Working with smallholders. A handbook for firms building sustainable supply chains

Publication by the International Finance Corporation (IFC), a member of the World Bank Group

Agribusinesses operate in a rapidly changing world. Demand for agricultural crops is expected to double as the world’s population reaches 9.1 billion by 2050. Food production will need to provide sufficient carbohydrates, proteins, and fats for the estimated 870 million people who currently lack food security. Concurrently, rising incomes and urbanization will drive increased consumption of meat, dairy, and bio-fuels.

Increasing the quantity and quality of food in response to this growing demand will be a challenge for a variety of reasons. First, the remaining unused arable land is concentrated in a few countries and is difficult to access. Second, yields for staple crops, such as rice, maize, wheat, and soybeans, have stagnated or declined in one-quarter to one-third of their production areas during the past 40 years. Third, climate change, water scarcity, and an aging rural population also pose risks to agribusinesses seeking innovative solutions to sourcing their products.

In the face of these challenges, firms recognize that the world’s 525 million smallholder farmers represent an opportunity to expand market share and secure a sustainable supply of key agricultural commodities. Sourcing directly from smallholders can expand a firm’s supply base, reduce margins paid to collectors and middlemen, and facilitate quality and productivity improvements. Smallholders also represent a potential customer base for firms marketing inputs, information, and financial services.

However, sourcing from smallholders presents numerous challenges:

  • Productivity and crop quality are often low.
  • Smallholder suppliers may lack knowledge on how to mitigate social and environmental impacts.
  • Poor farm management skills and lack of aggregation reduce smallholders’ ability to achieve scale.
  • Transparency and traceability measures are needed along the supply chain to address food safety and sustainability.
  • Certification programs have difficulty evaluating the sustainability of farming practices through layers of collectors and middlemen.

Responding to these challenges can require costly investments with returns spread over the short and long term.

This handbook responds to the challenges agribusinesses face by laying out the business case for working with smallholder farmers. It also provides a framework for decision making and recommends tools and resources for firms engaging with smallholder farmers.

More information can be found at the Farms2Firms website of IFC.