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.