Inclusive business models – new prospects for smallholder market integration?

Direct co-operation between small farms and businesses is promising. Trade and processing industries hope for access to resources, while smallholders can dream of stable outlets as well as improved management and negotiating capacities. So is this a win-win model per se?

Not necessarily. There are too many challenges that the successful market integration of smallholders presents, starting with an unfavourable resource base and a lack of knowhow, ranging to an unfavourable negotiating position. However, the conditions for changing this are more favourable today than ever before.

Smallholding in great demand

Whereas it used to be the public sector that would care more for smallholder 

agriculture, it is now international, but also medium-sized, enterprises in the partner countries that are showing a growing interest in smallholding and smallholder trading. Given the latest developments on the food and soft commodity markets, they are attempting to support smallholders in improving productivity over the medium or long term and retain them as clients. 

To this end, they are willing to adapt their business models and supplement them with services tailored to requirements, loans and agricultural extension services. This enables smallholders to tap sales channels, enhance their productivity and improve their negotiating position but also creates new demands, such as rising production and quality standards. Businesses, for their part, are faced with considerable logistical challenges given the range of atomised smallholders. 

An invitation to a change of perspective

Development Co-operation (DC) has addressed the issue of how smallholders can sustainably produce and market their goods for a long time. However, all too often in this context, it has neglected the demands of buyers. Setting out from the requirements of a given business relation between smallholder producers and enterprises, the concept of Inclusive Business Models opens up new perspectives: How can the private sector be supported in establishing reliable and long-term supply relations with smallholder enterprises? And what development tasks can or should it assume in order to qualify the structurally disadvantaged smallholders to the benefit of both sides? What are the roles of government and DC in this context? 

Not only do certain values have to be created and maintained for business models to be inclusive, but the distribution of ownership rights, voice, risks and remuneration has to be organised on a partnership basis, too. Building on this insight, Vermeulen & Cotula (2010) provide a simple, but convincing framework for the analysis of the inclusiveness of business models (see Figure). Thus inclusiveness requires a process of all actors approaching each another as well as engagement in terms of economic, agricultural and social policies that really points the way ahead. Only cross-sectoral measures can create a suitable framework for economic inclusion. 

The role of Development Co-operation

German DC can play a valuable role as a mediator in this process, for example in the field of export products, but also in the field of soft commodities. This is where the economic incentives for investment are greatest and the structures are most advanced. Projects like the Cotton Made in Africa (CmiA) or the Competitive African Cashew Value Chain (ACI), which have long passed the stage of conventional support for smallholders, have turned out to be trendsetters. By establishing sustainable demand alliances and special promoting of relevant elements in the value-added chain, CmiA has reached around 450,000 smallholders and ACI about 100,000. The approach of the Farmers Business Schools in Ghana and the production of palm oil in Thai smallholdings also have proved to be success stories. Transferring such experience to the field of staple foods continues to be a challenge with a considerable potential. Over the next 20 years, the local and regional food markets are going to experience very dynamic growth. What counts is to take advantage of such dynamics to eliminate existing imbalances of power and qualitatively develop business relationships. 

Analysis framework for Inclusive Business Models
Ownership:Ownership shares of means of production (land, processing plant) and financial involvement
Voice:The opportunity to influence relevant business decisions (importance in decision-making process, representation in decision-making com- mittees, access to information)
Risk:Extent and type of risk share: commercial risk (production and market risk), but also political risk and reputation
Reward:Remuneration: distribution of costs and profits

   

Ingo Melchers, Till Rockenbauch
GIZ, Eschborn, Germany