Sourcing from Smallholders: Complex Challenge or Commercial Opportunity?
Abstract:
The 500 million smallholder farmers worldwide represent both a key supplier base and a market for firms, and advances are being made on how to integrate this segment of farmers into formal value chains.
CASA TAF’s second annual learning paper, Sourcing from Smallholders: Complex Challenge or Commercial Opportunity? Perspectives from Investors and Agribusinesses, adds to the body of knowledge on the commercial and development impact potential of smallholder-sourcing agribusiness models.
Specifically, the paper quantifies the share of investment flowing to agribusinesses sourcing from smallholder farmers within the broader category of agriculture; and captures 15 investor perspectives on the commercial viability and development impact of companies that source from smallholder farmers.
The research revealed that investors see great advantages of sourcing from smallholders, ranging widely, for instance, from access to greater supply volumes, to reductions in purchasing costs and higher sales prices. The most common perceived challenge of smallholder sourcing is ensuring sufficient quantity and quality of raw materials through efficient aggregation models. Investors also highlighted the key role of crop unit economics, upstream support services and trust-based relationships with farmers in making a smallholder sourcing model successful.
The paper recommends five key takeaways for investors, agribusinesses and development partners which will enable greater recognition of smallholder-sourcing businesses as an asset class; catalyse the provision of targeted upstream support to smallholder suppliers; and encourage the creation of investment vehicles with less prescriptive investment horizons to allow flexibility for investments to generate returns at their own rate.
