Archive for March, 2010
Towards Greater Inclusion of Small Holder Farmers
Last week Villgro held its annual Learning Week for its 2010 Fellows. Among the various issue-areas, we took a look at how businesses models can successfully engage with small holder farmers. We looked particularly at two models – contract farming, and deep procurement. In both models large agri-businesses engage with farmers directly to source raw material and products for consumer consumption. Both models seek to cut out the middle men, and create a more direct, uninterrupted line of supply. However, both models also tend to work with medium and large-scale farmers, rather than ones with smaller land holdings.
Traditionally these farmers have been shielded from interacting directly with retailers. Previous legislation in India that ostensibly sought to protect these farmers from unfair prices have now been lifted, allowing wholesale retailers to directly interact with farmers, rather than go through government-regulated mandis where middlemen acted as procurement brokers. This, combined with growing urbanizatio nand changing consumer patterns has allowed both large agri-businesses and farmers new opportunities to work together, and promises to change the way agriculture is done in India.
But where does the small farmer fit into this? Several examples have pointed to their incorporation under contract farming arrangements for food giants such as McCain, and Pepsi, and domestic agri-business firms such as Calypso Food and Suguna Poultry. Others have been engaged as sourcing channels for Indian retailers such as ITC, and Reliance Fresh. However, studies such as the Monitor Groups Emerging Markets, Emerging Models have shown that less than 50% of the farmers engaged currently are small holder farmers.
So how, can businesses move to being more inclusive of small farmers? Bill Vorley, Mark Lundy and James MacGregor in their paper, “Business Models that are Inclusive of Small Farmers” describe a range of business models for inclusive market development. The papers focuses specifically on models that improve inclusiveness, fairness, and financial sustainability of trading relationships between farmers and agri-businesses, whether processors, exporters or retailers.
The paper identifies three broad models through which this is possible.
- Producer-driven: This model is driven by small-scale producers or large farmers. The aims to create new markets, higher market prices and stabilize market positions for small producers, and large supply volumes for large farmers. An example of this model is the work of Cuatro Pinos, in Guatemala.
- Buyer-driven: This model is lead by processors, exporters and retailers who are looking for regular, reliable and quality supply to meet their supply-chain needs.
- Intermediary-driven: This model is driven by traders, wholesalers, and other traditional market actors, or by NGOs and allied support agencies, or as in the case of China, national and local government bodies. The objective of these actors are varied. trader and wholesale driven models tend to target discerning customers, while NGOs traditionally champion the cause of the poor farmers, and governments regional development.
The examples of several organizations are used throughout the paper to highlight these models. Cuatro Pinos, for example, is a cooperative that identifies existing farmer groups, associations and “lead farmers,” and works with them to test production schemes and provide production support to promising farmers. Credit and assistance is later discounted from the initial product deliveries.
MA Tropical Food Processing is a Sri Lankan firm that operates on the producer-driven model, providing extension services to farmers for production, record keeping, and post-harvest practices. It also acts as an intermediary for commercial credit from banks.
Impact
The authors also present a table compiling the impact on these farmers, using MA Tropical Food Processing as an example. The figures show an almost two-fold income level among farmers part of the MA chain as against those outside of it. Among common crops, farmers tend to receive a higher price per kilogram on average, when compared to other village traders.
Limitations
The models are not without their limitations though. In the buyer-driven model benefits can be limited by high transport charges and delayed payments. Also, producers also demand exclusivity in supply. Suppliers consequently also face the probability of side selling by producers, among other limitations.
The paper proceeds to lay out how small farmers can be prepared to join mainstream agricultural production and what businesses should consider in order to work successfully with small farmers. It also takes an in-depth look at the role of the public sector and donor organizations in supporting the greater inclusion of small-scale farmers.
To read more about the models suggested by the authors, click here.
