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

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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
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