“Inclusive agri-business”: a priority or a mystery for multinational food and beverage companies?

Six or seven years ago, the level of concern in food and beverage companies about their agricultural supply chains was high. Many global brands and companies had been hit by aggressive campaigns related to deforestation due to palm oil, or child labour in cocoa, which scarred them reputationally. Then came the 2007-8 food crisis. Populations, governments and businesses were affected by spiking prices and concerns about security of supply. Politically, the consequences were far-reaching, with high food prices one of the factors that created tensions in the lead-up to the Arab Spring. And political attention also turned to companies and the role they could play in addressing issues in agriculture and food systems. The New Alliance for Food Security and Nutrition was launched at the G8 in 2012, championed by the US, and the 2013 G8 Summit focused on nutrition.

Within multinational food and beverage companies, even those several steps removed from the farm, agriculture rose up the priority list. It was registering on operational cost and risk agendas, rather than being viewed principally as a reputational risk. The food crisis pushed sustainable agriculture into the mainstream procurement agenda for many companies, and unlocked the potential for significantly more business attention and investment to secure future supply and business growth.

More and more companies started to take action to improve visibility of their agricultural supply chains, and to influence how crops were farmed. Many set public targets to source their crops “sustainably”. And what did that mean? Generally adherence to some form of standard or code. Many companies already had robust sustainable agriculture frameworks in place. Some had launched their own agriculture codes, many were developing them. Third party certification was playing an increasing role, though the scale-up challenges of this were already evident.

Sustainable agriculture was put more and more at the heart of procurement strategies, which was great progress. But it had a drawback. Big businesses, and especially procurement functions, are often set up to implement well defined processes at scale. This means that there can be a tendency to create targets and processes and ultimately a compliance approach – requiring that farmer and suppliers meet sustainability criteria, rather than working to address the sustainability challenges that exist in the supply chain.  

And how did inclusion fit in?

A few years ago, inclusive business was a term that was unknown within many large companies. The Practitioner Hub definition is business models that combine commercial and social return. Reference is often made to making markets work for the poor. Inclusion is not explicitly defined in the Sustainable Development Goals, but it is a strong theme of both SDG1 and SDG2, with their focus on ending poverty and on food security, nutrition and sustainable agriculture.

So inclusive agribusiness is about creating market and income opportunities for the poor, either as farmers, operating other agri-businesses, or working on farms or in agricultural jobs. And it must also be about ensuring that the poor benefit and are not harmed by their involvement in agriculture.

Most corporate sustainable agriculture strategies, however, were designed to shore up future supply and reduce supply and reputational risk by ensuring crops were farmed productively, and in a way that didn’t harm people or the environment. There was much less discussion about the positive job- and income-creating role of agriculture, and about the opportunity to enhance this by including more people in agriculture, and creating more jobs and more entrepreneurs.

Certainly, a number of important inclusiveness issues have been embraced as key imperatives for business, and interesting partnerships have emerged. Individual companies and coalitions are now seeking to drive meaningful progress on farmer access to finance and to land, on women’s livelihoods and empowerment, and on youth engagement. Many companies have increased their emphasis on sourcing from and investment in smallholder supply chains. But there have also been many commitments that remain undelivered – which suggests that sometimes the challenges, costs and risks are too great.

In both of my previous companies, smallholder sourcing and development has been a big focus. In the cocoa sector, there is no choice but to source from smallholders, so the focus of my work at Cadbury and Kraft was to strengthen those supply chains. For other crops, buyers have choices, and at SABMiller I learnt how big a commitment it is to develop a new smallholder supply chain from scratch, as SABMiller did with, for example, sorghum in Uganda and cassava in Mozambique. In both places the company created a market for smallholders who had previously had no access to a formal market. For SABMiller, there was strong enough reason to persist with these local sourcing initiatives because multiple business benefits went hand-in-hand with the impact for local farmers: stable, local supply; strengthened government relationships; preferential excise rates that made it possible to create an affordable beer category to drive sales growth; loyalty from farmers and other stakeholders (all of whom are potential consumers); and a boost to the local economy that is the source of all future growth.  

For many companies, the business case to invest creating in smallholder sourcing models is simply not as big as that. And as I have said, big businesses are often set up to implement well defined processes at scale, rather than to adapt to the very unique local requirements of agricultural supply chains.

So while many multinationals have made great progress putting sustainable agriculture on the agenda, and at the heart of their procurement strategies, more and better inclusion of the poor in these supply chains remains a big challenge. I would suggest there are a few key things to bear in mind when trying to strengthen the willingness and ability of major food and beverage companies to focus on inclusion:

• Look for the business growth opportunities, without forgetting the risks
  There is an enormous commercial opportunity within food and agriculture. The Sustainable Development and Business Commission sized the opportunity for the food and agriculture sector from creating new business models to deliver the SDGs as over $2 trillion. Finding ways to leverage business innovation and create business growth from this, as SABMiller did, can be powerful. Of course, this must not undermine efforts to also understand and address the risks and unintended consequences related to agricultural supply chains, such as food security and human rights.

• Rethink corporate sustainable agriculture development strategies
  Procurement functions must continue to lead sustainable agriculture strategies, but work is needed to ensure they are not tickbox exercises. What is needed is systematic: structured analysis of material risks and opportunities across the agricultural supply chains, and a set of proactive approaches that effectively respond to these. A locally adapted, continuously evolving approach. The emphasis needs to be on developing effective local sourcing models, and on multi-stakeholder landscape and sector approaches for complex sourcing regions, not just on farm, farmer or supplier compliance to prescribed standards. Businesses need to find ways to embed and “institutionalise” this kind of blended, responsive approach, even though it may feel more complex.

• Build the enabling environment
  In many cases, policies and poor infrastructure hold back business progress. Businesses need to point out the problems, and where government action is not forthcoming, look to donor agencies and civil society to support with advocacy and investment in the things that will enable agricultural supply chains to be strengthened, and people to be included in markets in a way that improves their livelihoods as well as addressing market demand.

• Share the cost of the riskiest market opportunities
  The poorest and most food insecure people, many of whom are subsistence farmers, often operate entirely outside markets. The social value of market inclusion strategies is clear, but these people are likely to make the riskiest and least attractive suppliers or consumers for businesses. For businesses to reach and include these people in a way that is beneficial, many issues beyond market access have to be solved, for example secure access to land, financing and financial literacy, nutritional literacy, etc. Partners with access to other funding sources can have a real impact - working with business to find creative solutions to reduce the risk and added cost of inclusion, and to address areas that fall beyond business competencies.

With joined-up thinking between the private sector and other actors on these points, I think a step change could be achieved in how the private sector contributes to more inclusive agri-business, and plays its part on Sustainable Development Goals 1 and 2.

• This blog is part of a series on what’s new in inclusive agribusiness from April 2017. Hear from more contributors in part one of the series- digging into the details of inclusive business programmes around the world.  In part two contributors share how long-standing perspectives on cooperative, corporate strategies, value chain partnerships, market system change, rural livelihoods support, financing, and innovation adoption are beginning to blend, and why. 
• Read more on key topics in inclusive agribusiness in the series of six theme papers.
• Access over 450 resources on inclusive agribusiness on SearchInclusiveBusiness.org