How to support the poorest farmers in commodity value chains

Rethinking strategies to support the poorest smallholder commodity producers and building more equitable and sustainable value chains

Our recent White Paper on sustainable commodity production A living income for smallholder commodity farmers and protected forests and biodiversity: how can the private and public sectors contribute? provoked a wide range of reactions from NGOs, farmers, support organizations and companies. Our statement that “There is no business case for lifting the poorest farmers out of poverty” was intended as a challenge to find company business cases and alternatives to the common focus on agricultural productivity or price to raise incomes.

In some quarters it has, apparently, been taken to mean that because many smallholder farmers can never earn more than a living income from agricultural commodities, companies are justified to exclude such vulnerable farmers from their supply chains. In this blog we emphasise that exclusion is not what we argue for. Our aim is to highlight the huge diversity among smallholder farmers and their households, and the entrenched poverty in many of the regions from which commodities are sourced. Through this we hope to stimulate a rethinking of both company business models and government strategies on their roles in building more equitable and sustainable value chains.

Risk of exclusion of the most vulnerably farmers because of targets that expect “all farmers in a supply chain to minimally earn a living income by a certain date”

Many initiatives have the objective to raise commodity and household incomes. However, we also see that company and government initiatives have pledged that farmers supplying a specific market or country will earn at least a living income by a specific date (1). Such initiatives are ambitious in their aims to support farmers’ livelihoods, but will be counterproductive if they lead to the exclusion of the farmers most in need of support. Such exclusion will happen as many cocoa and tea farmers will never be able to earn a living income because of their current low farm size, price levels and low productivity levels (2).

If, because of this, the (contracted) living income targets cannot be met, sourcing strategies will most likely favour larger and more productive farmers to meet the target. If this happens, the target has become a perverse incentive, as the farmers who need support the most, and for whom the program was developed, would be excluded from support.

Excluding farmers from support or from supply chains because of such targets leads to farmers becoming worse off and reputational and due diligence risks for companies

Recognising that income from cash crops is an important income stream for even the poorest, even if they cannot lift themselves out of poverty by producing commodities alone, is a first step in designing effective support strategies. Cutting off farmers from support, or from a supply chain, would not help farmers but worsens their situation. Especially if they would need to find a new buyer, who may care less about sustainability. But it would help companies tell a ‘better story’ about their supply base targets.

Ignoring farmers who are unable to earn a living income from commodities creates reputational and due diligence risks. Deliberate exclusion of farmers from a difficult supplier base to improve impact statistics on supplier income is counter to international OECD, ILO and UN guidelines and principles for multinationals on business and human rights, which stress that responsible business is everyone’s business (i).

Support strategies to truly look beyond the commodity production lens: to target higher return from the whole farm and to foster alternative income generation opportunities

In designing effective support programmes it is important to look in greater detail at farmers, using a holistic household and farming systems perspective. What options are possible for farming households and communities?

• If pledges want to achieve their targets, a focus on boosting non-commodity income is essential to avoid exclusion (ii). The Farmer Income Lab (xi) – based on longer-term cases with plausible evidence – found that for the best cases farmer income rose by over 100%. Whilst relative income increases were seen many farmers did remain unable to earn a living income. But it does show that appropriate, targeted approaches can make a real difference.
• The way value chains are structured can positively influence smallholder farmer incomes. Individual businesses can enable these changes working alone and effectively, using fundamentally different business models based on calculating farmer living incomes and building this into support programmes and buying prices, taking responsibility for all suppliers in a value chain. (3)
• Embed and scale individual company and value chain initiatives in sector transformation, including public sector engagement and action (ix). Taking into account indirect effects, such as commodity oversupply which could create a downward pressure on prices, if impact is reached at scale.

Collaborative effort is needed between private and public sectors to support the most vulnerable farmers to ensure they can cope with economic, climate and environmental crises

Supporting farmers who are currently earning less than a living income is not easy. It means making societal choices on how commodity trade is supported and governed by governments and about how business is done. New metrics are needed to measure and incentivize inclusion of the most vulnerable farmers in value chains, public and private partnership commitments, as they are not likely to move out of agriculture soon.

Public authorities have a major role to play in ensuring human rights are met, both in origin and consumer countries - particularly when such commodities are the backbone of national economies. The role of governments in supporting sustainable commodity sourcing is also essential to ensure that economic and social resilience is based on producers with living incomes that can cope with economic, climate, environmental and health crises.