Pro Poor Value Chains
ITC’s Choupal Fresh was one example discussed at the Villgro Fellows Week. The retail business in India has witnessed a boom in recent years. Securing adequate supply – particularly of fresh fruits and vegetables – however continues to be a challenge. A 2009 Case Study by Rewa Misra, of the Coady International Institute in Canada, looks at the ITC example of establishing supply chains directly from the farmer. This pro-poor method can successfully integrate smallholder farmer.
The case study uses value chain analysis to highlight three aspects. Firstly, which activities/types of firms/strategies yield higher value than others for small holders. Secondly, what forms of relationships, contractual and otherwise work in the value chain and, thirdly what models work best for service delivery.
The key fact established through the case study is that integrating small holder famers within the fruit and vegetable value chain is possible, if large firms such as ITC take a lead in playing a larger role by fulfilling key functions. It also posits that the model works if inter firm relations are purely market based and mutually beneficial.
Read the entire case study here.
Technology Enabled Entrepreneurship under Poverty Alleviation Programme
Technology plays a big role in the development of a society. India’s own economic growth has largely been possible because of the advancement in telecommunication technology made in the early 1990s.
The poor too, it has been demonstrated, can benefit greatly from technology. Simple technology such as the cell phone has enabled women in Bangladesh to increase household income, or has provided an easy way for a construction contractor to pay salaries to his migrant employees in northern India.
Several social enterprises today are making use of technology to impact lives. Villgro itself has worked with several such enterprises in the past.
Technology also has a significant role to play in the agriculture sector. Very often farmers are not able to maximize their profits because they are unaware of the optimum price for their produce, and sell it to middle men at much lower rates. Access to information, is therefore vital. And technology plays a role in filling this gap.
Sanjay Mohapatra, in his article ‘Technology Enabled Entrepreneurship under Poverty Alleviation Programme’, takes a closer look at one technology-based solution developed for farmers. Not only does the article show how technology can help maximize profits, but it also demonstrates that the investment in technology actually results in surplus which helps in improving the living conditions and helps in poverty alleviation.
Read the entire article here.
Innovation Research for Low-Income Countries
Can innovation be studied as a field of science? What benefits are derived by doing so? Who are the subjects of innovation studies?
These are the questions that authors Jo Lorentzen and Rahma Mohamed answer in their paper, ‘Where are the Poor in Innovation Studies.’
The authors point out that while the study of innovation has been around for more than 50 years, very little work has been done on understanding low-income countries or regions. The paper goes on to explore the role played by innovation in development and discusses possible reasons for why so little has been focused on low-income countries.
Through a review of innovation literature addressing innovation for the poor, the authors point out that most research was not done by innovation scholars, and tended to focus more on issues of livelihood, especially agriculture and health. Their concluding ananlysis of the study of innovation is that research for low-income countries would benefit extensively from a synthesis of “economic analysis of technological learning and sociological analysis of innovation diffusion.”
Read the entire paper here.
Agri-biotechnology in India
Biotechnology has been in the news recently for not the best reasons. The proposed introduction on Bt Brinjal raked up much controversy across the country. Agri biotechnology is not new, however. In 2002, the Government of India approved the commerical cultivation of Bt cotton. This lead to the growth of agri biotech among biotechnology firms.
Recent increase in government support – through dedicated R&D laboratories, regulatory framework and policies – has contributed to this growth. Private participation is also on the increase.
The potential is however met with its own share of challenges. India has perhaps gained notoriety for stemming several international patents filed for agricultural produce that has been indeginous to this part of the world for years – basmati rice and turmeric powder to name a few. The need for stonger laws is one such challenge.
A 2007 study by Rabobank delves into these future of agri-biotechnology and addresses some key issues and challenges. For more on the report, visit www.rabobank.com/far
Social Entrepreneurship Research
Social entrepreneurship is often seen as differing from other forms of entrepreneurship in the relatively larger emphasis put on social benefit over monetary benefit. However, a key component to entrepreneurship remains — that is, the need and ability to demonstrate profitability to ensure scale and long term viability, which in turn maximize social benefit.
As a field of scholarly investigation, social entrepreneurship provides a unique opportunity to constantly challenge and rethink standard business and management assumptions.
