Promoting Inclusive Markets and Financial Systems
How to Motivate Lead Firms to Engage with Smallholder Producers
Author: Gianluca Nardi, Senior Advisor at CARE International UK
"I am is currently involved in a market development project in Brazil aiming at improving the income of small cocoa producers in Bahia, a traditional cocoa producer state, with various large international processors present there. The main issues faced by smallholders are poor post-harvest management techniques, limited access to credit and a cocoa plague called the 'witches’ broom disease.'
The supply is dominated by large producers, whose production represents more than 80% of the total, and while it is in everybody’s interest to increase and improve the overall local cocoa production, both the Government efforts and the private sector efforts tend to prioritize large producers, as this strategy is more economically efficient and effective.
Which strategies would you suggest to convey technical assistance and capacity building toward small producers, through a market facilitation approach? Which incentives can we leverage to motivate lead firms to focus on these more costly / less profitable Value Chain players?"
Back in 2010 I was supporting a cocoa Value Chain programme in the North East of Brazil (Bahia) benefitting around 4,000 smallholder farmers and I asked this same question to MaFI (The Market Facilitation Initiative) members. I am now writing this blog to condense highlights from that discussion, as part of an ongoing programme to extract key messages from the most successful discussions in MaFI. The full discussion can be accessed here by MaFI members.
The difficulty that I was experiencing that prompted me to post in MaFI derived from the fact that large private sector firms in the area seemed to have little appetite to invest in smallholders because a very efficient network of middleman was present (efficient from the point of view of the buyers, not necessarily of the sellers) that brought the smallholders’ production straight to their doors (although with low quality), and because most of the cocoa in the area (around 80%) was produced by large cocoa farms, and with better quality.
The reactions from the group, as I was expecting, were really stimulating, and generated some good reflexions:
- We often assume that the business case for large firms to work directly with smallholders producers exists, and that simply the private sector needs help from NGOs to make that happen. This case was a wakeup call to a reality where for most of the private sector was more cost effective and with returns in the short term, to invest in large producers rather than in smallholders. Of course, the environmental and social costs would not enter into the cost-benefit analysis or would be delegated to the CSR departments.
- Cocoa is only one of the farmers’ productive activities. While it might make little sense as a small scale stand-alone business and it would not be sufficient to provide for the need of a family, it complements an overall income generation strategy that includes other activities including paid jobs in the nearby cities, tourism services (Southern Bahia is a beautiful place!), or artisanal chocolate production. Within that context, the private sector working in other complementary activities (Hotel chains for instance) can have an important role to play in the initiative.
- Participatory market mapping can be a very good tool not only to analyse the market system, but also to put the different market actors together and make them talk to find solutions that can be of mutual benefit.
- Nimble medium and small firms can have better incentives and be better equipped than large companies for niche markets. Local chocolate makers or traders of high quality organic cocoa for export market have incentives to promote local or regional brands, associated to smallholders and to the rainforest conservation. This type of branding can become a competitive advantage and a price differential for their products, and this was in fact one of the strategies adopted by the project. Anyway, Fairtrade / organic certifications are no silver bullets and are just another commercialization channel which presents opportunities and constraints.
- When analysing the business case for cocoa smallholders, it makes more sense focussing on their strengths rather than on their weaknesses and look for success stories, opportunities. This way it was possible to spot what worked well and replicate it rather than import solutions from outside. For instance, training local leader farmers to become promoters of good agriculture practices and plague control, resulted in improved quality and volumes. This was among the project activities to tackle the barriers for smallholders to engage with large firms.
Some of the ideas discussed in MaFI were finally shared with the project team during a workshop and ended up influencing the project strategy and the lives of 4,000 farmers.