Bricks and ladders: Integrating smallholder farmers into value chains

When evaluating value chains and food security, we must first acknowledge that increasing the overall food supply and forcing prices to fall will have the single greatest positive impact on food security.

Increasing the food supply on a sustainable basis requires transformative investments in those value chains that supply the primary food stuffs to food-insecure households in order to increase overall production and as a consequence drive commodity prices downward. The result: Food-insecure populations will have access to more food at lower cost.

But if overall production increases and smallholder farmers are not able to participate in the transformative investments that caused production to rise, they may end up worse off. Food-insecure farm households are net consumers, meaning they can’t grow enough to feed themselves and are forced to buy food even when food prices are high. If smallholder yields remain low while aggregate yields are rising, they will have less revenue with which to purchase food.

The question, therefore, remains: Can smallholder farmers benefit from transformative technologies and increase their productivity so that yield increases and cheaper food offset any negative impact from lower food prices? And if so, what are the most effective strategies to integrate the largest-possible numbers of smallholder farmers into more productive food value chains?

The answer is to ensure smallholder farmers have access to inputs and services. There are two strategies to achieve this sustainably: bricks and ladders. Building market channels under the bricks approach requires bringing together multiple value chain “bricks” — like smallholder farmers, input providers, processors, buyers, financial institutions and service providers — who are willing to change the way they do business in order to ensure smallholders have access to improved technologies at risk levels acceptable to all participants. Most successful value chain development follows the bricks approach. Market actors, of their own volition or facilitated by a nongovernmental organization, develop new business strategies by cooperating and pooling risk with other actors. These actors are able to earn profits by offering better services to smallholder farmers and, in so doing, increase the level of commercialization of the commodity chain in question.

A good example of this is ACDI/VOCA’s Agricultural Development and Value Chain Enhancement program in Ghana, which is funded by the U.S. Agency for International Development. ADVANCE is working with nucleus (meaning, resource-endowed) farmers who bring together and provide services to a large number of smallholders. As the relationship between the nucleus farmers and their smallholder farmers grows and the nucleus farmers prove to be trustworthy, the project links the nucleus farmers with other actors: input companies selling improved seed, fertilizer and crop protection inputs, large millers who guarantee to purchase the smallholders’ product and, in some instances, financial institutions willing to finance the input companies or provide loans for equipment purchases. Together, the bricks create a strong and more integrated value chain that provides better services to smallholder farmers.

The second and less exploited approach is the ladder approach. It involves using the more sophisticated service infrastructure from already highly integrated commodity chains — like cotton, rubber, tobacco, oil palm and, to a lesser extent, coffee and cocoa — and extending the services these chains offer to their farmers for the other crops that farmer is producing.

Cote d’Ivoire provides a good example of the ladder approach. The country’s largest cotton company Ivoire Coton learned several lessons in its work with smallholder cotton farmers:

1) Crop rotation with maize and a legume on cotton fields is an efficient way to sustain the long-term soil productivity of cotton fields.

2) Smallholder cotton farmers supplying Ivoire Coton are already producing maize and legumes on their other fields.

3) These same smallholders are diverting some of the fertilizer and crop protection inputs from their cotton crops to enhance the productivity of their non-cotton crops, resulting in suboptimal yields for both the cotton and the crops for which inputs were diverted.

As a result, Ivoire Coton began to encourage its farmers to adopt crop rotation by providing prefinanced inputs for the rotated crop. Ivoire Coton is also looking into providing input prefinancing for its farmers’ other crops using the cotton crop as a guaranty. As a result, Ivoire Coton is shifting more resources into input provision while participating smallholder farmers have improved access to quality inputs at lower up-front risk.

Neither approach — bricks or ladders — is inherently better than the other. But they could help tens or even hundreds of thousands of farmers gain access to the resources needed for them to climb out of food insecurity and further out of poverty. With both approaches, initial growth is slow as actors gain trust and confidence in one another and the new way of doing business. Once this is achieved, growth accelerates and other actors in the value chain copy the initial success, further expanding the benefits of the initial intervention without any external resources, a phenomena called “crowding in.”

The risks for food-insecure households to invest in higher-cost inputs are considerable. Sharing or mitigating those risks with other value chain actors makes upgrading a production system more acceptable. Widespread upgrading drives up yields and, as a result, reduces prices of key food security commodities. Lower food prices for all consumers increases national-level food security. Smallholder farmers’ access to improved input packages helps to ensure that those who help create higher levels of food security will also benefit from it.

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Feeding Development is an online conversation hosted by Devex in partnership with ACDI/VOCA, Chemonics, Fintrac, GAIN, Nestlé and Tetra Tech to reimagine solutions for a food-secure future from seed and soil to a healthy meal.