Social enterprise research is therefore often “a source of explanation, prediction, and delight,” according to IESE Business School academics, Johanna Mair and Ignasi Marti. Their article, Social Entrepreneurship Research: A Source of Explanation, Prediction and Delight,” elaborates on the view that social entrepreneurship is a process that catalyzes social change and addresses social need in a way not dominated by direct financial benefit for the entrepreneur.
The article explores several themes along the way. Crucially, it distinguishes social enterprises from regular enterprises as the “relative priority given to social wealth creation versus economic wealth creation.”
Therefore the authors believe, the concept of embededness (or social value within economic value) as the nexus between the ideas and theoretical perspectives for the study of social entrepreneurship introduced in the last section.
These theoretical perspectives are divided as follows:
Structuration Theory: That it is impossible to detach the agent (social entrepreneur) from the sturcture (community, society).
Institutional Entrepreneurship: These are actors who have an interest in modifying institutional sturctures or creating new ones. They leverage resources to create new institutions and transform existing ones.
Social Capital: This is broadly defined by researchers as actual and potential assets embedded in relationships among individuals, communities, networks and societies.
Social Movements: Which researchers have found focus their efforts on four key issues: a) political opportunities and threats, b) resource mobilizing structures and active appropriation of sites for mobilization, c) collective action frames and identity formation; and d) established reportoires of contention and innovative collective action by challengers and their member opponents.
Read the entire article here.
Non-farm enterprises growth: Evidence from Tanzania
Throughout the world a majority of rural business activities revolve around the agriculture/farming sector. Nonfarm enterprises have been slow to grow, and are often limited by supply side factors such as access to finance, road infrastructure, rural cell phone communication and so on.
In their paper, Small Enterprise Growth and the Rural Investment Climate: Evindence from Tanzania, authors Tidiane Kinda and Josef L. Loening analyze nonfarm enterprises in Tanzania — their growth in employment, business challenges and constraints. The authors discuss a number of factors that would help unleash the full potential of private-sector led businesses. The study also looks at the investment climate and supply side issues mentioned above, demonstrating that marginal improvements in the rural investment climate matter for growth.
This paper is part of a World Bank Policy Research Working Paper, and is available here.
Global Entreprenurship Monitor 2009
Since the first report was published in 1999 by scholars at Babson College and London Business School, the Global Entrepreneurship Monitor has developed into one of the world’s leading research consortia concerned with improving understanding of the relationships between perceptions of entrepreneurship, entrepreneurial activity, and national economic growth.
The 2009 report looks at a global overview on entrepreneurship in 2009, with a special section on the impact of the global 2008-2009 recession on entrepreneruship.
The report also delves into a global comparison of social entrepreneurship. Of particular interest is the section mapping out the prevelance of early-stage social entrepreneurship activity and also the sectors that social entrepreneurs enter.
Read the entire report here.
Beyond Budgeting: The Rural Need For Practical Solutions
Last week the WSJ India portal published an article ” Budget 2010: Will Rural India Get a Fair Deal?” authored by K. Seeta Prabhu, Senior Assistant Country Director, United Nations Development Programme, New Delhi. Villgro Fellow 2010, Jeanne Chen responds to the article on her blog, Crossworlds. The original post is republished, with permission, below.
This article was originally published by the Wall Street Journal on February 24, 2010, “Budget 2010: Will Rural India Get a Fair Deal”. Within the article, Ms. K. Seeta Prabhu of the UNDP in New Delhi raises a number of extremely relevant concerns about the rural poor of India:
- 42% of rural farmers live under the poverty line
- Small acreage farmers compose 84% of total farmers
- Low agricultural productivity
- Lack of permanent shelter
- Lack of electricity and highly inefficient energy usage
- Lack of employment opportunities outside of agriculture
The situation described demands attention. In response, Ms. Prabhu recommends that the government should take action by injecting massive amounts of stimulus money into large public work projects to build crop warehouses and public toilets, to usher in another “Green Revolution”, to incentivize the installation of bio-plant stoves, etc. The litany of public projects that Ms. Prabhu wants the local governments to undertake is daunting. I find no fault with the problems identified and the end objectives cited, but I do doubt the realistic feasibility of the list of public projects. These proposed solutions are in fact not new; they have been discussed by the development community for some time. The problem doesn’t lie in the solution ideas themselves, but in the implementation – what has been coined as the “last mile challenge”. It’s agreed that these solutions need to happen, but how?
