Someone once advised me never to let a crisis go to waste. As such, though these are incredibly challenging and uncertain times I am choosing to use channel some of my energy to think and reflect. Without wishing to appear presumptive, I have set out below some of my learnings from 40 years of working at the interface between international development, smallholder farming, agribusiness and market development.
While I initially went about compiling these thoughts to help those in the public and development sectors better understand the private sector, these distilled learnings may also be of interest to the private sector as it offers a take on how private sector activities can be interpreted by an outsider.
More than CSR - Given a choice, most managers of agribusiness like to be able to use their influence and position to derive a sense of “purpose” from their work over and above that of increasing the bottom line. (e.g., improving smallholder livelihoods). In the interest of career progression though they will ultimately still need to demonstrate a proven business case for work that feeds this “purpose”. There is a much higher chance of success when the project is seen as part of a company’s core operations (e.g., procurement) than if it is initiated as a Corporate Social Responsibility (CSR) activity.
Identifying Partners - An informal survey of development professionals working to connect farmers to markets highlighted four universal lesson:
Governments are, almost always, part of the solution.
Only a portion of the farming community could/would form part of a more formal supply chain. These are typically those who are relatively well located and have an interest in becoming more commercial by stepping up their farming production techniques. Typically, these are not the most disadvantaged and marginalized farmers
To be economically sustainable there must be a profit incentive for all the links in a supply chain.
In effective supply chains function is more important than form. What I mean by this is that cooperatives, small-scale traders and large agribusiness can all be highly successful players in smallholder-based supply chains. Their size is less crucial than the significance of the role they play in a supply chain (e.g., transport & logistics, market information & sales, quality control, trust building etc) and that this function is carried out efficiently and effectively.
Centrality of Demand - The key success factor in all of the value chains projects carried out by members of the Grow Asia network is that there is a demand for the products and that a committed off taker is in place to absorb increased supply.
Tried and Tested Patterns - Smallholder yields are usually well below optimal, resulting in a high unit cost of production being high. Almost all the value chain projects in our Network start by aiming to increase farmers’ productivity (e.g., through Demonstrations plots, Farmer Field Schools and training of leading farmers). The sequence then follows a pattern: (1) improve access to inputs and finance, (2) group farmers to facilitate information dissemination, and (3) aggregate product. This progression of interventions is generally quite predictable and over time become more holistic and sophisticated as each successive constraint is identified and overcome.
Trust - There is a high level of distrust between agribusiness and smallholder farmers, mostly around prices paid and side selling. To circumnavigate the trust issue, many agribusinesses select better local traders to function as their intermediaries, acting as buyers, primary processors and sometimes distributors of working capital credit. In a number of cases, the lead private sector companies have also won the trust of farmers by organizing multiple partners to deliver a holistic package of solutions for the growers (e.g. certification, credit, logistics). Some of the projects in our Network will involve up to 35 partners, but more commonly have about 10.
Managing Risk – Smallholder farmers are, rightly, risk averse and reluctant to use their limited capital to invest in what they see as new and unproven technology. Development practitioners need to be very careful about exposing small holder farmer to these risks, as even small financial losses can have a traumatic effect the stability of farming households. Voucher schemes, which provide matching grants for farmers to invest in new technologies, can be used to (1) de-risk the investment, (2) enable farmers to see the benefits of this adopting this new technology directly on their own farm and (3) increase profits from the first subsidised season which could provide the necessary additional working capital to invest in new technologies at full cost in subsequent seasons.
Time - Building strong supply chains takes time – typically between 4 to 8 years.
Scalability - Individual value chains are generally finite in size, limited by the volume buying requirements of the off-taker. The average number of households involved in the mature individual value chain projects in our Network is around 20,000. When these are scaled up to a more systemic/national level the numbers of farmers benefiting typically tops 100,000.
The Double-Edged Sword - There is an increasing demand for raw material by the food industry in Asia, with the Food Spend in Asia projected to double over the next decade. This creates both an opportunity and a threat. The opportunity is that significant new cash sources will be routed into the rural economy. The threat is that buyers may turn to imported supplies, as they can be cheaper. Those wanting to work with the private sector need to keep in mind that farmers and supply chains have to be cost competitive - which in turn requires attention to improving productivity and lowering costs of production and transaction costs.
Local Coordinating Bodies - On the ground delivery is greatly enabled by having a local coordinating and multi-stakeholder planning committee, reflecting the mix of Public, Private and Producers/Community interest at a local level.
The Private Sector - There is a common myth among many development practitioners (especially economists) that the private sector has all the answers. This is not true. We find what they do have is an openness and willingness to learn (with a focus on the “how to” aspects of delivery rather than concepts).
Balancing Multiple Opportunities – The private sector operates in an environment where opportunities are time limited as market windows have a tendency to open and close rapidly. Their sense and need for urgency is much more pronounced than that of the public/development sector, often leading to disconnect and disappointment when they try and work together. The private sector will also have at any one time a number of potential future projects and investments under consideration. It is in their interests to keep all their potential future partners engaged and under the impression that theirs is the only project planned, which often leads to much disappointment from public sector/development partners when the business makes the decision to pursue a different opportunity.
Be Part of the Solution - Steven Pinker’s “Enlightenments Now” is an incredibly important book which points out that - despite our pessimism - the world has generally become a much better place. In his chapter on food he has a graph of the numbers of deaths by starvation from 1860 to now. Between 1860-1960, the average number of deaths from starvation per year were about 500 per million; between 1970-2000, this has dramatically dropped to about 13 per million. This is a fall to 1/30 of what it was. This is put down to two principle factors: (1) productivity improvement – through seeds, fertilizer and mechanization, and (2) post-harvest infrastructure - roads, trucks, ships, storage etc, so agricultural products can be moved quickly from places of surplus to those of deficit. The private sector is an incredibly integral part of these solutions, as are governments, scientists, advisory services and farmers who have been able to improve their practices. The key take-away here is that going forward we need to enhance the way that these different sector work together though effective public-privet-producer dialogues.
I sincerely hope you found the points above interesting, and better yes useful! The Grow Asia team and I are keen to hear insights from your own experience, so if you're willing to share thoughts please feel free to comment below or reach out to us at info@growasia.org.
Lastly, as everyone around the world is experiencing the effects of the escalating COVID-19 situation, I hope we can continue supporting Southeast Asia’s agriculture sector by responding quickly, and collectively, to these rapidly changing circumstances.