Dapa Markets

Does idealism pay?  Really?  Growing divides in corporate thinking point to new, expanding school of thought that argues that the new frontier of profits is tied to business that generates less environmental harm and greater social good.  This series evaluates the advancements in small-farmer inclusive business models that are emerging and promoting long-term value though sales and market access, operational efficiency, access to capital, risk management, brand value, and human capital.  This week we focus on the potential for agribusinesses to generate value and greater profitability in terms of sales and new market access.

Drivers for sustainability exist at both ends of the corporate spectrum – both as consumer-facing values on the consumer and marketing end, and again on the business strategy/operations end.   While it’s perhaps more interesting and illuminating to talk about the operational drivers for embracing small-holder sourcing models, discussing the marketing case and widening consumer market for products sourced sustainable from small-farmers is necessary to note.

Small-holder Sourcing and Ethical Consumerism- Recession-resistant?

Consumer and investor trends show a spiking demand in information disclosure about products and processes- especially in agriculture and food.   Consumer concerns about food safety and environmental impact has created a dizzying number of labels and certifications as corporations clamor to distinguish and diversify into these budding and profitable market segments.   Organic, Fairtrade, and other ethically sourced products have enjoyed significant market growth over the past few decades, even withstanding the onset of the financial crisis.  For example, the world market for organic food grew from m US $23 billion in 2002 to $52 billion in 2008; slowing down the breakneck pace of 20-25% yearly growth to a more modest recession level of 2-5% growth during 2010.  For Fairtrade products, consumer purchase of these certified foodstuffs jumped by 15% between 2008 and 2009, arguably the bleakest 12 month period of the worst recession in 70 years.

Supply Chain Transparency; Unlocking New Opportunity

Sustained growth in ethical products points to a wider and wider net of consumers who are concerned enough about the impact of food production on the environment, health and greater and society that they seem willing to fork over the dough for background information even if it means a higher costs.  Followed (or perhaps preceded?) by a barrage of best-selling books, award-winning documentaries, current events and pop-culture trends, consumer interest in food and transparency will only continue to grow.

These calls for supply chain transparency and disclosure on production and process methods are changing the way businesses consider (or should consider) sustainable practices and the methods by which thy benchmark success.  New market niches and ethical sourcing figures show that consumers are rallying around quality products that demonstrate positive social and environmental impact.

What does this mean for small farmer inclusion?

A lot of hype has circulated around organic and fair-trade which speak to production practices, soil quality, chemical use, and labor/welfare standards, respectively.  Yet less is mentioned about how purchase practices could affect the lives of the world’s poorest and most vulnerable, although interesting analysis has pointed to the negative development benefits of the Buy Local movement.  We will discuss more about how sourcing from small farmers can build a better supply chain and offer better access to quality products, but key to understanding will be the strengthening of the business case for small farmer inclusion by aligning communications and marketing efforts towards these ethical consumer markets by better tracking,monitoring and communicating of the development benefits possible for small farmers.

In future posts we’ll look at the business case for pro-poor and inclusive agriculture models by considering how these models create value and impact:

• Operational Efficiency
• Access to Investment and Capital
• Risk Management and Impending Legislation (read a past post here)
• Brand Value and Reputation
• Human Capital

A short paper for Oxfam’s Business Briefing Series, “Think Big. Go Small: Adapting business models to incorporate smallholders into supply chains,” was released today along with collaborative support from Mark here from our very own CIAT Markets for the Poor group.  Below is a brief summary, or you can cut to the chase and find the paper here.

Food and beverage companies are facing a rapidly changing world.  Global demand is rising as the world’s population swells to over 9 billion by 2050. The planet’s ability to meet this demand is threatened by a myriad of factors including declining yields due to climate change, land and soil degradation and the rapid expansion of bio-fuel production that is pitting food needs against fuel needs.  At the same time consumers everywhere are growing more knowledgeable and concerned about the ethics of where and how their food and drink are produced.

How can agribuisiness do more and do better, with less?  The social impact case for developing business models that generate better livelihoods and market access for the 75% of the global poor who get their food and income from farming small plots of land, is overwhelmingly clear.  But communicating the value for for-profit businesses has been less so.

It’s time to shift the message for adopting small scale agriculture away from appeals to empathy or calls for charity.  Environmental and social risk management, development of emerging markets, supply chain sustainability, and access to quality product are driving the most innovative and cutting-edge companies to incorporating small-holders into their supply chains.

Today, a new breifing paper by Oxfam International, the International Center for Tropical Agriculture (CIAT), and the Sustainable Food Lab was released, exploring the business case for small-holder supply chains in the private sector, including questions like:

• What are the benefits for companies sourcing from smallholders?
• How does sourcing from smallholders contribute to poverty reduction?
• How have some companies incorporated smallholders into their supply chains?
• What principles should guide companies to develop a smallholder sourcing programme?

