Rita, a farmer and trader in the Wansanmire community of the Ahafo Cocoa region in Ghana, dries cocoa with her husband Samuel. (Image courtesy of Care and Mars Wrigley Women for Change)
In Ghana, a third-generation farmer named Afi grows cocoa and cassava on a small, three-hectare plot of land. He earns less than $1 a day, however, a study of cocoa farmers in the region estimates that he would need at least $5.81 a day to afford a decent and dignified standard of living: enough to afford acceptable housing, feed his family, send his children to school, and cover his farming costs. Despite working a minimum of six hours most days, he has no savings and is unable to invest in improving his farm. Four of his five children work rather than attending school to help the family get by. At the same time, the family faces serious effects of climate change, including prolonged drought and reduced soil fertility. Understandably, not one of Afi’s children sees a future in farming.
The World Bank estimates that there are 500 million smallholder farming households globally, comprising upward of 2 billion people. Though these farms are small, typically under two hectares, their cumulative impact is large. Smallholder farmers produce at least a third of the global food supply. And though these small farms contribute little in the way of greenhouse gas emissions, they bear the brunt of climate impacts.
On the market side, many companies have come to understand the existential threat that climate change represents. But not enough of them recognize how climate change and inequality are intertwined. As the United Nations highlights, eradicating poverty is the greatest global challenge and an absolute requirement for sustainable development. To achieve this, more businesses need to join with the government and civil society to actively confront inequality, poverty, and climate change together.
A Tyranny of Tradeoffs
Research in 2021 from the Farmer Income Lab—a “think-do tank” founded by the multinational company Mars and comprised of companies, NGOs, and civil society organizations—estimated that up to 70 percent of farmers in agricultural supply chains may be living below the global poverty line of $3.20 per day. Besides perpetual food insecurity, many are unable to access or cover basic health services, housing, transportation, water and sanitation, or education. In addition, women, who represent nearly half of the agricultural labor in developing countries, face compounding layers of exclusion and inequities that continue to prevent them from reaching their full potential.
In lieu of sufficient income for basic needs, farmers face a tyranny of tradeoffs. Like Afi, many must choose between buying food or investing in fertilizer to improve their crops, between pre-selling a harvest for quick cash or having no money to spare, or between sending their children to school or having them work to support the family. Recent events like the COVID-19 pandemic and the invasion of Ukraine have only exacerbated these problems. All of this contributes to a cycle of poverty where smallholder farmers continually struggle and are unable to build resilience against the increasingly frequent shocks from climate change and conflicts.
What Doesn’t Work—and What Does
For decades, the world’s food system has overemphasized the efficient production and transport of commodity crops, often at the expense of building resilient and equitable supply chains that reflect the true costs of production. Usually, these costs are borne by the weakest link, and in agriculture, that’s the farmer. Constant downward pressure on price and inequitable distribution of value results in high social and environmental costs for farmers that consumers and investors rarely see.
However, in recent years, there have been attempts to break this cycle. In partnership with Oxfam and Wageningen University, the Farmer Income Lab reviewed more than 1,500 studies detailing 48 common interventions by government, business, and civil society to increase farmer income. These included farmer field schools, input subsidies for seeds and fertilizers, and certifications. Yet the survey found that only 3 interventions were sustainable and raised average incomes by more than 50 percent. While this may seem promising, it’s far from adequate. Earning $1.30 a day instead of $0.87 isn’t nearly enough to move a farmer out of poverty; in most cases, incomes would need to increase by 100 to 300 percent or more.
The reality is that no single entity can fill this smallholder income gap. The private sector must join with the public sector, financial service and technology providers, and investors to make agricultural value chains more sustainable for people and the planet, and there are several clear incentives to invest in this transition. For one, new regulations and due diligence requirements, like those being discussed in the European Union, put the onus on companies to foster supply chains that respect human rights and protect environmental resources. In addition, consumers are demanding that businesses contribute to reducing poverty and environmental damage, and using their purchasing power to influence change. Most importantly, without farmers producing reliable, high-quality agricultural products, businesses across the apparel, food, and other industrial sectors will quite simply fail.
The Business Path for Addressing Inequality
For many companies, it can be difficult to understand the best way to affect change for farmers in their supply chain. IDH, The Sustainable Trade Initiative has created a Roadmap on Living Income to help companies, governments, investors, technology providers, NGOs, and civil society engage, both individually and in collaboration with others, to increase farmer incomes. It describes four areas where companies have a leading role to play:
- Improving procurement practices, including the process of purchasing products from farmers, the price paid, and the timing and cadence of payments. Given the stringent focus on companies’ financial performance, today’s procurement processes often result in farmers receiving less than they need to support their households.
- Collaborating with governments, farmer organizations, and NGOs to invest in transparent and traceable supply chains where every organization understands its contribution to safety and quality, inventory tracking, and establishing honest and open communication about social and environmental impacts.
- Engaging with consumers who are willing to pay more for products to ensure that farming households increase their income.
- Offering services and/or partnering with agricultural organizations, local financial service providers, and local governments to provide farmers with access to finance and markets, seeds and fertilizers, and the training they need to improve productivity and crop quality.
Dialing In on Procurement
The Farmer Income Lab focuses on procurement to identify how better practices can enable farmers to earn a decent standard of living and improve resilience to environmental shocks. Procurement practices must move beyond the buying and selling of commodities to factor in social and environmental costs.
