Engaging the private sector: how do we promote inclusive growth and connect smallholder farmers to markets?

by Rima Alcadi

By 2050, the world will host more than 9 billion people. Developing countries’ agricultural production will need to increase by 60 per cent in order to adjust to this burgeoning population – which will in turn require an estimated net annual investment of US$83 billion. Of course, these investments must be sensitive to the sustainability and resilience of agriculture and food systems as well as support agriculture as a key driver of economic growth, job creation and poverty reduction. With this in mind, it is clear that in pursuing rural development, partnerships are essential - and partners need to appreciate the critical role and the interests of smallholder farmers.

On the 30th of April 2013, IFAD organized a roundtable discussion to identify the main drivers of inclusive and sustainable value chains, and partner with the private sector in this regard. The roundtable, which was moderated by Marcela Villarreal, FAO Director of Communications, Partnerships and Advocacy, was certainly well attended, with IFAD and FAO staff, as well as government representatives. We had prominent speakers – most notably H.E. Dirk Niebel, Federal Minister for Economic Cooperation and Development, Federal Republic of Germany as our guest of honour, as well as IFAD President Kanayo F. Nwanze, Director General of Bioversity International Emile Frison, IFAD Associate Vice President Kevin Cleaver and Unilever Italy General Counsel Giulia di Tommaso.

H.E. Dirk Niebel, Federal Minister for Economic Cooperation and Development, Federal Republic of Germany and IFAD President Kanayo F. Nwanze

The roundtable “icebreaker” was a video – a very inspirational one, given a theme which is close to everybody’s heart (i.e., rural poverty reduction), mind (striking the triple bottom line, i.e., how to make value chains profitable, environmentally sustainable and socially inclusive) and taste buds (chocolate!!!). Indeed, while we munch on our next chocolate bar, we would do well to appreciate the challenges faced in terms of pests and diseases and unsustainable production processes. These challenges hit the smallholder farmers hardest, as they are the main producers of cocoa, yet they affect us all. The video was on the MARS-IFAD partnership in Indonesia, where together we helped to improve the quality of cocoa and boost yields. This translated into a mutually beneficial relationship, and the training provided to farmers via the cocoa development centres is already producing 60% increases in yield. Now we are scaling up the cocoa development centres to new areas. See the video.

IFAD President Kanayo F. Nwanze highlighted that our willingness to be innovative is an essential ingredient – in our financing as in our partnerships. He proudly highlighted that IFAD pioneered practices that are now part of the mainstream – for instance focusing on sustainable financing mechanisms (i.e., financing through lending rather than grants), the participatory design of programmes and projects, and an emphasis on country ownership and cofinancing by domestic partners. These approaches are today recognized as best practices in sustainable development and have been crucial to the success of IFAD-funded projects and programmes. In recent years, IFAD has also been strengthening and further developing public-private partnerships in support of smallholder agriculture. This is because the Fund recognises that the private sector has become a major engine of growth in rural economies. IFAD views smallholder farming as a business, and advocates for others to approach smallholders and their needs with this in mind. So when we refer to “private investments in agriculture” we should not envisage the big companies only – but also the smallholders, because cumulatively they make large investments, in terms of their own money and labour. In fact, they are the primary on-farm investors in agriculture.

H.E. Dirk Niebel, Federal Minister for Economic Cooperation and Development (BMZ), Federal Republic of Germany kicked off by stating that it is an outright scandal that 870 million people are still suffering from hunger, and that this is unacceptable. Recognizing that most of these people live in rural areas, promoting rural areas is key to fighting hunger and poverty – which is precisely what IFAD does. This is why IFAD is a particularly important partner for BMZ. In 2010, the BMZ made rural development and food security one of its priority areas and invested more than 2.1 billion euros to help prevent famines. BMZ’s ten-point programme for rural development and food security is also geared towards establishing partnership with international organisations like IFAD. He announced that, immediately prior to the roundtable, BMZ and IFAD signed a Joint Declaration of Intent: this collaboration will specifically promote the access of small farmers to markets for agricultural products by developing value chains, so that small farmers can produce more, in a sustainable way, and increase their incomes. The aim is to help smallholder transition towards market-oriented entrepreneurs. Responsible investments are required, with like-minded partners that are looking to the future and enhancing opportunities together.

