Our key takeaway: Market inclusion efforts are meant to help smallholder farmers from developing countries overcome the costly aspects that otherwise exclude them from global markets. For good reason, many companies, investors, NGOs, multilateral agencies and governments have invested heavily in this approach as a pathway to strengthen rural livelihoods, decrease poverty, increase women’s empowerment and promote environmental stewardship … yet, the supposed “win-win” of inclusion has not always lived up to promises. The IIED highlights what’s needed to create a shift towards more positive benefit for smallholders and their communities: More inclusion efforts coupled with more care taken to understand their implications and impacts carefully; support for SMEs and informal/domestic markets that are already significant market access points for smallholders; a better deal for farmers—namely, in the form of a living income—so that downward price pressures don’t undo the benefits of inclusion efforts; and technical and financial support to manage climate risk.
The International Institute for Environment and Development (IIED) published Taking Stock of Smallholder Inclusion in Modern Value Chains: Ambitions, Reality and Signs of Change (September 2022), a working paper examining “the promise and reality of including smallholders from developing countries in modern value chains as a path to sustainable development”:
How do ambitions and assumptions about smallholder inclusion stack up to the realities?: The paper highlights several key issues where assumptions have not entirely lined up with the reality. In terms of poverty, equity and income, there is an assumption that simply providing smallholders access to higher-value markets will lead to better prices and higher incomes. In addition, there is an expectation that farmers will be empowered by training opportunities, formal contracts and collective leverage. However, in reality IIED has found that: the impacts on income are positive but relatively small; income benefits tend to be “accrued by better-off farmers” rather than the most vulnerable; there is no clear link between increased training opportunities and higher incomes; contracts may help raise prices, but “imbalances in information and ability to enforce are common”; and cooperatives may be themselves exclusionary and politicised. With regard to the issue of gender, the assumption is that participation in global value chains can support women’s empowerment and greater gender equality. In reality, the IIED has found that there is “high awareness and efforts to apply a gender lens,” but that gender remains a “weak spot in the implementation and analysis of inclusion.” On the issue of environmental sustainability, the assumption is that compliance with sustainability standards and certifications will lead to positive environmental incomes. In reality, “progress on environmental outcomes has been elusive, with little empirical evidence assessing what inclusion has meant for biodiversity, ecosystems and climate change.”
“Five signs of change in the debate about the goal, tools and effectiveness of smallholder inclusion": In light of the findings of this research, the paper highlights ways in which players are beginning to shift their approach to smallholder farmer inclusion to overcome gaps and maximise positive benefit for the most vulnerable. For one, “[d]ifferent actors are starting to shift their understanding of their own roles and responsibilities.” For example, large businesses are exercising more caution in direct investment in smallholder inclusion schemes, recognising "tensions between their commitments to inclusion and the need to maintain their competitiveness, especially during a cost-of-living crisis.” NGOs, philanthropists and impact investors are moving in to play an intermediary role. Second, “donors and investors increasingly recognise that investments in mid-chain enterprises [like wholesalers, aggregators, and processors]—especially those sourcing from smallholders—enhance scale and multiply effects.” Third, actors in this space are increasingly realising that the most benefits for smallholders may not be achieved by seeking inclusion in the global market, but rather in local, domestic and informal markets. Fourth, “[a] narrow focus on smallholder inclusion is giving way to wider supply chain responsibility and sector governance. There is recognition that addressing the complexities of smallholder livelihoods is beyond the sphere of influence of any single actor, and requires a sector-wide approach involving farmers, businesses, financial institutions, and governments.” Finally, the conversation is shifting towards living income as a new benchmark of farmer well-being and inclusion.
Implications for anyone with a stake in promoting smallholder inclusion: The report sums up four key areas for forward-looking attention from companies, funders, NGOs and policymakers. At the core, regardless of the gaps identified by this research “[m]ore inclusion, not less, is needed.” Actors should, however, be taking a closer look at the actual impacts and implications of their efforts on smallholder farmers and their communities. In addition, more support is needed for the informal and domestic markets and SMEs that already provide opportunities for smallholder inclusion. For example, this support “should focus on providing public goods such as infrastructure to enable labour, capital, information and inputs to flow.” Third, farmers need a “fair deal” to really reap the benefits of inclusion. The report points out that they “are being squeezed between the high cost of inputs and the pressure to keep prices down to protect consumers from the cost-of-living crisis.” This falls into the laps of global agrifood companies, who “will need to ensure that whatever replaces certification in its current form (eg a living income benchmark) provides a meaningful benefit for farmers, not a new obstacle to overcome.” Fourth, the “‘green transition’ to climate-resilient smallholder agriculture will not be achieved just by inclusion in value chains. … Participation in value chains alone is unlikely to fundamentally alter the existential danger that climate change poses for small-scale agriculture, especially because corporate commitments have focused on decarbonisation of supply chains rather than on building resilience.” Rather, smallholders will need more technical and financial support to adapt to climate change risks.