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Monday, August 23, 2010

A Call to Action: A Market-Based Vision for Rural Development

By Stephanie Schmidt

At least one in five Mexicans lives in rural poverty, isolated from the inputs and financial services that can boost output and incomes. Half the nation's plots are used for subsistence farming, and 60 percent produce nothing but low-margin corn and beans. This leaves two million people scraping by on tiny plots of five or less hectares, dependent on government subsidies and costly "coyotes" (intermediaries) for any real chance at reaching markets.

Never before has there been a better chance to change that reality; some companies have started engaging low income populations in their value chain and viewing the rural poor as a vast, untapped market although it has traditionally been a synonym for "risk". Meanwhile, Citizen Sector Organizations (CSOs) are starting to see financial sustainability as key to expanding their programs and increasing their social impact

Yet, the mere fact that both sectors are seeing merit in one another's strengths doesn't guarantee the solution. To boost profits and the quality of life of the rural poor, businesses and CSOs must now take concrete action, pooling knowledge to build new sources of economic and social value and transforming markets on the way. Rural populations are in need of various products and services ranging from fertilizers, seeds, irrigation technology and machinery to access to markets, insurance products and credit.

Ashoka's recent workshop in Mexico, "Innovations in Rural Value Chains," organized in collaboration with Fundemex and hosted at top Business School IPADE showcased half-dozen pioneers in this field. These included Aires de Campo, which helps certify and bring organic produce to market; Frogtek, whose mobile applications enable cooperatives to manage certification process or crop diseases; Cuadritos Biotek, which produces protein-fortified foods based on soy paste and sells them in remote areas; and Banamex Accion, which has adapted its screening criteria and processes to provide credit to small holders.

In order to enable markets like the ones mentioned above and increase the likelihood that economic growth translates into social development at the community level, social entrepreneurs have a critical role to play. They do this organizing small producers and aggregating demand to make economically sustainable transactions, promoting improved irrigation technologies for small holders that are reluctant to change and do not see the point of investing in their farms (like Ashoka Fellow Arturo Garcia from RASA does), providing capacity building for production, quality standards and packaging, and creating an integrity framework to fight corruption like the one of Transparency International.

These examples opened an action-oriented dialogue at the workshop, meant to inspire innovation and maximize synergies among the 65-plus social entrepreneurs, business people and other allies in attendance, Ultimately, participants launched their own urgent call to action.

"The task is defined; it's already on the flip chart. Why don't we start to make it a reality?" said the manager for the Wal-Mart Foundation in Mexico. "Let's stop taking parallel steps towards similar goals and instead start working together towards a common aim."

One of the challenges faced by the 20 million people living in poverty in rural Mexico is that half of all farms are ejidos (collective lands), which can't be used as collateral and so limit credit. Instead of loans, small farmers depend on state subsidies that deter entrepreneurship, slow access to markets and drive dependence on intermediaries. Low-quality inputs likewise boost reliance on fertilizers, which consume 40 percent of farm costs and pollute scarce arable land.

Together, companies and citizen sector organizations can change this, leveraging their respective strengths to build a new social-business paradigm, looking at how value is shared along the value chain. Businesses, banks and crop-buyers have the infrastructure, investment and operating capacity to help CSOs make small farming sustainable; while social sector groups have the local trust, market knowledge and supporting services needed to organize farmers and build new markets and economies of scale. Strengths of citizen sector organizations that participants highlighted included their holistic definition of business, greater willingness to share information, and great conviction in their work, which mitigates risk. The resulting Hybrid Value Chain model provides the rural poor with needed products and services while benefitting each actor along the way.

"We should no longer consider models in which this cooperation between sectors doesn't exist," the head of the Sustentavia consultancy, told Ashoka's workshop. "It's not optional; we have to complement one another and build new models that are based not on competition, but on cooperation."

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