Big business from small growers
Some of the world’s largest food companies are committing to development by opening their supply networks to small-scale producers. Through its Sustainable Living Plan, Unilever has pledged to trade with an extra 500,000 small-scale farmers by 2020. Walmart plans to triple sales to more than US$1 billion from a million small and medium farms in emerging economies. Both are looking beyond the fair trade niche or token corporate social responsibility projects, to align with mainstream business.
While such linkage to modern markets may not yet provide livelihood opportunities for most smallholders in developing economies, it warrants serious study to understand what underpins inclusive business.
As part of a project led by the Sustainable Food Lab, IIED has spent three years working in a chain that links up to 4,000 small-scale Kenyan farmers to export markets in Europe and North America via a highly innovative local intermediary. The product in question is flowers, grown as part of family farming systems. A half acre of flowers generates more income than four acres of the other main cash crop tea, with significantly less labour.
Linking worlds
The Kenyan case study is marked by a shift from ‘pushing’ flowers at Dutch flower auctions to a ‘pull’ market, driven by demand from UK and US supermarkets. The supermarket business model is built on fixed procedures, uniformity and compliance with standards. It puts considerable strain even on the best smallholder-based model, and challenges the usual calls to cut out the middleman and build independent producer organisations.
Know-how and understanding in agricultural and business practices are the biggest hurdles to development. Understanding the end user helps them [smallholders] create a better matched product.Wilfred Kamami, Executive director, Wilmar Agro Ltd, Kenya
Setting a target for sourcing supplies from smallholders is just the start. In this case, the business models of the intermediary, the importer, the retailer and the certifier all have to change to link the worlds of smallholders and modern business. This should be backed up by regular health checks: IIED is now working with Kent Business School to develop practical tools for businesses to assess their trading relationships.
Photostory: Linking smallholders to export markets
1. Wilmar Agro Ltd works with more than 4,000 smallholder flower growers in the Central and Eastern Province of Kenya
2. This local business has long supplied an export market, sending flowers to Dutch auction markets.
3. Wilmar operates an inclusive business model, working with local growers to establish clear contracts, and using transparent quality and grading processes.
4. Wilmar helps its growers by collecting flowers from individual farms and providing support to set up bank accounts, which is particularly important for women
5. Working with a local NGO as part of the Kenya Horticulture Competiveness Programme, Wilmar helps make local farmers invest in vital resources such as shade netting, irrigation and food security crops.
6. IIED and partners worked with Wilmar to build direct links to retail markets — first to ASDA in the United Kingdom and then Sam’s Club in the United States, both subsidiaries of Walmart.
7. IIED’s role was to help develop a commercially viable product proposition. For example, working with the Rainforest Alliance to adapt certification for small-scale flower growers, to fulfill the demands from ASDA and Sam’s Club for a certified product. IIED also helped Wilmar improve its capacity to supply these ‘pull’ markets, that have high and more demanding requirements
8. ASDA also invested at the production level — in trialing new products that would add colour and variety, and therefore value, to flower bouquets.
9. Wilmar successfully supplied ASDA with smallholder bouquets certified by the Rainforest Alliance.
10. Now, Wilmar is working to develop new product positions for the retail markets — developing single variety consumer bunches and adapting its own systems and processes to meet these needs.
11. Wilmar continues to supply flowers to Sam’s Club in the United States and has received considerable interest from other retailers.
Internal links
New business models for sustainable trade
Under what conditions are value chains effective for pro-poor development - summary paper
Investing in smallholders and workers is good for business