Sustainable Development Goals: What do they mean for Inclusive Business?
The Sustainable Development Goals (SDGs) provide an opportunity for inclusive business to emerge from the shadows and take centre stage in the global development arena. The goals call upon the private sector to be a critical and central contributor. As stated by UN Secretary General Ban Ki Moon last September in New York, “I’m counting on the private sector. Now is the time to mobilise the global business community as never before.” The private sector contribution to the SDGs will depend largely on the rate at which companies around the world develop more sustainable and inclusive business models.
Profitable, sustainable, scalable, inclusive business is key to solving many entrenched development challenges across areas as diverse as health, education, financial inclusion and climate change. The greatest of these challenges is releasing the untapped potential of the world’s smallholder farms, whose farmers constitute roughly 70% of the world’s absolute poor. According to the International Fund for Agricultural Development (IFAD), these 450 million smallholder farmers currently operate their farms at less than 40% of their productive potential - and yet as many as 2.5 billion people at the base of the world’s economic pyramid depend on them for their wellbeing. These farmers provide over 80% of the food consumed in large parts of the developing world, especially South, South East Asia and sub-Saharan Africa. There is vast potential to harness this untapped market and develop viable inclusive business models that provide scalable and systematic solutions to the problems of poor farmers.
These farmers need input and off-take partners who engage in business that is inclusive and mutually profitable. That is not the existing environment for the majority of these farmers. Often due to "last mile" distribution challenges, these farmers don't have access to quality seed, fertiliser and farming tools. And due to multiple layers of middlemen who take excessive profit, these farmers do not connect with buyers who could build inclusive business linkages. In fact, over 90% of these poor farmers lack strong, consistent relationships with large input and off-take buyers – and therefore access to finance, inputs, agronomic training and other support that typically accompanies such relationships. And large input and off-take companies have a profound opportunity to help farmers exit poverty through undertaking inclusive business.
So, while inclusive agribusiness is clearly a domain that attracts entrepreneurs, with hundreds of inclusive agribusiness case studies emerging with local SMEs, who are developing more inclusive market connections between farmers and local markets, consider that:
- In terms of farm inputs,
- Monsanto, DuPont, Dow, Syngenta, Bayer and BASF control 75% of the crop protection products that are sold to smallholder farmers.
- Monsanto, DuPont and Syngenta control 55% of the global seed market that are the genetic basis for crops produced by smallholder farmers.
- 33% of the global fertiliser market is controlled by 3 companies – Yara, Mosaic, and Agrium.
- In terms of farm off-take,
- Four grain and soya traders – Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus control around 75 % of the world grain trade.
- The market share of the ten top-selling food processors - such as Nestle, PepsiCo and Unilever - amounts to 28% of the total volume of the world market. And these large food corporations make most of their profit in developing countries.
- There are 25 million farmers who produce coffee that is consumed by 500 million global consumers. Yet just three companies roast 40% of the global coffee harvest and five companies trade in 55% of the coffee.
Given their dominance in the market, it is critical that these multinational companies credibly and effectively work with smallholder farmers utilising inclusive business models. That is why at Business for Development, we broker input and off-take partners with such large companies on behalf of farmers. We have developed what we call our LINC (Long-term Inclusive Commercial) model in partnership with large input and off-take companies such as Syngenta, Louis Dreyfus, Olam, PepsiCo, Mondelez and Cotton On. Our model is currently being piloted across sub-Saharan Africa and South East Asia in several absolute poverty level farming communities proximate to resource companies in an innovative private sector cross-sectoral collaborative model. As Oxfam have recently pointed out, "Specialised intermediaries are critical to link the world of diverse and dispersed producers with that of the global buyer. Buyers want a supply base where large volumes, standardised procedures, and minimal management requirements combine to minimise the cost of raw materials. Farmers, on the other hand, need fair returns and a variety of services."
As Bill Gates has said, "Helping the poorest smallholder farmers grow more crops and get them to market is the world’s single most powerful lever for reducing hunger and poverty”. Inclusive business is a key way to achieve this. And the engagement of multinational companies is critical. That is how inclusive business will take centre stage in global development and can lead to the successful achievement of the SDGs, especially SDG1, the end of poverty by 2030.
Business for Development welcomes the opportunity to work with multinational companies on developing inclusive business outcomes. To find out more: www.businessfordevelopment.org