How can business make smallholder supply chains resilient?

How can business make smallholder supply chains resilient?

Liesbeth Van Meulder
Liesbeth Van Meulder
Program Advisor public & private sector

How can business make smallholder supply chains resilient? How can private companies connect the SDGs with their smallholder supply chains – and what is the business case for doing so? These were the central questions of the Innovation Forum in London three weeks ago. Liesbeth Van Meulder attended the conference and shares her insights.

Talking about farming businesses, resilience is a hot topic these days. “To me, it’s simple,” says Liesbeth. “Resilience is about control, about having the necessary flexibility in a farmer’s business and livelihood, so that he or she can overcome setbacks. When I was working in Benin with rice farmers, the simple fact that there was no safe storage facility for their rice and no warehouse receipt systems meant that the farmers had to sell immediately after harvest, at very low prices. They had no margins to wait for better prices. In those circumstances, a poor harvest due to lower soil fertility, for example, has devastating consequences. So I was curious to know how the private sector addressed the subject of resilience in its business practices.”

Private businesses started engaging with smallholder farmers years ago. Usually, it materialised as a CSR topic that came within the remit of the sustainability manager. Through corporate charity/non-profit foundations or joint projects with NGOs, they supported farmer training, set up projects on female empowerment, local sourcing, etc.

The main motivation to invest in farmer training is to ensure supply. It is a known fact that future supply of cocoa will become problematic if farmers are not interested in growing high-quality cocoa. This is also the case for other commodities.

Although these projects may be genuinely valuable and lead to promising changes in specific communities, they generally do not affect their core business practices of the company. Because when it comes to business contracts with farmers’ groups, price negotiations and supply issues, the sustainability manager must work with the buyers, who have ultimate responsibility.

This means integrating sustainability issues into the KPIs of the buyers. Whereas incorporating ecological KPIs into business management worked pretty well, because it could be linked to cost reductions in the short or medium term, it is a different matter to include indicators related to the socio-economic situation of smallholder farmers and their organisations.

I was surprised to hear that, after all these years, there are still very few examples of companies where sustainability issues are integrated in the KPIs of the buyers. The latter are still evaluated purely on the price they negotiate, while CFOs look at costs and cost reductions. They simply say: our shareholders will not accept less profit. Very few companies question their purchasing policies and try to consider them from a long-term perspective.

Liesbeth Van Meulder

Not a new insight, but again clearly evident in the presentations: family-owned businesses generally do take a much longer-term view. They think in terms of generations, as they want the next generation of the family to still have a viable business. This provides more opportunities to place sustainability topics at the heart of their business and go for transformative change.

Liesbeth: “I realised once again that the kind of work we do at Rikolto is very valuable. I see that both companies and farmers’ organisations really need a neutral non-profit player to bring all the participants in a specific chain together to create a safe space. A safe space to discuss each other’s problems, to set common goals, to look for compromises. Neither companies nor farmers’ organisations will achieve this by themselves.

“Secondly, companies express the need to share what works and define pre-competitive areas. Also in those settings, a neutral player like Rikolto can fulfil its role as a facilitator. In Belgium, we do so in the food & retail sector.

“What I learned about multistakeholder processes is that things will not move forward if we don’t talk about sacrifices. If one person around the table is unwilling to compromise, we should not even start the process. It won’t work anyway.”