The lab has been among the first to focus its research on this important transition, and has found that equitable and just procurement practices meet the following five criteria:
1. Prioritize Equitable Relationships With Farmers
Businesses must build long-term, mutually beneficial relationships with farmers and farmer groups to make supply chains and farmers’ livelihoods more resilient. In 2016, the Livelihoods Fund for Family Farming, originally established by Mars and Danone, launched a project to develop a sustainable vanilla supply chain in Madagascar. Farmers there faced a speculative market, volatile prices, decreasing vanilla quality, and exploitation. The project secured a minimum 10-year commitment from a collection of flavor companies to improve all aspects of procurement, including farmer incomes, and created a new supply chain that provided training, infrastructure, and materials to support farmer-owned cooperatives. The collaborative also partnered with Fanamby, a Madagascan NGO, to effectively coordinate producers.
The project has shown steady progress from the very beginning. Senior executives from the partner companies continue to actively engage, participate in governance alongside producer representatives, and work with the NGO to discuss problems and co-create solutions. Today, the project is currently on track to reach 3,000 family farms, improve farmer revenue by 200 percent, and preserve biodiversity on 2,870 hectares of land.
2. Reduce Volatility and Risk for Farmers
Low and volatile commodity prices leave little for farmers to invest in their farms and can sometimes push them to abandon a crop altogether. Businesses can help mitigate this by helping farmers build resilience into contracting terms.
Guaranteed minimum prices or cost-plus models that provide a premium above the production costs for farmers are two ways to do this, as is investing in stronger farmer organizations so that farmers gain power through collective action. Businesses also need to consider the increasing climate risks, and help farmers develop adaptation, resilience, and mitigation strategies. This can include access to crop insurance and financial investments to support the adoption of sustainable agricultural practices like regenerative production systems.
Take Sustainable Harvest, a specialty-grade green coffee importer helping cooperatives in Latin America manage price risk with a “variable sale.” This model combines a price-to-be-fixed contract, which allows cooperatives to agree on a price with Sustainable Harvest within a specified period, and call options purchased through a Sustainable Harvest account, which are financial contracts that allow farmers to benefit from potential price increases. Cooperatives need to understand farm economics and their own financials for this to be effective, so Sustainable Harvest also provides farmers with training, information, and analysis on markets and derivatives.
3. Invest in Women
Women in agricultural communities around the world continue to face structural barriers to accessing education, land, finance, seedlings, fertilizer, and pesticides. Yet evidence shows that agricultural output in developing countries could rise by 2.5 to 4 percent—enough to feed an additional 100-150 million people—if women had access to the same products, services, and opportunities as men. In addition, according to UN Women, investing in women’s economic empowerment is a direct path to greater gender equity, poverty eradication, and inclusive economic growth. Businesses must consider women’s rights and empowerment as part of their procurement strategies if they want to build resilience for the future.
When Ugacof/Sucafina Uganda one of the leading coffee processors and exporters in Uganda, engaged IDH to assess its service delivery model, discussions revealed that women in the value chain had little decision-making power or autonomy, less disposable income than men, and a larger burden of unpaid childcare due to high school dropout rates and social norms. In response, the company began to offer financial literacy workshops and access to finance through village savings and loan associations, and to engage women in the production and marketing of additional crops.
Ecom, which sources coffee and cocoa in Indonesia, also found that these kinds of gender-focused investments lead to business benefits. Ecom was able to boost its supply due to female farmers increasing productivity by 131 percent, compared to 95 percent by male farmers.
4. Unlock the Potential of Technology
Businesses must also embrace technological innovation. Technology can level the playing field and help farmers access finance and markets, as well as optimize their use of water, seeds, and fertilizer.
A technology startup in India called Stellapps, for example, is working to digitize the dairy supply chain in a way that helps smallholder farmers in rural India maximize profits while minimizing effort and inputs, in part by providing information on credit, insurance, and agricultural inputs. Stellapps’ tools currently reach 2.8 million dairy farmers, who produce more than 13 million liters of milk, worth $3.4 million a day. Efficiency gains from the digitization of service delivery have also significantly reduced energy consumption and methane emissions. And new investment from IDH will help increase farmer net income through the development of technologies that boost productivity and product quality, and enable product traceability throughout the supply chain.
5. Bundle Interventions
Companies should also bundle productivity and product quality interventions with projects that build household resilience (including crop diversification, financial literacy, and activities that increase the engagement of women in farm operations) and that strengthen the overall supply chain (such as performance-based premiums, minimum prices, and building the capacity of farmer organizations).
For example, USAID, Mars, and I4DI recently launched a four- to seven-year, $7.2 million Global Development Alliance collaboration designed to reach 9,000 cocoa farmers in Indonesia. The initiative focuses on agroforestry practices to improve climate resilience, increase smallholder farmer income, and ensure a high-quality supply of cocoa. It will provide access to agricultural inputs, technical assistance, affordable finance, and crop insurance, as well as crop diversification and greater inclusion of women. By bundling these interventions, the collaboration aims to build a resilient cocoa supply chain that provides sustainable increases in farmers’ household income.
The New Business as Usual
Smallholder farmers are essential to global food systems, yet they capture only a fraction of the value of the goods they provide, and exercise limited influence in most supply chains. Smallholders like Afi can’t farm their way out of poverty, and today they face an increasingly perilous threat to their livelihoods: climate change.
Sustainable development requires collective action, and businesses have an important role to play. Business investment in climate justice today will reduce the long-term impacts of volatile supply chains and temper the exodus of people from the farming vocation. By investing in strategies that build long-term farmer relationships, reduce price volatility and risk, invest in women, embrace technological innovations, and address structural barriers, businesses can help pave the way for a resilient and equitable future that feeds us all.
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Read more stories by Lisa Manley & Iris van der Velden.