Making supply chains work for smallholder farmers - The Fairtrade ...

Making
international
supply chains
work for
smallholder
farmers:
A comparative study of
six fair trade value chains
Executive summary
May 2012

EXECUTIVe
SUMMARY
This report provides an analysis
and evaluation of how specific
business practices facilitate smallholder
producer development and
empowerment in Fairtrade supply
chains. This research comes at a critical
moment in time owing to a renewed
interest from the donor community
and the private sector into the central
role that smallholders play in driving
rural development and also ensuring
the sustainability of future global
supply chains.
Six farmer organisations across three
commodities (cocoa, tea and nuts)
were chosen to represent different
business models within the Fairtrade
movement. Researchers used focus
groups and semi-structured interviews
with a variety of stakeholders to
develop a case study for each of
the selected farmer organisations.
The information collected was then
analysed using a framework for
understanding the key indicators
of producer empowerment and
development. In this process five broad
elements of the smallholder supply
chain relationship were investigated
and then presented in a radar
diagram set out in figure 1.
Figure 1:
Five elements of smallholder supply chain relationships
Built Capacity
Influence on
price and terms
Net Returns
Supply chain
coordination
Control over
and % of the
value chain
The five broad elements of the radar diagram
are as follows:
• Net returns: the amount that the smallholders
receive for their produce and its significance
to their livelihood. This includes smallholders’
perception of whether they are ‘hanging in’,
‘stepping up’ or ‘stepping out’.
• Control over and % of the value chain: a
combination of smallholders’ perceptions
of their influence on the supply chain and
the percentage of the final retail price that
smallholders receive.
• Supply chain coordination: the level of
transparency and the extent to which
information is exchanged between stakeholders
within the value chain.
• Influence on price and terms: smallholders’
perception of their ability to influence the price
they receive for their produce.
• Built capacity: the extent to which trading
partners directly contribute to enhancing the
long-term capacity of the smallholders.

Research findings show that smallholder supply
chain relationships are not uniform and there is
a great deal of variability, even between farmer
organisations based in the same country dealing
in the same commodity.
A model of change is presented that delineates
the stages that farmer organisations go through
on their path towards sustainability and examples
of best practice are given that will assist in a
smooth transition along this path. Analysis of
findings confirms the complexity of empowerment
and development and the fact that there is no
single formula to achieving either. They do,
however, provide a number of interesting insights
on the nature of the trading relationship.
The size of net returns varied significantly across
the different case studies and between different
groups of members and types of activities. What is
noteworthy is that price and the ability to influence
it seemed to play a much less significant role in
explaining relative returns than productivity.
The case studies also highlighted the importance
of the timing of returns both in tea and groundnuts.
This is not surprising given the important matter of
access to finance in the context of rural economies
where seasonality looms large.
A lack of transparency means that producers can
struggle to access the actual prices and margins
linking their payment to downstream sales.
Very little information regarding the end use of
the product appears to be relayed to farmers.
Where it does, an immense sense of pride and
accomplishment can be the result.
Farmers in many of the organisations identified
capacity building services provided or funded by
buyers as a key reason for trading with them. The
nature of relationships with buyers is a key theme
in most of the case studies. Relationships between
farmer organisations and buyers are often very
positive and constructive but there is a sense that
there is a fine line between building their capacity,
in an empowering way, and ‘replacing capacity’,
in a way that disempowers.
Analysis of these findings has led to the
following conclusions.
At the farmer organisation level pre-finance is a
key element in determining whether co-operatives
are able to operate on the same playing field as
better resourced traders and processors. Access
to finance at the appropriate time can also play an
important role in freeing up cash for farmers at the
household level.
Underlying tensions between retaining cash
to invest in the business and the distribution of
profits to farmers to supplement their income also
emerges as a key constraint to the development
of sustainable farmer organisations. If cash is to
be distributed to farmers then the timing of this
transfer should be carefully considered.
When taking into account the appropriate levels of
support for farmer organisations it is proposed that
the need to provide intensive support is balanced
with the dangers of creating an unhealthy
dependency. It is recommended that organisations
consider how to encourage autonomous farmer
organisations rather than long term adoptive
relationships. A question is also raised as to
whether it is right to expect Fairtrade and private
sector players to engage at the level of household
decision-making on how income is to be spent.
At the heart of creating more empowering
relationships between buyers and farmer
organisations (and between farmer organisations
and farmers) is a shift in attitude and perception.
To move forward it is important that buyers
perceive farmers as active partners and not
passive beneficiaries. It is also thought that
buyers and traders need to move beyond simply
complying with Fairtrade standards if they are
to support improvements across the range
of indicators described.
Based upon these conclusions a set of
recommendations for buyers of businesses
engaging with smallholder supply chains are
made. A number of future research questions
highlighting issues that emerge from the research
and require further investigation are also
presented.
See over for recommendations

Recommendations
for buyers
The research and resulting conclusions suggest
a number of recommendations for business
engaging with smallholder value chains:
Relationships
• Develop and regularly review MOU between
business and farmer organisation to clarify
expectations of relationship
• Where possible articulate long term
commitment to relationship
• Consider the timing of cash payments,
especially in light of seasonality, and how
availability or lack of finance also impacts
on households
Autonomy
• Set targets over time for farmer organisations
to sell to other buyers (jointly commit to
reduce direct dependency over time)
• Build administrative capacity of farmer
organisations not just of farmers, e.g. when
seeking to enhance farmer access to inputs
support the farmer organisation rather than
directly supplying
• Where investment is only attractive with
adoption and with greater control, consider
how to encourage more autonomy and
responsibility over time (e.g. encourage some
‘side-selling’, development of new trading
relationships)
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Information and transparency
• Provide information to farmer organisations
on where their produce has ‘gone’ including
information on quality with recommended
steps to address any issues
• Provide information on markets
• Encourage farmer organisations to provide
transparent information on all relevant
transactions to members to encourage
transparency and accountability along the
chain
• Encourage farmer organisations to
communicate effectively with members
• Where physical traceability is not feasible
consider what additional steps are required
to ensure producers have confidence
in transactions and can identify key
downstream customers
Supply chain control
• Connect with producers (invite farmers to
meet buyers) and link them to downstream
buyers; use them to build the market
• Respect producer Intellectual Property (IP)
when marketing product but promote the
face and people behind it