Sandwich of the day: inclusive business relations between farmers’ cooperatives and Subway in Nicaragua

Sandwich of the day: inclusive business relations between farmers’ cooperatives and Subway in Nicaragua

13/08/2019
This news is part of the following focus area:
Guillermo Gutierrez
Guillermo Gutierrez
Project coordinator | Nicaragua

In 2016, four vegetable farmers’ cooperatives in Jinotega, Nicaragua, started providing safe, high-quality vegetables to national Subway outlets. Facilitated by Rikolto, they devised a business model that puts inclusivity at the forefront: it focuses on long-term commitments from both parties, stable and fair prices for the farmers, and a reliable supply of quality vegetables for Subway.

Evaluating the business case for both farmers’ organisations and Subway, we have examined all the learned lessons of the last 3 years in the case study below.

The case presented here is the perfect example of how Rikolto sees an inclusive business model. Inclusive business entails a business relationship in which all partners benefit equally. For Subway, this means food safety certification, quality guarantees, punctual delivery, and a stable supply of correctly-shaped vegetables to 24 Subway outlets in Nicaragua. For the vegetable farmers this means fair prices, shared risks, long-term income security and stable demand.

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The cooperatives, which together account for 639 smallholder farmers that produce tomato, lettuce, sweet pepper, onion and cucumber, encountered many problems before they entered into partnership with Subway. They lacked business experience, production volumes were low, and the government did not give any incentives or support to the sector. It prevented the farmers from receiving fair prices and there was varying demand on both formal and informal markets.

This instability led the cooperatives and Rikolto to devise a strategy to link the farmers with better markets, guaranteeing long-term contracts and setting stable prices. This led to a very peculiar business connection with Subway, the global leading restaurant for submarine sandwiches.

This project is very important because it has showed that smallholder farmers, with some support, can be integrated in a supply chain with global standards on quality and food safety.

Alfredo Villalta Food Safety Manager for Subway, Latin America & the Caribbean

The collaboration opened many doors for vegetable farming in Nicaragua. Working as an alliance, the four cooperatives managed to cross the threshold of the informal market and sell to formal markets.

Formal markets demand food safety certification, traceability, health and quality standards, etc. By working together as an alliance, the cooperatives can set prices according to market demand and hold a stronger negotiating position. Moreover, having a distribution plan to the 24 local outlets is a strong competitive advantage. Subway, too, has been inspired by the partnership and is now finding a way to scale up experiences and lessons learned, both in Nicaragua and abroad.

We receive a good price and we have changed how we work. Now, we have 23 farms certified for Good Agricultural Practices (GAP) that we didn't have two years ago in Tomatoya. When it comes to harvesting, we use safe products, and we know that our vegetables are high-quality and safe for the consumer

Nelson Vidal Tomatoya cooperative marketing manager

This particular case can now serve as an example for other direct and inclusive collaborations between farmers’ organisations and companies. Right now, Rikolto and the alliance are in conversation with big market players such as Pizza Hut and McDonald’s in Nicaragua. Moreover, by implementing the LINK methodology, Rikolto can measure to what extent both Subway and the farmers’ cooperatives view the collaboration as an inclusive business partnership. By doing so, we can learn and improve the business model in this case, as well as in future collaborations.

(video below in Spanish - no English subtitles)

Rikolto’s main role in the process was introducing the alliance to Subway through our networks. Moreover, our experience in inclusive business models helped us to facilitate the partnership and to work out a strategy and inclusive business plan together with the cooperatives and Subway

Guillermo Gutierrez Rikolto project coordinator

However, there are still some challenges ahead. In order to maintain inclusive business cooperation with companies such as Subway, the 4 cooperatives must keep the common goals in mind and organise themselves accordingly. This will involve creating an administrative and management structure for the alliance to ensure sustainable cooperation and to open doors to new markets. Finally, we hope that the alliance’s operation as a market trading company might be an example to pave the way for development in the horticultural sector.

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The case study was guided by the methodology presented in the publication “Creating good Case Studies” developed by Joost Guijt, Wageningen University & Research and Roger Reuver, Communication Design.

Check out the guide