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Sourcing from small holder farmers: Challenges and Opportunities

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Food businesses that are sourcing globally may purchase from a wide range and size of different suppliers, from large commercial agri-businesses, through to smallholder farmers. According to the World Bank’s International Finance Corporation (IFC), food businesses are recognising that sourcing from smallholder farmers could provide a sustainable supply of key raw materials, such as coffee, cocoa, fresh produce and livestock products, but it is important to recognise the unique challenges that smallholders face[1]. In this article we explore these challenges and provide some insight into finding effective solutions.

Sourcing from small holder farmers:  Challenges and Opportunities

Most smallholder farms in the developing world are family owned businesses that produce crops or livestock on less than two hectares. Family members provide most of the labour and derive their income from the farm.  There are an estimated 525 million smallholder farms globally, with nearly 75% located in Asia, 8% in Europe and the Russian Federation, 6% in Africa and the rest in the Americas. Typically smallholders operate within traditional societies and sell their crops through traditional supply chains. However, increased access to information is changing the way in which smallholders can organise themselves and access markets.

Key challenges

There are a huge number of challenges that any smallholder farmer might endure at any given time, some of which are farm or farmer specific, whilst others are far more wide reaching across the industry. Here we outline some of the greatest and most-widely encountered challenges:

Traditional cultivation methods -  Smallholder farmers typically have little access to training in modern agricultural practices, and lack access to modern agricultural inputs and machinery, so continue the practices passed on from generation to generation. Few developing country governments provide agricultural extension services to help boost knowledge transfer.

Limited access to markets - Farms are often located far from the source of agricultural inputs and/or buyers, further hindered by poor transport links and available resources, making it difficult to purchase inputs or gain access to market to sell farm outputs. 

Fragmented farm base - While some smallholders are members of producer organisations or cooperatives, many do not have an outlet to work together with other producers. This puts them in a weak position for negotiating with sellers of inputs, and/or with buyers of their products, and also limits their access to training. This fragmentation can make it difficult for food businesses to find an appropriate point of engagement for sourcing opportunities.

Smallholders not all alike - Smallholders have differing capacity levels and different constraints such as literacy rates, size of holding, access to water and inputs, farming knowledge etc. Successful engagement with smallholders to support sustainable production requires an understanding of their differences.

Informal landholding - In many countries, smallholders do not have formal title to the land, but may be sharecropping or renting land.  This tenuous attachment to the land may influence their treatment of the land e.g. limiting their investment in inputs for best soil or crop management.

Poor soil fertility - Smallholders often farm with little or no fertiliser and do not have the training to improve soil management practice or fertility, e.g. through the use of manures and composts. Facilities and equipment for farmers to test the soil to gain additional information are generally not available, particularly in rural areas.

Changing weather patterns - Smallholders relying on traditional practices, suitable for past weather patterns, will be less resilient and ill equipped to make adjustments in farming practices that may be required as a result of new weather patterns caused by climate change. For example, farmers relying on groundwater for irrigation may find that water tables have dropped so low they are no longer able to access water. 

Finding solutions

Given the many challenges and pressures faced, some food businesses may either struggle to connect with many smallholders, or avoid involving smallholders in their supply chains altogether. However, for those businesses that tackle the challenges head-on and manage the associated risk effectively, the incorporation of smallholders into the supply chain can lead to a very productive, fruitful and efficient means of sourcing agricultural raw materials. So what solutions are available to help food businesses address some of the challenges we’ve already outlined:

Enhanced insight through data collection - A clear understanding of the production practices used by smallholders within the supply chain can provide a baseline of input use etc. to be able to identify where there are risks to the sustainability of smallholders, as well the relative risk to food businesses for security of supply.

Understand needs and constraints - It is important to understand and recognise the needs and constraints for the smallholders in the specific region/crop/climate etc. in which you are addressing. Issues and/or solutions experienced by smallholders in one region may differ from to that from another region/crop/climate etc. Knowing your smallholders and how they operate on a detailed level can provide valuable insight into smallholder’s needs and constraints.

Segment suppliers - Group or segment your suppliers into logical categories or similarities to help guide the approach taken to manage them. You may need different strategies for different types of farmers, so using key criteria to help inform food businesses’ interventions and sourcing strategies can be extremely useful.

Develop partnerships with farmer organisations - If the smallholders are relatively isolated within their supply chains, e.g. don’t have help, guidance or access from NGO’s, producer groups, cooperatives etc., could you support set up of groups? Working with aggregated groups of farmers has been shown to help disseminate information more effectively, eases logistical hurdles, and can reduce distribution and marketing costs.

Improved communication channels - Good communication methods are critical for many reasons, such as sharing best practice messages or for providing smallholders with useful data (e.g. weather/storm data, drought information etc.). However, there is no one-size-fits-all communication channels, instead, you need to choose the most appropriate method for dissemination depending on region (e.g. radio, video, information communication technology connectivity, text messages, and smart phones if available). Communication channels are rapidly changing in developing countries, with more options becoming available, but you still need to consider the most appropriate ones, i.e. may be different options for men vs. women.

Supporting improved access to market - Access to market is a key issue for many smallholders. Could your business help to set up access points, or groups that can coordinate the smallholders at a local level, to help create a better point of source in the supply chain? This has multiple benefits, including knowledge sharing between the farmers, understanding of supply and demand of produce, and achieving improved security of supply.

Certification and standards - Certain schemes can be suitable and extremely valuable for smallholder farmers, with some certification bodies offering education and training to smallholders. Alternatively, for circumstances where certification schemes may not be appropriate, a focus on measuring the impact of business activities on the sustainability of whole communities, or how the business can create an enabling environment for smallholder farmers to empower them, could be more beneficial.

There are multiple advantages of sourcing from smallholder farmers, such as expanding a business’s supply base, shortening supply chains, and potentially providing a new customer base for agricultural inputs, training and financial services. Furthermore, working directly with smallholders can be good for businesses reputation, and a positive step towards achieving both company level, and global level efforts to reach key sustainability targets, such as part of the UN Sustainable Development Goals or as part of corporate social responsibility.

ADAS has in-house expertise and a strong track record in working with food businesses who are sourcing globally to promote sustainable supply chains. Our knowledge of sustainability challenges within food supply chains and expertise in supply chain engagement with farmers of all sizes makes us the ‘go to’ business for finding practical solutions to your sustainability challenges.

For more information, please contact Leslie.Berger@adas.co.uk

[1] Working with Smallholders, A Handbook for Firms Building Sustainable Supply Chains, IFC, July 2013

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