Building sustainable supply chains to reverse the “Paradox of the Starving Farmer”

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By Mark Gunton, CEO, Clinton Giustra Enterprise Partnership and Eduardo Tugendhat, Global Director of Thought Leadership, Palladium

Editor’s Note: This post originally appeared on Palladium.

This week’s Positive Impact Summit in London is bringing together a diverse range of stakeholders to discuss ways to create enduring economic and social value for businesses and societies. It will be an opportunity to discuss some of the world’s most pressing problems — including what Palladium calls the paradox of the starving farmer.

More than 2.5 billion smallholder farmers manage more than 80 percent of the world’s estimated 500 million small farms. They also provide the vast majority of the food consumed in much of the developing world, and yet smallholder farmers comprise the majority of the world’s undernourished and most of those living in absolute poverty (International Fund for Agricultural Development, IFAD).

In other words: many of the very farmers who are key to global food security have trouble putting food on the table for themselves and their families.

The good news is there are ways to address this paradox.

The Clinton Giustra Enterprise Partnership (CGEP), an initiative of the Clinton Foundation, and Palladium and are deploying innovative solutions that help bring smallholder farmers out of poverty. The key challenge is how to create enough value within the market system that connects farmers to technology, innovation, finance, and markets such that farmers, and the entire system, are economically, socially and environmentally sustainable.

Improving productivity

Increased incomes are generated not only from higher, fairer prices as a result of improved crop quality, but by improved productivity leading to higher yields. CGEP builds local farmer services and aggregation businesses that provide farmers with training on better agricultural practices, much needed supplies like seeds and fertilizer, and innovations that increase productivity and reduce production costs. For example, greenhouse “macro-tunnels”– which serve as giant umbrellas — for lettuce in El Salvador are protecting crops from rain, hail, or wind. In the Ivory Coast, CGEP introduced mechanical soybean threshers that are saving valuable time for farmers and reducing harvest waste. In Ecuador, Palladium is working with the much maligned palm oil industry to develop a new, sustainable business model. Palladium’s analysis showed the extractors that an investment in their smallholder farmers would double productivity; not just bringing these farmers out of poverty, but providing a clear return on investment to the industry. At the same time, it will put them in position to offer buyers full transparency in terms of their environmental footprint, with no additional forests being destroyed.

Incentivizing private investment

Poor farmers often lack the funds to invest in the equipment and technology that could improve yields. Meanwhile, an increasing number of local, regional, and global companies are making sustainable sourcing from smallholder farmers part of their business mandates. In order to ensure that sustainable sourcing becomes fully integrated into corporate strategy, companies should be incentivized to invest in production and post-harvesting equipment. Investment in equipment has the potential to significantly boost the productivity and income of farmers, while modernising supply chains, and aligning partners toward a common goal. For example, in Uganda, Palladium has partnered with a progressive grain trader that has invested backward in the supply chain in local storage, and drying and shelling equipment that allows the extremely poor farmers to meet grading standards for their maize. Combined with training on improved practices and seeds, this has resulted in average incomes doubling in just three years.

Sustainable commercialisation

The value of market linkages is often trumpeted by programs working with smallholder farmers. Facilitating introductions to potential buyers or providing information on potential markets can help stimulate market growth. However, in isolation these linkages do not provide the commercialisation assistance necessary for farmers to be able to consistently sell their crops to buyers in the long-term. In a commercial conversation, margin is all important. Farmers often find themselves on the weaker end of negotiations due to information gaps; and in some cases they are compelled to sell their crops to intermediaries or local markets even when prices are low so they can raise cash for essential expenses. Furthermore, programs sometimes fail to accurately assess market requirements. Sustainable commercialisation requires full market analysis and buy-in from buyers.

At CGEP, every farmer services and aggregation business opportunity in a new country begins with an assessment of the market, in partnership with local buyers such as supermarkets, restaurants, and retail stores, or multinational companies. CGEP has purchase agreements with buyers to ensure they are able to guarantee crop purchase to farmers and pay them fair prices that increase their incomes. We also handle quality control, processing, and logistics before selling the crops to buyers. By building our social businesses to respond to market needs, these businesses can scale to impact more farmers.We are in a position to recycle profits, and eventually reduce and remove dependence on donor funding.

Palladium’s Peru Cocoa Alliance is an example of just how strong progressive coalitions can be. The second phase of the alliance is bringing together 16 companies, USAID, and almost 20,000 farmers in providing not just a pathway out of poverty, but a fully transparent and commercially enduring solution for chocolate companies and technology providers. By helping farmers triple the size of their farms, double their yields, and improve pricing through improved quality, all partners win. Applying an integrated agro-forestry model and good practices also protects the environment.

These interventions alone do not solve the food security needs of smallholder farmers. However, by working towards long-term solutions and building coalitions of progressive organisations who see the imperative of creating economic and social value, we can make strides towards alleviating poverty and ensuring food security for the farmers who feed the world.

Palladium is a global leader in the design, development and delivery of Positive Impact — the intentional creation and measurement of enduring social and economic value. We work with corporations, governments, foundations, investors, communities and civil society to formulate strategies and implement solutions that generate lasting social, environmental and financial benefits.

Original article