfully including poorer smallscale producers into formal value chains in ways that supply consistent, quality production and stable terms of trade and help farmers build capacity over time isn't straightforward.  

The linking worlds paper outlines a set of principles for businesses to consider when adapting their supply chain business model to the more effectively bridge the world of diverse smallscale producers and modern market requirements.

Authors:  Bill Vorley (IIED), Shaun Ferris (CRS), Don Seville (SFL), and Mark Lundy (CIAT).  February 2009

22 years of trading fairly with smallholders

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This case about Body Shop's Community trade program provides an example of a retailer adapting procurement and production strategies to include capacity building for smallholders. Through Community Trade, a ‘three-way win’ is effected by The Body Shop: suppliers benefit from the fair deal offered by the company (fair pricing, forecasting, and predictable demand); The Body Shop brand benefits from sustainable, traceable access to agricultural expertise and quality ingredients; and customers benefit from products that meet their expectations of ethical sourcing and demanding quality standards. The case study focuses on the example of ethanol production from sugar cane in Ecuador.  

Published by Oxfam GB, May 2009