Think big, go small. Adapting business models to incorporate smallholders into supply chains

Publication by Oxfam and Sustainable Food Lab (SFL)

Integrating smallholders into supply chains can help companies attract customers and manage supply risks. Has your business recognised the opportunity? Consumers everywhere are growing more knowledgeable and concerned about the ethics of where and how their food and drink are produced. And food and beverage companies are facing a rapidly changing world. Global demand is rising as the world’s population grows. Yet the planet’s ability to meet this demand is threatened – by factors such as droughts and other expected consequences of climate change, together with land degradation and biofuel production.

For as long as international supply chains have existed, companies in the food and drink sector have tried to improve efficiency and minimise costs by simplifying and standardising their supply bases. But now is the time for a rethink. Smallholder farms have relatively low production costs and can manage labour-intensive crops. For domestic and global companies, connecting with smallholder suppliers offers a competitive opportunity to increase production while contributing to rural development. The Fair Trade movement grew out of the recognition that most large-scale food supply chains were bypassing smallholders. Certifying products and adopting standards have enabled some integration of smallholders, but the need is for change on a larger scale.

While many companies are starting to realise the sourcing potential of smallholder-based supply chains, Oxfam and the Sustainable Food Lab (SFL) recognise that these companies also struggle with the challenges of linking diverse smallholders to formal markets. Development agencies and governments are willing to support companies who take up this challenge, because approximately two-thirds of the world’s rural households – the majority of whom live in poverty – depend on smallholder agriculture for their food and incomes.

This briefing paper therefore aims to show how domestic and global companies in the food and drinks sector can deliver value for their business so that smallholder suppliers gain value too. There are real barriers and risks that must be addressed when linking the worlds of small-scale, diverse producers and dynamic markets. But recent experiences have shown that, when properly organised, smallholder farmers can participate effectively in formal supply chains and are able to manage their risks better, even in highly demanding markets.