Marcos Fava Neves

The Importance of Including Small Farmers in Modern Food Chains

By Marcos Fava Neves
Updated: 2009-10-09 13:14

There is a huge discussion all over the world, which probably is a bigger issue in developing countries, about the conflict between small holders and agribusiness corporations. According to some critics, the first will be “exterminated” by the unequal competition for areas and resources represented by the second. Agribusiness is defined as the sum of all production and distribution of agricultural inputs, production operation within farms, warehousing, stocking and processing of agricultural products and by products, since Prof Davis and Goldberg defined, in Harvard, 1957. The authors do not ever differentiated large or small firms, family or independently owned firms. The critics therefore are fuzzy. What was first conceptualized as agribusiness does not deserve the critics. Buying and selling efficiently in the long term in a global scale is a game for well prepared businesses in any industry. We must bring this to small farmers.

Many researchers claim that small holders` biggest challenge is their ability to add value to premium products to niche markets, where scale gains are not critical for success. Being the small producer a Swiss dairy farmer or an Ethiopian coffee grower, the success would come from premium or special products targeted to particular group of costumers willing to pay more for the a particular product feature. Organics and more recently fair trade products have a good fit to this philosophy. Certainly, whatever the product is, the challenge for targeting niches will be the small holder financial and mainly marketing capabilities. Interestingly, when large firms or professionally organized non profit organizations (like Rain Forest or Agro Fair) opened their eyes for these niches they started to grow faster.

Especially in developing countries, governments have spent lots of resources to structure small growers’ production areas, transferring land ownership rights to them and providing farms with agriculture investments and training. There are success cases, but unfortunately a much larger portion of failure ones, mainly when support turns out to be a blind help. It clearly showed growers being strongly encouraged to grow traditional products like bananas and mangos in markets lacking the desired upstream and downstream coordination, where product supply was far higher than existent demand.

It is appealing and very important the idea of maintaining people in rural areas with good life conditions, instead of large monocultures pushing rural population to large cities, mainly in a moment when raw material for biofuels may occupy large portions of arable areas in the world. The logic of economic efficiency and specialization challenges it tough. It is not possible however to stop discussing new business models that try to accommodate this society expectation.

A very valid debate deals with the insertion of small holders into strictly coordinated agribusiness systems. It means the small holders will not produce just for subsistence or local markets, but for industrialization or in natura consumption in any attractive market in the globe. This view starts to be more recognized by the growing concern on social sustainability. For a firm that for instance is involved in fruit juice production, buying from small holders may represent an opportunity for marketing appeal, an opportunity to use its scarce resources in downstream marketing activities, an opportunity to focus on juice production instead of agricultural production. All these benefits may be counterbalanced by additional transaction costs of leading with small holders (several production units). For all discussed above a business plan for an agribusiness firm or a strictly coordinated system must innovate inserting the sustainability concern. Many different public agents place this dimension on the top of a project analysis for its political acceptance and for the obtainment of financial resources from state official sources.

A business project with different viability dimensions and including social considerations is interesting for public agents. They may attract firms for a specific region, aiming to develop this region, once the benefits may not be limited to the generated taxes and jobs, but also the positive externalities might be brought by coordinated and sustainable transactions among all chain participants, upstream and downstream the focal firm. Clearly it is also interesting to the private agents who have a systemic and long term view. This comprehension facilitates the talks with politicians once positive externalities are clearer and it is interesting for negotiating incentives for the organization to be installed in a specific location. It is clear the importance of trying to include smallholders on modern food chains. In my next article, I will show the method being used in Brazil for this inclusion.

The author is professor of strategic planning and food chains at the School of Economics and Business, University of Sao Paulo, Brazil (www.favaneves.org).