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Thursday, May 26, 2011

The Smallholder Farmer is the Base of the Pyramid

By kevin keepper

Agriculture presents the greatest opportunity for entrepreneurs in the developing world. When we talk about the base of the pyramid on this site (or elsewhere), much of the time we are actually talking about farmers and other agribusiness participants. This post is dedicated to shedding light on this reality and the idea that poverty alleviation can be achieved with a stronger focus on integrated agribusiness development.

I recently had the pleasure of attending a seminar at the Brookings Institution in which the International Fund for Agricultural Development (IFAD) President Kanayo Nwanze and Associate Vice President Kevin Cleaver, shared insight about IFAD strategy. This was followed by responses from distinguished economist Homi Kharas of the Brookings Institution and the U.S. Treasury Department's Navtej Dhillon. The event helped to highlight the critically important role of agribusiness in development.

Farming is Business

During the seminar discussion, the IFAD representatives stressed the point that farming is a business. Treating it as such helps to bring clarity to the challenge at hand in the developing world. To increase food supplies, improve nutrition and ultimately alleviate poverty, we need to view global development as an undertaking of business development and to integrate all relevant actors in this space.

The hundreds of thousands of rural farmers in the developing world are running businesses - essentially entrepreneurs by default. This can stir feelings of hope and fear: hope because it brings clarity and some sense of simplicity to the challenge of poverty eradication, and fear because neither the life of a farmer nor an entrepreneur is easy. Both endeavors, in fact, are high-risk - and the majority of the BoP is tackling both challenges.

A familiar sentiment is that to secure food supplies for the world's poor we need to enable them to grow enough food for themselves and their families. However, farming for subsistence, while seen by some as a noble lifestyle, is in some sense social entrapment. Modernity was made possible in large part through streamlining the production of food and, in so doing, freeing time and capacity for new endeavors (something Stephen Haber of Stanford and Victor Menaldo of the University of Washington also attribute to the rise of democracy). With increased income, individuals can access more goods and services and secure their food needs too. Capitalizing on the potential of the farm as a business helps people reach this goal.

I am a firm believer in the need for poverty eradication efforts to be directly tied to business development services and technical assistance with a focus on the role of agribusiness. The world has been moving in this direction and many nonprofits (allow me to shamelessly plug my employer, TechnoServe, as a leader in this initiative) have been taking this approach - some for decades. What we are seeing today, however, is a growing global consensus on the importance of this perspective.

A Global Response to Food Insecurity

The Global Health and Food Security Initiative (GHFSI) is a groundbreaking effort to form a concerted approach to addressing the fundamental causes of poverty. We know that more than one billion people suffer from chronic hunger and that another billion or so suffer from malnutrition. The U.S. has taken the lead in a global effort to tackle this issue in an integrated "whole of government" and widely inclusive approach (bringing in the private sector, for example, is a key part of this model). U.S. Secretary of State Hillary Rodham Clinton recently made a statement on the State Department's renewed commitment to Feed the Future (the U.S. flagship for the GHFSI) at the Food and Agriculture Organization in Italy. For more background on the topic from a non-U.S. perspective, read this opening statement from IFAD President Nwanze during a speech last week. (IFAD is one of a number of multilateral organizations that support this effort).

Kharas, in response to IFAD's presentation on its strategic update, pointed out that IFAD was formed in 1976 to address food supply shortages. Soon after, the Green Revolution made impressive strides toward increased food supply. IFAD responded by shifting its focus to rural smallholder poverty. Today, the world again faces growing food insecurity, and this continues to be coupled with issues of rural smallholder poverty.

Growing Agribusiness to Scale and Alleviating Poverty, Too

Kharas addressed a challenge implicit in the convergence of food insecurity and smallholder poverty: how to best integrate this large group of smallholder farmers into scaled agribusiness growth projects. His key warning was to ensure that policy is linked to "physical" solutions - for example, those that help farmers access inputs and machinery such as seed or tractors to help increase yields. The belief here is that there are fundamental limitations to smallholder farmer capacity that cannot be overcome by simply making seed available. Farmers will need knowledge about these supplies, regulatory bodies to ensure price controls and access to information, and good financial instruments. This sentiment was echoed by the attendees during Q&A who expressed concern that private sector-led development might fail to benefit smallholders.

The IFAD representatives agreed with the sentiment that government involvement is important for ensuring inclusive growth. The fear is that inclusive, scaled programs involving outgrower schemes might overlook the needs of the rural poor. For example, a processor looking to secure input may not be equipped to address the challenges smallholders face in meeting these supply needs. Smallholders, for example, lack good access to finance and access to inputs which processors might not be able to secure. And the belief is that government bodies will provide these essential ancillary services.

There is no doubt that regulation can help protect marginalized communities, but I am critical of turning to this solution too quickly. The main reason for my skepticism is that I believe there is great merit and potential in the role of the private sector. Sentiments most recently expounded by Michael Porter and Mark Kramer in this Harvard Business Review article about creating shared value, for example, detail exceptional potential for business to secure profit while also benefiting society. Creative ways to integrate smallholder farmers into large-scale outgrower schemes do exist and I believe these can be executed in a way that is beneficial to all involved. I plan to examine this issue in a future blog post.

A final take-away from this seminar was a concern about the capacity for the GHFSI to succeed. If this G20/G8 initiative falls short, we have a distinct possibility of returning to the same old aid models: competition for similar funding avenues instead of a convergence of resources and scaling of programs. I am hopeful that as the development community gains a more mature understanding of farming as a business and smallholders as businesspeople, we will achieve lasting solutions to issues of poverty and food insecurity. And I believe that continuing to push the bounds of private sector involvement will help us to get there.

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