With 500 million smallholders in the world producing agricultural crops that companies buy as raw materials, there is huge interest in finding effective strategies to include them in supply chains efficiently and profitably, for both the company and the smallholders.

A two-day Rainforest Alliance Innovation Forum in London earlier this month brought together companies and NGOs to share their learning and recommendations. The Rainforest Alliance promotes responsible commodity supply chains that result in improved livelihoods for farmers and healthy ecosystems that sustain production over the long term. We do this through four main strategies: 

1. Promoting the Sustainable Agriculture Network (SAN) standard — a set of best farm management practices that guide efficient and sustainable use of the land and responsible labor practices;

2. Building the capacity of producers to farm sustainably, improve their profitability and manage their businesses;

3. Certifying farms that demonstrate compliance with the best practices; and

4. Harnessing the commitment of industry to responsible sourcing in order to generate demand for the output of those farms and supporting companies to turn the commitment into practical strategies.

Key issues

Three main forces drive the commitment to responsible smallholder inclusion in supply chains, first being public commitments made by an increasing number of companies over the last two years to sustainable and particularly, deforestation-free supply chains. The second driver is policy.

A number of governments of countries where companies operate are passing legislation to support their rural populations that require companies that gain concessions to extract raw materials, to include smallholders in their operations.

The third driver is production efficiency. Processing facilities such as tea factories and oil palm mills need additional quantities from what the plantations produce in order to maintain the facilities at full production.

Responding to these drivers for responsible smallholder inclusion, companies face a number of challenges. Efficient aggregation of smallholder volumes to reduce costs of transport and processing is one. A second is reliable quantity and quality of supply.

Most smallholders have lower productivity than larger plantations. Typical causes are: aging tree stock without a plan for rehabilitation and renovation; sub-optimal use of appropriate inputs; and insufficient application of important management practices, such as pruning and composting.

Facilitating access of smallholders with services to upgrade their quantity and quality of output at a manageable cost is difficult. Few small-scale businesses exist to provide timely and appropriate farm management services to smallholders. This leaves them dependent on government extension services, or more likely company programs.

Almost all the major coffee and cocoa trading and processing companies have technical teams to train their smallholder suppliers in best practices. While this development undoubtedly has had positive impact, it only targets the smallholders presently in the supply chain and so excludes many others.

Commercial pressures require companies to be cost competitive, and as a result, they have limited capacity to engage with the smallest and more remote producers.

Another difficulty is weak business management. Most small-scale farmers do not keep records of their costs or revenues. We undertook a survey in central Sulawesi of cocoa farmers and found only 5 percent that kept some kind of record of their farm's performance. As a result, smallholders are mostly unbankable and unable to access investment capital needed for improving farm performance.

Social exclusion is a further difficulty, preventing services reaching all the people who contribute to the economy of a farm. Most smallholder farms depend on women's contributions to production and harvesting, but women are usually unable to receive equal benefit from the farm. Examples of discrimination include: selling dominated by men; women unable to participate in training because of other responsibilities; and women excluded from land title and as a result often unable to join producer associations.

Finally, on the smallholder side, legality of operations may be a problem. Smallholders may be under the radar of monitoring the permitted production areas. Coffee, cocoa and oil palm farmers have been found inside protected areas in Indonesia.

There are also difficulties on the company side. Commercial pressures require companies to be cost competitive, and as a result, they have limited capacity to engage with the smallest and more remote producers or with producers that do not meet quantity or quality standards.

Rainforest Alliance collaborates with companies and smallholders to address these challenges. For example, in Sumatra, we have introduced the Nescafe Better Farming Practices together with Nestlé to 12,000 coffee farmers, by working with the trading intermediaries supplying them. Nestlé also distributes plantlets to the farmers to improve their production.

A similar model is operating in Sulawesi in cocoa, where we work with Olam. We are training its technicians in climate smart agriculture and farm record keeping and they are rolling that out through a system of trainers and lead farmers to 8,000 farmers who supply cocoa to them. The trainers include government extension workers, thereby bringing the government on board to the concepts and practices of sustainable farm management.

Lessons learned

Drawing from such experiences, Rainforest Alliance has drawn five lessons for successful responsible inclusion of smallholders into company value chains:

1. Integrating smallholders depends on mobilizing intermediary companies in the supply chain, providing them with knowledge and economic incentive

As a result, 1.2 million smallholders on 3 million hectares of tropical land are certified according to the SAN Standard. Certified cocoa and coffee are traded at a premium, generating additional value that can be translated into investment funds for farm improvements, and providing services such as training in quality improvement.

Studies show that this approach pays off. In Central Sulawesi, where we work with Mars, Incorporated, we measured increases in the elimination of infected pods from the trees, which were causing up to 30 percent crop loss, from 41 percent of farmers to 95 percent and in farm renovation from 0 percent to 89 percent of farmers surveyed, while the use of the dangerous herbicide paraquat reduced from 93 percent to 16 percent, replaced by integrated crop management.

The growth of cocoa and coffee certification has contributed to the process of supply chain companies building their technical teams. Sustainability has become a business requirement and if a company cannot deliver it, its competitors will.

2. Understand the context of where you are working, and don't make assumptions about smallholders' interests

Rainforest Alliance's work with Nestlé on its Rural Development Framework and a Lifescape & Landscapes Analysis undertaken in Sulawesi are examples of thorough analysis that enables understanding of the social and economic situation of smallholders and the political and environmental context that determines their use of natural resources, so that plans to include them in supply chains make the same sense for them as for the company.

3. Develop the business case

Financial tools are essential to encourage investors to make financial services available to smallholders.

The Rainforest Alliance published in 2016 analysis of the cost of three strategies for integrating smallholders more effectively into supply chains: the costs per hectare of implementing best management practices for improved quality and quantity; the costs per hectare over five years of renovating a farm through new seedlings and inputs; and the cost of establishing a small-scale mill for producing crude palm oil.

4. Make training fun and inclusive

Use training materials that farmers can understand and a training methodology that keeps farmers engaged and entertained. The Rainforest Alliance has a library of farmer friendly resources in over 50 languages.

More women can be included in training courses if they are tailored to their interests, for example including subjects of concern such as nutrition into the curriculum. Financial literacy training attracts women, as they usually manage household budgets. Rainforest Alliance has found that women's participation increases when female trainers are used and of course when training is scheduled at times that best fit around their domestic duties.

5. Use technology to simplify business systems and increase the flow of information

One of the main worries of commodity companies and brands is the lack of motivation for young people to continue farming. The use of mobile technology to distribute information and enable financial transactions resonates positively with young people.

Training young men and women as lead farmers who are trained and then mobilized to share their learning with other farmers near to where they live has also been an effective strategy. Young people feel motivated to have access to training and be seen as leaders in their communities. Going digital makes management systems more efficient.

Moving forward

Building supply security and resilience with smallholders requires enabling their farms to be sufficiently productive and profitable and to look after the natural environment and the people who work on the farm properly, so that they continue producing the commodity over the long term.

It also requires establishing supply arrangements that are commercially efficient and mutually respectful so that both sides see value in the relationship. Advances in technology and communications and the commitment to responsible sourcing offer a positive, enabling environment to increase the more direct and visible participation of smallholders in supply chains.

The degree of success will depend on the capacity of all parties to understand the barriers and design effective initiatives to reduce them.