In my opinion, the government is not the agent of choice for solving this implementation problem and promoting large public works projects is certainly not going to address the rural poor’s needs. Ms. Prabhu herself points out that past governmental initiatives to create employment have failed:
“The implementation of the National Rural Employment Guarantee Program has offered some succor but due to various constraints, the promised 100 days of employment have been provided only in the state of Rajasthan. In fact, the performance of the program is quite low in the states of Bihar, Orissa and Jharkhand, which have large numbers of the rural poor.”
The NREG program is a perfect example of how the government failed to reach the last mile. A Villgro associate recently visited with farmers in the impoverished state of Assam and asked them why they were not in the NREG program, which could have more than doubled their current annual income (~Rs8,400 or $170USD). The Assamese farmers said that they weren’t aware that such a program existed. The local governments in charge of the NREG hadn’t publicized the program and so, those funds disappear off into a vacuum and failed to reach the rural poor. How then, will more public programs and government projects help the rural poor climb out of poverty?
Instead of encouraging more public works programs, Ms. Prabhu would do better to promote additional funding for the existing social entreprises who have made immense progress in helping the rural poor increase their income. In Out of Poverty, Paul Polak specifically discusses how rural innovations such as the treadle pump have helped increase the crop yield and income of small acreage farmers far more more than the first “Green Revolution”. Millions of rural farmers have used drip irrigation systems, treadle pumps, and other agricultural innovations developed by social enterprises to grow off-season crops which generate more income or to grow crops during the dry seasons.
There are also other entreprises that are addressing the other problems faced by the rural poor. In fact, Villgro has incubated a number of enterprises that address each of the problems cited by Ms. Prabhu. Innovations such as the Venus Burner help to make energy more efficient; the Pin Pulverizer is a small grinder that allows farmers to mill their grains before they spoil; Desicrew and other rural BPOs are creating lasting employment for women and youth. The list of rural innovations that are practical solutions addressing the needs of the poor continues to grow and their impact has been dramatic. Although the implementation is still difficult, social enterprises have devised ingenious methods for distributing and marketing to that last mile. But most importantly, because the profitability and survival of these social enterprises is dependent on the adoption of the product or service, there is a guarantee that these solutions will actually reach the rural poor.
As the rural poor begin to increase their income through growing multiple crops per year (aided by drip irrigation), cost savings on more efficient energy and other activities, they can begin to invest their additional income to build the infrastructures that they value. Education, health, and permanent shelters are the next logical investments that the poor make, but they have to increase their income first in order to get there. If addressing the needs of the rural poor is the aim, Ms. Prabhu would be better served to support budget allocation of funds to existing social enterprises and the development of rural innovations rather than additional government stimulus and public works programs that fail to actually reach that last mile. The rural poor need practical solutions that place chapattis on their plates and rupees in their pockets, not grand social infrastructure schemes and empty government programs. After all, it’s only a fair deal if the rural poor actually benefits from it.
Emerging Trends in Rural Marketing
In an earlier post, we looked at the potential for advertising to reach rural India. But how does one successfully develop a product to suit the needs of rural India? Increased industrialization in urban centres is causing a slow, but steady increase in rural India. This, coupled with increased agricultural output has lead to increased purchasing power among the rural poor. However, rural marketing still remains vastly different to urban marketing. One needs to accurately assess the needs, dynamics and interest of rural customers.
This article, by Professor Dinesh Babu and team at Mohammad Sathak Engineering College, discusses the challenges, limitations, and opportunities that are necessary to understand the rural markets and develop strategies to supply and satisfy the rural customer.
Read the entire article here.