Designing trading relationships that reach and benefit small-scale producers in a sustainable way can be a challenge for practitioners who engage directly with women in agriculture. Understanding the benefits, costs and risks when connecting small-scale producers to formal markets is critical to informing companies, farmers, NGOs and donors in their decision to invest in supply chain opportunities. Key questions include: Who are the rural poor? Under what conditions do they benefit? What are the implications of these lessons for our strategies in setting up ‘pro-development’ value chains? What do we most need to understand next? This paper seeks to address these questions from not only a review of literature, but from experience with a cluster of value chain projects run by development organisations and businesses in Africa and Latin America. The research was conducted by the Sustainable Food Lab and the International Institute for Environment and Development in 2010.
Key Findings:
- Analyses of projects connecting small-scale producers to formal markets show a wide diversity of experience and underline the importance of producer assets to both participation and benefits. Formal chains tend to provide greater income security but not necessarily higher prices. When higher incomes do occur, it is often from higher yields, improved quality or value-added activities. Some formal chains can increase income (through better prices and better productivity) without improving food security, while some studies show that income diversification is crucial to improving food security.
- While formal value chains can reach the poor, different products have different potential for the poor because of challenges specific to each supply chain or the agro-ecological conditions of producers. Evidence clearly shows that producers with higher levels of assets are more likely to participate and benefit from participation in formal markets. Assets include access to roads or motorized transport, education and/or size of landholding. Clearly some of the challenges of increasing the reach and benefits of formal chains requires learning how to reach the less organised farmers and investing with farmers so that those with fewer assets also benefit. In addition, the poorest producers with low levels of natural capital (i.e. land and livestock) in particular tend to participate in value chains as labourer.
- It is important to recognize that formal markets are ultimately modest in size relative to domestic and regional staple markets. Therefore, formal value chains are not a silver bullet for pro-poor development.
Recommendations:
- To have a significant and durable impact on poverty reduction, and to reach producers with fewer assets, value chain interventions must be integrated with upgrading and wider livelihood strategies.
- Despite the modest size of formal market opportunities for the poor, and the challenges of linking the worlds of small-scale producers and formal markets, these markets can provide opportunities for addressing rural poverty. This is particularly true where conditions are favourable and a comprehensive suite of development interventions is possible.
- Engaging with formal markets also offers the longer term potential for: preparing smallholders to engage with the growing domestic and regional formal markets and increasing large-scale staple production; supporting business and farming professionalism among family farmers to help ensure their continued participation in the global food system; developing partnerships with sophisticated private sector actors to build ‘systems’; and developing partnerships with the private sector to address policy issues that can bring more public investment and policy support for poorer producers.
