Recent estimates suggest that there are more than 570 million farms in the world. Of these, more than 475 million are smaller than 2ha, commonly referred to as smallholdings. Even though these smallholder farms only utilise approximately 12% of global agricultural land, smallholder farms are estimated to directly and indirectly support a population of more than 2 billion people (Lowder et al. 2016; Goldman et al. 2016), whilst IFAD (2013) estimate that about 2.5 billion people are employed, partially or entirely, in 500 million small farms worldwide. Smallholder farms therefore play a critical role in food security, poverty reduction and sustainable development for a very large proportion of rural populations, globally.
Smallholder farms are typically family owned farms, less than two hectares in size (2 hectares is a common threshold size, although this is dependent on which crops are grown), where most of the labour comes from the farming family. For the purpose of this blog, where I would like to discuss smallholder farms’ participation in global value chains, it is also pertinent to consider smallholders in terms of their degree of commercialisation: non-commercial (typically staple crops for subsistence); commercial in loose value chains (a more business oriented approach to farming with regular sales to buyers or traders); and commercial in ‘tight’ value chains (typically with contracts with buyers that may provide financing and other support). An estimated 90 per cent of smallholders engaged in supply chains operate in local and national markets, whilst the remaining 10 per cent produce crops for export markets (global value chains) (Goldman et al. 2016).
Food demand is expected to increase dramatically over the forthcoming decades, and it is recognised that increasing food production is going to be a significant challenge, due to land constraints, production potential being reached in many regions and resource limitations imposed by climate change and land degradation. In light of this, smallholder farms are considered to represent an opportunity for enterprises in the food and agribusiness sector to expand market share and secure a flexible and high-volume supply of diversified agricultural commodities on a year-round basis (Lee, 2012).
Although the inclusion of smallholders in high value food chains can contribute to poverty reduction, for example through increases in productivity and farm incomes, engaging with smallholders can involve multiple risks for international enterprises. Dealing with smallholders can involve the following challenges for international enterprises:
- Small farm size can increase transaction costs – poor management skills and lack of aggregation can reduce smallholders’ ability to achieve scale.
- Productivity and crop quality are often low
- Smallholder suppliers may lack knowledge on how to mitigate social and environmental impacts.
- Challenges can arise in farm monitoring and compliance with certain requirements, thereby increasing supply chain risks. Transparency and traceability measures may therefore be needed along the supply chain to address food safety and sustainability issues.
- It can be difficult for certification programs to adequately evaluate the sustainability of farming practices (due to the volume of farms and organizational modes with middlemen and traders)
(IFC 2013; Carroll et al. 2012)
As touched on above, primary drivers for the inclusion of smallholder farmers in global value chains are to meet global food demand in future and to respond to consumer demands for increased sustainability. Consumer concern for safe and sustainably sourced food will demand an increase in risk management, and working with smallholder farmers represents both a risk as well as an opportunity for international enterprises and agribusiness. Poor practices can lead to rapid and severe reputational damage, whilst conversely monitoring and documenting good practices and improvements can improve reputation.
A report from the Clinton Global Initiative (2016) regarding the (successful) engagement of smallholder farmers in global value chains provides key take away messages, three of which I will repeat here as a conclusion:
- “The long term financial viability of multinational food and beverage companies is incumbent on them shifting to more sustainable supply chains. Partners and smallholder farmers play a key role in enabling this shift.”
- Success in such engagements relies on the “willingness of smallholders to participate in and steward the program. To this end, smallholders should be engaged as early as possible.”
- Alignment of local partners’ and global business goals’ is imperative for success: “local sourcing initiatives can create value for both companies and smallholders”.
Carroll, Tom, Andrew Stern, Dan Zook, Rocio Funes, Angela Rastegar, and Yuting Lien. (2012) “Catalyzing smallholder agricultural finance.” Dalberg Global Development Advisors 48.
CGI (2016): Engaging Smallholder Farmers in Value Chains: Emerging Lessons. Clinton Global Initiative. www.clintonglobalinitiative.org
Goldman, G, Tsan, M., Dogandjieva, R., Colina, C., Daga, S. and Woolworth, V. (2016): Unlocking growth in the era of farmer finance. Dalberg Global Development Advisors.
International Fund for Agricultural Development and the United Nations Environment Programme, IFAD 2013, Smallholders, Food Security, and the Environment (Rome).
Lee, Joonkoo, Gary Gereffi, and Janet Beauvais. “Global value chains and agrifood standards: Challenges and possibilities for smallholders in developing countries.” Proceedings of the National Academy of Sciences 109, no. 31 (2012): 12326-12331.
Lowder, Sarah K., Jakob Skoet, and Terri Raney. “The number, size, and distribution of farms, smallholder farms, and family farms worldwide.” World Development 87 (2016): 16-29.