On the panel “From Farm to Plate: Financing Change, Changing Finance”, William Foote, Founder and CEO of Root Capital called farmer producer organizations the “Jedi Knights” of getting finance and credit to rural farmers.
With 500M smallholder farmers living on subsistence farming and vulnerable each year that they might not grow enough food to eat or sell to support their families, improving agriculture value chains for these farmers, including improving access to financing, is essential. I personally feel very close to this issue as I worked for 4 years in Southern Africa helping other organization better facilitate market development and improve agriculture value chain competitiveness.
William Foote estimated that potential smallholder farmer market is between $100-250B, but then questioned how much of this is realizable demand. The key to accessing this market is through the organizations that farmers aggregate into, whether they are cooperatives, associations, buying groups or another form.
Where’s the Money?
The first major theme that emerged from the panel was the lack of access to finance by farmers and their organizations as one of the largest missing pieces in the value chain. Finance needs span across the value chain, from farmers needing credit to purchase seeds, fertilizer and inputs to input providers needing working capital to smooth out their cash flows to agriculture businesses needing for capital expenditures.
A key point I agreed with was that the current financial institutions need to play a larger role in providing finance, however there was a lack of proper incentives and competition driving them to invest more in the agriculture sector.
One major impact of providing this financing smooth’s out their cash flow and reduces their incentive to side sell their products to other buyers in times when they need instant cash, therefore lowering default risk of the farmers.
Money Isn’t Everything
Another key theme that seems to running across multiple sessions this year was raised by Dana Boggess , Program Officer for the Bill and Melinda Gates Foundation. Although increasing the role return seeking investment needs to increase to improve sustainability, there is still a substantial need for grants. These grants are needed to help buy down the risk for current financial institutions to explore new areas.
Rick Peyser, the Director of Social Advocacy and Supply Chain Community Outreach at Green Mountain Coffee Roasters pointed out a very key point that improving the financing problem was only one part of the problem.
Their company survived their coffee farmers and studied what areas they were most struggling with. They learned that for between 3-8 months of the year, there farmers were food insecure. This led them to expand their interactions to work with the farmers at the household level and promote diversification in their crops to non-cash crops. They also started helping them access improved health and educations services.
Trust and Certification
Trust, or the lack thereof across the sector was another major theme. Gary Milsted, the head of procurement commodities for ZoneEUR for Nestle spoke about how they currently buy ~10% of all the coffee in the world and there was an increasing pressure on them to increase transparency and ensure quality and fairness within their supply chain. Nestle is working to ensure all their coffee is 4C compliant, which is a certification validating sustainability of their coffee.
Another innovative approach to increasing transparency and sustainability in the sector that was spoken about was through the use of technology to gather direct information from farmers. One example given was asking farmers to use their mobile phones to provide user information in exchange for free market prices or soccer scores. David Griswold from Sustainable Harvest was in the audience and their organization was called out as being one of these innovative organizations.
The only major drawback of the session was it was overly focused on coffee and only a few small comments touched on how non-cash crops can differ significantly. But overall, I felt the panel spanned a great range of topics along the value chain in a depth few panels I’ve ever been to in my life have reached.
David Damberger is a current Skoll Skollar at Oxford Said Business School. Previously, David was an African Director of Engineers Without Borders Canada and built their Agriculture Value Chains program. David is also a co-founder of the online ethical shopping market, Ethical Ocean, and the fairly traded ice hockey puck initiative called ‘RUBR’.