Redefining smallholder farmer inclusion in modern value chains: three ways forward

A new report from IIED explores why expectations of including smallholder farmers in modern value chains have fallen short, and suggests new and more realistic ways of getting inclusion to work for smallholders.

Giulia Nicolini's pictureAlejandro Guarín's picture
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15 September 2022

Giulia Nicolini is a researcher and Alejandro Guarín is principal researcher, both in IIED's Shaping Sustainable Markets group

A man carries a box with spring onions through a busy scene

A man carries a crop of spring onions through an outdoor market in the El Quiché department, Guatemala (Photo: Tory Taylor/US Aid via FlickrCC BY-NC-ND 2.0)

Small-scale farmers around the world have long sold their goods into both global and local markets. But over the last 20 years – reflecting a shift towards market-based approaches in international development – foreign aid agencies and NGOs have promoted the inclusion of smallholders in high-end, transnational value chains as a solution to challenges such as rural poverty, gender inequality and deforestation.

Donors and NGOs have argued that if smallholders sell into more lucrative markets, they can make bigger profits. In turn, this is expected to stimulate growth in rural areas, by enabling small-scale farmers to earn more – and invest more in their farms.

Inclusion has also been touted as a way to address environmental impacts linked to small-scale farming, by helping farmers adopt more sustainable agricultural practices.

Smallholder inclusion is about supporting farmers to connect to more profitable markets, by helping them overcome barriers to access, usually by providing finance, training and other services and resources.

For example, in one programme, smallholders in Guatemala were given the training, infrastructure and market links that led them to supply Walmart with onions and French beans.

And in Ghana, Mondelez International (one of the world’s biggest chocolate manufacturers) is working with cocoa farming unions to teach smallholders about climate change adaptation strategies and income diversification, while also committing to buying large quantities of cocoa from the smallholders, and being transparent about the terms of trade.

Are we asking too much of inclusion?

But a new report from IIED questions whether inclusion has lived up to its sometimes lofty expectations and whether the assumptions underpinning the logic of smallholder inclusion were realistic in the first place.

The report draws on a literature review and nearly 50 interviews with farmers, representatives from government, the private sector and NGOs, as well as donors and investors.

We found that while there is evidence for and against its benefits, in terms of widespread impacts, inclusion has fallen short. For example, systematic studies of the impacts of contract farming or voluntary standards have shown that, while these schemes can increase incomes, it is mostly better-off farmers who benefit.

Assessing if inclusion improves farmers’ income is complicated by the fact that only successful cases tend to be reported. Other goals of smallholder inclusion, such as reducing gender inequality and addressing environmental degradation and climate change, have also come up short.

 

Alejandro Guarín discusses IIED's latest report

Three ways to rethink inclusion

While inclusion hasn’t been a silver bullet to sustainable rural development, its ambitions are still virtuous and worth pursuing. But tackling complex challenges such as extreme poverty among farmers requires rethinking who is best placed to address these goals, and how.

Through our interviews, we found that the role of different actors in supporting inclusion is changing. This is creating new and different opportunities for research, investment and partnership. Below we highlight three key areas we think demand more attention as we reframe the focus of inclusion initiatives going forward.

1. Demystifying the ‘hidden middle’ for effective investment

In our research, we heard how donors and investors are increasingly supporting small and medium enterprises (SMEs) that connect production and retail – such as wholesalers, aggregators and processors. This group of businesses are sometimes referred to as the ‘hidden middle’ (PDF), as they are often ‘invisible’ to consumers and policymakers.

Investing in this dynamic part of the value chain allows investors to reach greater numbers of smallholders, and can be less risky than investing directly in small-scale production. It also reflects a growing realisation that local and regional markets, including those for staple grains, have the potential to drive rural development and reduce food insecurity and poverty.

But there is uncertainty about how to invest in some of these smaller, often informal businesses, many of which do not have ways of tracking labour standards or environmental performance. A lack of experience in engaging with domestic and regional markets may also be holding prospective investors back.

Targeted research that explores how the ‘hidden middle’ works, what its businesses need, and how finance and other services are already being provided informally could help fill some of these gaps and identify ways for investors to work effectively and equitably with smallholders.

2. Achieving a green transition for inclusion

Our research found smallholder inclusion has had only limited impact on reversing environmental degradation linked to agriculture and addressing the sustainability of small-scale farming in a changing climate. Voluntary certification and standards are supposed to work by rewarding farmers with better prices, and a higher share of the price, if they comply with guidelines for sustainable agricultural practices.

Our findings suggest there is no clear link between adherence to these standards and reversing environmental degradation, beyond some progress on reducing pesticide use. An urgent, and until now poorly explored part of the inclusion agenda is how to improve farmers’ ability to deal with the impacts of climate change.

3. More inclusion needed, not less

To get inclusion right, farmers’ demands must be heard. As part of our research, we spoke to a small number of farmers in Kenya who grow fruits and vegetables for export.

Most recognised the opportunities this brings – such as higher incomes – as well as the downsides, such as having produce unfairly rejected by foreign buyers due to changes in demand.

But despite the obvious pros and cons, none of the farmers we spoke to were against selling into these supply chains altogether. Rather, they acknowledged the need to participate in local and regional markets as well as global ones.

The time is right for donors, industry, national governments and civil society to recalibrate their expectations about smallholder inclusion, to be realistic about the benefits of modern supply chains, and to support farmers – especially women – to participate in markets of all types.

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