Smallholder famers and segmentation

Our key takeaway: Companies in the agricultural sector are increasingly seeing that “farmers must be placed at the center of business practices through new ways of working.” This quote is from a recent Guide by Business Fights Poverty and the Farmer Income Lab which highlights the tool of farmer segmentation. As with segmentation methodologies familiar to the business world, this approach helps to divide up a larger group (in this case, farmers) into distinct groups to enable more nuanced understanding and ultimately more effective solutions. It helps companies to think more robustly about how to tailor their interventions, or where and how they should use leverage over other parties. Such thinking therefore improves “the effectiveness of both sustainable sourcing strategies and smallholder support activities.” To build a future where both businesses and small-scale farmers thrive, “farmers must be placed at the center of business practices through new ways of working.” Novel approaches, such as farmer segmentation can help improve the effectiveness of both sustainable sourcing strategies and smallholder support activities.

Business Fights Poverty and the Farmer Income Lab published Farmer Segmentation: how companies can effectively target support for smallholder famers in global supply chains (December 2022). It is a guide for procurement teams explaining the concept of farmer segmentation and offering practical guidance on how it can be applied to benefit both farmers and businesses:

• The context: The guide explains the critical role of smallholder farmers, who produce “a third of the food consumed worldwide” and provide the raw materials for many large agricultural companies’ global supply chains. Yet despite this contribution, “80 percent of the world’s extreme poor … live in rural areas and mainly work in farming”. Multiple factors, including the growing impacts of climate change, make it difficult for smallholders to secure a living income. At the same time, companies are also “starting to take a long-term, more strategic view of their key smallholder supply chains and build sustainability considerations into procurement strategy and decision-making.” Increasing farmers’ income therefore offers benefits for both farmers and companies. 

• The contribution of farmer segmentation: In efforts to increase smallholder farmer incomes, previous research from the Farmer Income Lab underscored the importance of understanding individual farmers’ specific needs and challenges. Farmer segmentation offers a tool for dividing farmers into distinct groups to allow for this deeper understanding and to develop more targeted solutions. The concept of segmentation is already familiar to businesses, for instance in the context of marketing. But the Guide explains that its application is also useful in this context to enhance the effectiveness of approaches to improve farmer livelihoods and therefore to also help secure a company’s global supply chain. 

• Six practical steps to get started: The guide provides a summary of “the main steps to take, the important questions to consider, and where to find further information.” These steps are, first, to clarify your objectives—the question you are trying to gain a better understanding of—as well as the relevant geographic scope. The second step is to determine an appropriate methodology. The guide offers several examples, for instance dividing farmers according to basic demographic information or by beliefs and values. The fourth step is to collect the data, especially through traceability system data, farmer surveys, focus groups, and publicly available data. Then that data is used, fifthly, to identify farmer segments and, finally, to tailor solutions for each segment. The report offers several company case studies of these steps in practice, including from Nestlé, Mars, and Olam International.