Learning From Companies, Sourcing From Smallholders

By Caroline Ashley, Business Innovation Facility

Learning From Companies, Sourcing From Smallholders

A sustainable supply chain that sources from smallholder farmers – sounds easy. But it is common knowledge that long-standing problems like insufficient quantity and quality, side-selling of the harvest, rainfall, pests and prices, can often beset initiatives in practice.

Two candid new case studies depict the innovative attempts of two businesses to set up smallholder sourcing strategies, and how they have learned from the problems they encountered.

Universal Industries, Malawi’s leading snack and biscuit manufacturer, decided in 2008 to move into production of High Quality Cassava Flour. ‘Commercialising cassava: New opportunities for Universal Indu… tells the tale of how this mainstream commercial agro-processor has invested in a smallholder sourcing model in a more challenging context than usual: with farmers who are NOT already linked to formal markets, for a low-value crop, in a country where contract farming is not seen to work, for a production line that depends on high consistent volumes, sourcing a crop that is normally grown in small quantities for subsistence and local sale at prices that are higher than the business model can afford.

The Year 1 targets could not be met because the flash drier, an essential piece of equipment for the processing plant, faced customs delays upon import. At the start of the Year 2 season, supplies procured through the main NGO partners and their smallholder programmes fell short of what had been expected. And yet, despite all this, Universal is persevering, adapting the model, and is on track moving towards ambitious targets. Universal has decided to reduce reliance on NGO partners, and is developing its own extension service to support farmers. It is planting land to provide seedlings to smallholders. And it is investing in farmer engagement like never before.

Far away from Malawi in Bangladesh, a very different model was piloted in 2013 by ACI, an agribusiness conglomerate. ACI opted for contract farming, and having surveyed the options, chose what was called an ‘intermediary model’ in which ACI provided the input and purchased the outputs, while NGO partners provided credit, technical support information training and aggregation at farm level. This model fits ACI, as the commercial drivers are to both sell agri-inputs, and to secure supplies for its retail arm, but its core expertise does not rest in farmer engagement.

‘ACI Agribusiness: Designing and testing an integrated contract farming model in Bangladesh,’ tells the story of the pilot that ‘failed’ if judged by its harvest, but ‘worked’ if judged by what a pilot should deliver – a test of a model and lessons for how to improve it. Whether the poor pilot harvest could be blamed on late rains, lack of farmer seedling management, insufficient farmer training, poor partnership management, or the choice of the summer tomato crop, does not matter. What does matter is that lessons have been learnt on how to mitigate these various risks in future.

The case study highlights lessons learnt in one page (page 19) and they make a great read. In summary:

  • Use a pilot to test models not deliver results
  • Secure strong central leadership and management buy-in
  • Building collaboration across business units takes time and leadership
  • Clearly identify partner roles
  • Pilot with proven technologies
  • Provide adequate training
  • Ensure farmers understand the terms
  • Monitor closely

The countries, culture and contracting model in the cases of Universal and ACI are very different. But in both, company persistence and the strategic drivers of an inclusive approach to supply chain management are strong. Both companies are investing further and expect to scale up to be working with several thousand farmers, and turning a profit, within a few years.

Editor’s Note:

These case studies are part of a series of ‘deep dives’ that seek to understand inclusive business in practice. The series explores seven businesses, all of which have been supported by the Business Innovation Facility. Find out more and download all these case studies on the Practitioner Hub for Inclusive Business.

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