With the global population growing rapidly it is predicted that by 2030 food production will need to increase by 50%.
International competition for agricultural resources is increasing fast, and companies are struggling to ensure a long-term steady supply. However, smallholder farmers in developing countries could be the solution to this. With developed markets lacking land to expand agri-production, companies will have to look at emerging markets.
“For some crops, such as coffee and cocoa, most of the globe’s production capacity is owned by smallholders. In the cocoa sector, 90% of world production comes from 5.5 million smallholders,” says a recent report by the German Agency for International Cooperation (GIZ).
It is becoming increasingly necessary for companies to work with smallholders to guarantee supply. The report highlights a number of ways that big business can engage with smallholders across the value chain.
Increasing cocoa production
Companies can work with smallholders to develop new farming systems. Kraft Foods*, one of the world’s largest chocolate manufacturers, constantly struggles with securing supply of quality cocoa beans. Cocoa producers – 90% which are smallholders – battle with the time and labour intensive cocoa trees, which are prone to pests and diseases. Côte d’Ivoire, the world’s biggest cocoa producer with 40% market share, has seen a decline in the quantity and quality of production as a result of these challenges. “The only way for Kraft Foods to secure its supply was to work directly with smallholders to improve their situation and enhance production processes,” states the report.
Kraft Foods discovered a number of challenges in the existing supply chain, including a lack of knowledge of sustainable cultivation processes by many Ivorian cocoa producers. Farmers also faced insecurity due to the volatile cocoa price and a lack of representation of their interests through cooperatives.
“First, the company offered the smallholders and their cooperatives a guarantee that it would buy all their certified cocoa beans, thus creating an incentive to comply with the Rainforest Alliance’s sustainable agriculture standard,” notes the report.
Additionally it implemented a transport scheme to fetch produce and started ‘farmer field schools’ that provide smallholders with farming knowledge and cocoa-specific training. Basic business skills for managing smallholder cooperatives were also taught to enhance links along the value chain. In addition, smallholders were taught to plant shade trees to protect the cocoa plants.
These practices resulted in a 50% increase in quality cocoa yields.
Using technology to boost adoption of improved seeds and inputs
Only about half of Kenyan farmers invest in improved seeds and soil inputs. A key reason for the low demand is the fear among farmers that poor conditions, such as drought, will render their investment worthless, robbing them of both their crops and their savings.
Syngenta, a global producer of inputs such as seeds and pesticides, partnered with Safaricom, the largest mobile network operator in Kenya, and UAP, a major Kenyan insurance company, to develop an input insurance programme for smallholders. Farmers can insure as little as one kilogramme of maize, seed or fertiliser. To be covered under the scheme, farmers only need to pay a small amount extra on top of the price for a bag of seed, fertiliser or other inputs.
Mobile technology plays a central role in the scheme as it is used both for registration of new policies as well as for payouts. Payouts are determined by automated weather stations that monitor the rainfall. Based on the stations’ measurements and a predefined formula of crop rainfall needs, payouts are automatically made to farmers using Safaricom’s mobile money transfer service M-PESA. Farmers don’t have to fill out any claim forms.
Sourcing milk from smallholders
Nestlé, one of the world’s largest food companies, has developed a ‘milk district’ model to source milk locally in developing countries. The key to the model’s success has been its collection system that addresses transport and transaction issues for this highly perishable product. For example in India, refrigerated milk collection points enable smallholders to sell their fresh milk close to where it is produced. “The milk is stored, chilled and quality-tested at the collection points before Nestlé trucks pick it up and bring it to the nearest processing factory,” says the report.
Cassava is one of the most widely grown crops in Africa, planted largely by subsistence farmers. However, the root crop, which looks like a large sweet potato, hasn’t been a great commercial success. One of the reasons for this is because around 70% of the root consists of water, which makes it uneconomic to transport over great distances. While the cassava root can stay in the ground for many years, once it is harvested, it needs to be processed very quickly before it goes bad.
In Nigeria, the Dutch Agricultural Development and Trading Company (DADTCO) found a way to commercialise cassava produced by smallholders. DADTCO developed the Autonomous Mobile Processing Unit (AMPU) to process cassava before it spoils. “This mobile mini-factory enables farmers to process fresh cassava on-farm or nearby rather than attempting to transport the crop long distances to a central factory,” explains the report. “The AMPUs reduce transportation costs and bring the first processing step close to smallholders themselves.”
Brewing companies like SABMiller, which last year launched its first cassava-based beer, can now use remotely produced cassava.
* On 1 October 2012, the former Kraft Foods Inc. changed its name to Mondelēz International, Inc. and spun-off its North American grocery business into a new company called Kraft Foods Group, Inc.