Of course, the discussion would not have been complete without the perspective of the private sector, and Giulia di Tommaso (both Communication Director and General Counsel at Unilever Italy) ably provided that for us. Unilever operates in over 100 countries and flaunts a 50 billion euro turnover in 2012, mainly in the fast moving consumer goods sector. Knorr, Lipton, Dove are a few of the most famous Unilever brands. She told us that almost 50% of the raw materials sourced by Unilever come from agriculture, with 1.3 million smallholder farmers supplying over 12 crops (including tea, vegetables, spices, oil crops, cocoa and milk). There is a clear business rationale to ensure the sustainability of supply and linking smallholder farmers to global value chains. This is firmly embedded into the Unilever Sustainable Living Plan, that looks at new business models for sustainable growth. Unilever works with smallholder farmers as part of this vision and is looking for ways to increase smallholders’ role in the value chain, so that they can benefit from value addition in processing and not only from production. Unilever found that partnerships with governments and with local NGOs have been of essence in unlocking this potential. Concurrently, Unilever is working hard to assess its impact on the ground - to ensure they deliver on what they promise and to identify approaches worth scaling up.

Director General of Bioversity International Emile Frison also made a very insightful presentation, highlighting that if we want to tackle the issue of hunger and poverty, investment that are very specific to agriculture for smallholders should be proactively pursued. In our work with Bioversity, IFAD smallholder farmers are indeed at centre stage. He highlighted that more is needed to meet their needs and that risk management is vital and of increasing importance. Maximising yields are not a solution if increases in productivity come at the expense of increases in risk. This is because farmers are risk averse – and understandably so, given their stakes are so high. Value chains are an important approach – but we must go beyond looking at single value chains (i.e., based on a commodity only) and we must instead focus on strengthening multiple value chains – involving neglected and underutilised species that are important for smallholder farmers' food security and resilience and that envisage farmers as innovators and not merely as producers. We also need to promote and involve local entrepreneurs in developing small machinery specifically adapted to the needs of smallholder farmers, recognising also the role (and addressing the needs) of women farmers. A prime example of this is the IFAD-funded grant to Bioversity implemented in the Kolli Hills (Tamil Nadu) in India, where we increased smallholder farmers’ income and food security from millet farming by improving agronomic practices leading to higher yields, redressing the drudgery associated with its traditional processing, improving value addition, stimulating product development and marketing. The role of these neglected crops with regard to promoting a sustainable and nutritious diet is also a major asset to be considered.

IFAD Associate Vice President Kevin Cleaver strongly reiterated that farmers need to feature more strongly as private sector in the debate – farmers, their groups and their cooperatives. He highlighted IFAD’s experience in promoting inclusive value chains – with examples from Uganda with palm oil, Rwanda with tea, Sao Tome and Principe with cocoa – in these interventions, IFAD-supported projects helped deliver crucial support to smallholder farmers along the value chain: organizing farmers into groups; capacity-building and training; access to finance; support for market standards and certification; better linkages with markets; and financing for small-scale market infrastructure. He highlighted that private enterprises do not want funding, but they require public investment that produces good infrastructure (meaning roads, water, education, electricity). He referred to this as creating a good “public space”. The marginality of rural areas, he said, has a lot to do with policy neglect and urban bias in services and investments.

Our audience interaction was also very rich, with interventions from IFAD staff as well as from Argentina, Ethiopia, Zimbabwe, India and other government representatives. Several questions and caveats were raised, including the need to beware of monopsonies (with smallholder farmers over-dependent on few buyers only), the need to encourage local and regional markets, creating “public space” to generate investment not for foreign direct investment only but also for generating local investments, and partnering with private sector companies’ that evolved from promoting Corporate Social Responsibility (CSR) to the concept of responsible investment (i.e., considering the triple bottom line). Nonetheless, IFAD is wary of the danger that some private investors may wish to exploit poor rural smallholders and precautionary measures are methodically taken to ensure this doesn’t happen.

To wrap up, some of the major messages that came through are: farmers play an important role as innovators, and a priority should be to improve their voice and bargaining power; it is important to create better rural employment opportunities (an interesting read in my opinion is Gary Fields’ book “Working Hard, Working Poor” ); we need to promote multiple value chains and address risk; and to achieve all this and more, partnerships are essential – not only for financing, but also to promote innovation, knowledge generation and knowledge sharing;

Useful links

Concept note
Private-sector strategy - Deepening IFAD’s engagement with the private sector (2011)
IFAD and the private sector: building links to accelerate pro-poor rural development
10 points for a strategic approach to partnering with the private sector
BMZ website