People seldom associate the term ‘business models’ with ‘smallholders’. However, ’smallholder-inclusive business models’ are in demand.
With majority of agriculture sectors in developing countries are run by smallholders, a variety of strategies to better link them to markets could mean two big things: agricultural development and poverty reduction. Both would positively impact on food security.
What are smallholder-inclusive business models?
The FAO (2012a, page 1) defines that the term “business model” as the rationale for how a company creates and structures its relationship to capture value. According to Cotula and Leonard (2010) there are at least four categories of inclusive business models: management contracts (eg tenant farming, sharecropping, etc); joint venture , farmer-owned business and contract farming (eg the nucleus estate model, etc).
One key question is how we can assess ‘the inclusiveness’.
Inclusive business models are not always initiated by smallholders but they do provide opportunities for smallholders to form partnerships with other smallholders and commercial enterprises. The FAO (2012a, page 17) suggests some criteria to assess inclusiveness including ownership, voice in decision making (especially on price setting), risk and reward (ie sharing of economic costs and benefits).
How governments and other stakeholders including aid agencies can help promote smallholder-inclusive business models?
This would require a good understanding of the inclusive business models’ success factors.
The FAO (2012b, page 15) suggests some success factors for strengthening smallholder-buyer business models within value chains. The factors include:
- Non-politically aligned organisations (in order to be viewed as practical and market-oriented service providers for their members)
- High quality service provision (so that members value their membership)
- Social and enterprise strategies (to address the priority of the community)
- Network membership (to access information on new technical ideas)
- Focus on core business (firs to improve productivity, second to acquire marketing and management capacities)
- Low cost value additional through organisational innovations (value adding activities which do not require high cost capital investments ie sorting, grading, production planning and logistics)
- There is no “one-size-fits-all” (the models are formed based on the local cultural contexts and the marketing needs of members)
- Understanding the needs and risks of agribusiness companies (to remain in constant dialogue with buyers to meet market requirements)
Some remaining challenges are how we can ensure that these smallholder-inclusive business models ‘have a level playing field’? Are government interventions needed? How to attract investors in the smallholder-led agribusiness development?
FAO (2012a). Review of smallholder linkages for inclusive agribusiness development, FAO, 2014(Available from URL: http://www.fao.org/docrep/019/i3404e/i3404e.pdf
FAO (2012b). Smallholder business models for agribusiness-led development: Good practice and policy guidance, FAO, 2014(Available from URL: http://www.fao.org/docrep/015/md923e/md923e00.pdf