Over the past few years, agriculture has returned to the center stage of the development agenda – particularly as price fluctuations and demographic growth aggravate the challenge of food security. A staggering 870 million people, 12 percent of the world’s population, are chronically undernourished today. It’s clear that smallholders are important partners for improving food security when considering that, with 500 million farms worldwide, they cultivate most of the land in developing countries. To achieve food security, effective mechanisms to equip smallholders with the right inputs and tools – as Yasmina Zaidman noted in her recent article commemorating World Food Day – as well as integrating smallholders into local, regional and global value chains bear great opportunities.
Smallholders’ potential to help feed the world
Smallholder farmers may greatly increase their productivity and market access. Most still use traditional farming methods, and varieties for seed and animal husbandry often associated with low productivity and subsistence farming. Smallholders also use very little capital, e.g. for irrigation or machinery and are labor intensive, often involving their own family for most of the work. This approach is not always a matter of choice: Smallholders lack access to credit and insurance, thus preventing them from investing more and trying new cultivation approaches. Purchasing high-quality and modern inputs is not only expensive, but also often requires a trip from rural areas to a far-away distribution center in the city. Knowledge and information on the availability of improved farming methods and inputs is largely missing. Finally, and most importantly, smallholders lack access to sales markets that would reward investments with an attractive price for products. All in all, smallholders are often locked in into low-productivity systems and lack the incentives and information to improve their incomes.
Unlocking opportunities by including smallholders into value chains
Agribusiness and food companies can unlock these markets by including smallholders into their value chains as suppliers and customers, and thus increase their productivity. Companies sourcing from farmers, for instance, have a vital interest in learning how to cooperate with smallholders since there is significant market growth for agricultural produce. With the population set to increase to 9 billion by 2050, demand for agricultural products will grow significantly and access to land and produce will become increasingly competitive and challenging. In particular, products labeled “organic,” “fair-trade” and the like are in high demand as more and more consumers look for products that have been produced in a way that benefits the environment and local communities. The increasing need to meet quality standards enforced through international trade and food safety regulations is another factor prompting agribusiness companies to move closer to producers also in developing countries. Finally, input providers are looking to build new markets as industrialized markets are largely saturated.
Grasping the opportunity: Catering business models to challenging environments
A new practitioner guide commissioned by GIZ on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) and implemented with Endeva sheds light on the opportunities and challenges in doing business with smallholders (full disclosure: the writers of this post work at GIZ and Endeva). Step by step and based on extensive case study research along with expert input and interviews, the guide "Growing Business with Smallholders" shows how companies can work with smallholders in developing countries as business partners. The “Guide for all Seasons” -framework helps companies design each phase from discovering a concrete business opportunity, assessing the context and challenges, to planting solutions and nurturing them through collaboration, finally harvesting and sharing the benefits.
The practitioner guide will be launched in a public event on Nov. 19 in Berlin with a panel discussion of entrepreneurs and development experts. Company representatives are also invited to join the "Growing Business with Smallholders" - practitioner workshop on Nov. 19 and 20 to work with experts and peers in order to reflect and enhance their own inclusive agribusiness models.
The time for inclusive agribusiness is now!
Conditions for growing business with smallholders probably have never been better: On the one hand, the urgency to upscale agricultural production is daunting. On the other hand, a better understanding of inclusive business approaches, rapidly evolving technologies to reach out to and enhance productivity of smallholders, and explicit support from both governments and bilateral and multilateral donors are setting the stage for inclusive agribusiness. So it’s fair to say: It’s a truly big smallholder opportunity!