A growing number of food and agribusiness companies are taking steps to engage with farmers at the upstream ends of their supply chains, according to Rabobank.
It says that some of the reasons for this are supply security concerns, potential savings on raw material costs and managing reputational risk.
This is especially the case in chains that depend on smallholder farmers for products, such as coffee, cocoa, nuts, spices, and certain vegetables and tropical fruit, Rabobank says.
Rabobank’s report Joining both Ends of the Supply Chain; Reaching out to Smallholder Farmers, identifies three factors that can improve success in engaging with farmers.
Analyst at Rabobank Justin Sherrard said that supply chains have faced unrelenting pressure in recent years.
“Consumer demands for more information on where food and ingredients come from as well as recent food safety scandals, have highlighted the need for food and agribusiness companies to increase the transparency of their supply chains.
“One response to enhancing supply chain security has been for companies to engage particularly with smallholder farmers in developing countries,” he said.
According to Rabobank food and agribusiness companies should focus on engagement at aggregation points in the chain, rather than directly with farmers.
This is something Nespresso has achieved it says, through working with existing cooperatives that have been certified by Fairtrade International.
This has strengthened the company’s connection with coffee farmers in eight countries,according to Rabobank, including in Brazil, Colombia, Ethiopia and India.
Multi-year agreements can also offer many benefits to global food and agribusiness companies, it says, such as ongoing co-operation to lift production, improving quality and investing in local community development.
These agreements, according to Rabobank can also offer companies a measure of control in safety requirements, as well as giving farmers more certainty on future demand and pricing.
The third area is supporting technical assistance, to help smallholders improve productivity and reliability, it says.
For example, Rabobank says that Mars uses a hub-and-spoke model in Indonesia where ‘cocoa doctors’ visit groups of 100-200 cocoa smallholders to promote best practices.
Rabobank believes that these three areas can also catalyse smallholder financing schemes, therefore enabling farmers to further increase production volume and quality, lifting incomes and improving livelihoods.
However, joining both ends of the chain is far from straightforward, it says.
Connecting with smallholders comes with considerable challenges, and there is no ‘one solution fits all’ approach, it says.
Success, Rabobank says, depends on patience and a long-term commitment from food and agribusiness companies.
Despite these challenges, the trend for food and agribusiness companies to reach out to smallholders will continue in order to meet the increasing demand for agricultural products, it says.
The benefit to companies will be seen in strengthening security of supply, improving traceability and stimulating sustainable production, Rabobank says.