A new paradigm is needed
Smallholder agricultural markets are
crucial to the world – for food security, economic development, as a pathway
out of poverty, for building climate resilience. However, the scale of the
challenge is far larger than what the public, development, philanthropic and corporate
social responsibility efforts – historically the most active - can tackle
alone. A massive ramp-up in
Yet a number of market dynamics make this much needed ramp up a hard one to achieve.
- Companies and investors currently underinvest because they underestimate the business potential engaging in smallholder markets. This is due to a lack of credible, comparable, and actionable data and insights, a lack of capabilities (know-how, practical guidance) and/or an insufficiently supportive enabling environment (finance),
- When companies do invest many do so sub optimally, for instance using business models that are not optimized for efficiency, effectiveness, scalability and commercial viability; and
- Often companies lack a supportive enabling environment, for instance a lack of access to finance to fund their models or a regulatory environment supportive of private sector-led efforts.
We believe a new paradigm for engaging in smallholder markets is needed in which there is a massively increased role by the private sector, based on successful inclusive business models. This new paradigm is characterized by two main developments:
- The private sector plays a key role in filling the investment gap in smallholder agricultural markets, particularly in service provision
- Data plays a more fundamental role to reassess long-anchored perceptions on the cost and risk of investing in smallholder markets and to inform better decision-making into where, how and when to invest
This Insights Hub aims to contribute to the paradigm shift by providing a common language to discuss, assess and compare the financial and social outcomes of smallholder inclusive business models, making the case for a larger, smarter, more inclusive and more effective role for the private sector. In addition, we aim to provide practical know-how on high performing business models.
We believe that with a new paradigm based on a larger role for the private sector and a stronger integration of data into decision-making, there is potential for a massive increase in private sector involvement in transforming smallholder agricultural markets for the better.
The case for change
Smallholders play a critical role in global food systems
Approximately 2.5 billion people depend on smallholder farming for a living across the Global South.
Collectively, smallholders produce around 35% of the world’s food. This figure is expected to grow as the global population continues to rise, particularly in emerging economies characterized by smallholder agriculture.
Yet despite their critical role, smallholders in emerging markets remain some of the most vulnerable
Smallholder farmers often face a wide range
of challenges. While the exact challenges differ per context and while
certainly not all smallholder farmers face all (or even any) of them, we
identify a number of
Women and youth are particularly at risk
While women make up to 60% of the farm labor force in developing countries, they sometimes earn only half as much as men 5. In addition to the recurrent smallholder-related challenges, women face a wider range of structural challenges, including educational, socio-cultural and legal constrains driving unequal access, control and agency over productive assets and services.
Social and cultural norms also play a role. For instance, these often exclude female smallholders from higher value-add crops or activities such as marketing. Customary laws related to land rights and inheritance often limit their ability to unlock finance to invest in the farm, purchase the necessary inputs, hire additional labor or access other extension services. It is estimated that if women were given equal access as men to assets, finance and services, their yield could increase by 20-30% per household and food insecurity could be reduced by 12-17%.
Of the world’s 1.2 billion youth, 1 billion live in developing countries and half of these live in rural areas. Youth already face around 3 times higher unemployment than non-youth, and in smallholder farming contexts often face additional challenges such as limited access to land and reduced access to capital). At the same time, youth can provide a key opportunity to transforming agricultural markets as they are often more willing and able to take up new innovative technologies associated with more commercialized farming and can play roles as micro-entrepreneurs in a more vibrant ecosystem around smallholder farmers.
The scale of the challenge is immense yet current investment falls short of what is needed
Recent figures from the United Nations estimate that there is a USD 480 billion annual investment need into lower income agricultural markets to reach transformational outcomes: end-hunger, boost nature positive production practices that are respectful with natural ecosystems, advance equitable livelihoods and improve value distribution.
More than 50% of this investment need currently goes unmet. Non-commercial capital – including public,
development and donor funding – plays an important role in the current
investments. While non-commercial funding is key in addressing market failures
and providing early stage, high risk capital for experimentation, it is also
often fragile and, though there are exceptions,
The challenge is not only one of underinvestment, but also one of sub-optimal investment. A lot of the investment till date has not generated the type and scale of progress that is needed. As a result, we believe not only more investment is needed, but also better investment.
A New Paradigm
The scale of the challenge we are facing requires systemic changes to how we engage with and invest in smallholder markets. We believe a massively increased role by the private sector is needed, based on successful inclusive business models. This new paradigm is characterized by two main developments:
The private sector plays a key rolein filling the investment gap in smallholder agricultural markets, particularly in service provision Data plays a more fundamental roleto reassess long-anchored perceptions on the cost and risk of investing in smallholder markets and to inform better decision-making into where, how and when to invest
Our conversations with our private sector partners confirm that there is a strong appetite for such a shift.
How this Insights Hub contributes to the paradigm shift
In the last decades we have seen significant movements towards this new paradigm:
- Large growth of private sector engagement in smallholder markets
- Increasing focus of researchers and academia on the importance of inclusive and sustainable food systems that can feed the world while preserving the planet
- A growing focus on private sector development by development organizations and multilaterals
- Fast growth – albeit from a very low baseline – of commercial and semi-commercial investment into smallholder agriculture
Unfortunately, the reality is most companies continue to struggle to internally make the case for investing in smallholder farmers, and/or lack the capabilities (know-how, data) and opportunities (finance, enabling environment) to scale up their investments. Related, these same challenges can inhibit investors from providing funding to support companies develop and scale such investments in smallholder farmers.
How fast the sector moves towards the new paradigm is largely outside of our control. However, with this Insights Hub we aim to play an enabling role towards more evidence-based private sector engagement by:
- Providing a common language to discuss, assess, compare and understand smallholder inclusive business models.
- Making the case for a larger role of the private sector, by showing where there is a business case for smallholder inclusive business models.
- Providing practical know-how for companies on how to act based on our insights.
- Supporting companies with getting access to finance by more strongly and rigorously analyzing and understanding their models, and creating a comparable database for benchmarking against other models.
- Help identify investment opportunities and better allocate capital for commercial, semi-commercial and grant-based investors and funders. This can help them to better allocate their finite resources by providing rigorous, data driven insights that can inform where and how to invest in smallholder agriculture.
- Make the case for a larger role of data in decision-making and providing our data and insights to show the types of new insights that can be found with a larger focus on data. Better data can help inform better decisions on quantifying value, risks and farmer impact, which are often insufficiently visible (or entirely hidden), and provide common metrics used to understand and compare business models.