Check out the full briefing here.

Everywhere you look someone is clamoring on about business and the return to creating authentic market value.   If your thinking, like I did initially, that this is an overwhelmingly obvious notion glammed up to look like a new concept, then yes, you’re completely right.  Thinking that people, products and concepts should create some kind of real contribution to society and the marketplace, probably wouldn’t be categorized as a stoke of brilliance – but sadly, it’s not a given either.   To prove it, we  have more than a decade or two of a lot of fancy products and empty ideas that, as of late, have created little more than serious havoc.

I use the obvious example of the financial sector, but misguided ideas in development and agriculture have caused us to take significant steps backwards as well.   For those of use involved in research and innovation, this is a plea to use research in a way that will drive new services, build new models and bolster systems that can deliver both sustainable growth and positive impact.  In short, we need research that can support businesses to do well by doing good.

Making the development case for sustainable agriculture in a pro-poor, inclusive food system is simple.  More than 75% of the world’s poorest get the food and income from agriculture.  These 400 million small growers are amongst the most marginalized and vulnerable on our planet; including female-headed farm households in developing countries which produce between 60-80% of food in the developing world.  Aside from lingering rural poverty rates, agriculture encompasses destructive and divisive systems of slavery (both in the United States and beyond)  and is often the key driver of extreme environmental degradation, contributing to climate change and poor resource management.

For far too long research for development has rested on staggering facts and jaw dropping statistics (like those above), in an attempt to drive change through empathy and charity.  We know that our research and implementation of inclusive business models in agriculture can do global good, but how can we create and communicate real value on the business end and really drive change to scale?

To answer this, we have to look at some of the major components of company value that generate long-term profitability and success:

1. Sales and Market Access

2. Operational Efficiency

3. Access to Investment and Capital

4. Risk Management and Impending Legislation (read a past post here)

5. Brand Value and Reputation

6. Human Capital

Often we see companies attaching sustainability or social-impact objectives as a sort of appendage  in one or a few areas – for example, through sales and marketing campaigns or through new product development to capture a new market.   All too often this disjointed approach to sustainability reduces the overall impact that integrated sustainability policies could, when working together across these areas in a concerted effort, profitably make towards the bottom line.

Within the Markets theme at DAPA, we are looking to create real value that motivates the public and the private sector to embrace meaningful, authentic changes that can have a real impact on poverty and support the sustainabledevelopment of emerging markets.   Towards this end, our New Business Models for Sustainable Trading Relationships in Agriculture work seeks to  help agribusinesses do better by doing good, we’re launching this series that will evaluate how the advancements in small-farmer inclusive business models are taking shape and promoting long-term value in each of the above listed areas.  Defining value in terms of both business growth (profitability) and measurable social and environmental impact, we’ll look at the specific tools, trends, and case studies that are proving that companies with a concentrated, coherent sustainability plan are coming out ahead.  Ideas that create value.  Models that generate change.  Growth that demands replication.  Research that becomes relevant.   Stay tuned.

A month or so ago the international research community was finally granted easy access to a wide array of data and information on poverty and development.  With the release of the World Banks Data Catalog freely accessible on the web, those in research, policy, and advocacy can point to clear and uniform data and make critical steps towards both development reform and continued progress.   Even more interesting, is the opportunity for web developers and programmers to use this data to create new methods of knowledge and information sharing, opening up opportunities for mobile applications, new tools and technology, and creative partnerships around critical development objectives.

“I believe it’s important to make the data and knowledge of the World Bank available to everyone,” said World Bank Group President Robert B. Zoellick. “Statistics tell the story of people in developing and emerging countries and can play an important part in helping to overcome poverty. They are now easily accessible on the Web for all users, and can be used to create new apps for development.”

Off you go now to the world of indicators and data… enjoy!

As we’ve talked about before, agriculture is a risky businesses.  Encouraging investors to take a sector of 400 million small scale agricultural entreprenurs seriously by offering these entrepreneurs   financial products that meet their needs  has been something complicated, to say the least.

At CIAT we have several people who are working on interesting insurance concepts for these small-scale producers that’s based on real environmental risk data (read: climate change impacts). Last week, Manual Bueno over at Nextbillion.net I read a great wrap of the importance of insurance for the poor and innovations coming down the pipes.  Be inspired, as we were.

Many of us are out of the office again traveling in Central America for ongoing projects – apologies for the laps in posting

Few would disagree that the “go to” book for pro-poor social enterprise is, without a doubt, “The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits,” by CK Prahalad.  Coimbatore Krishnarao Prahalad, better known as C.K. Prahalad, was the pioneer of the Base of the Pyramid, a management strategy that merged business growth with development goals, and created a global movement for positively and profitably solving some of the most pressing social issues.  Earlier this month, this larger-than-life thinker passed away in San Diego, California, at 68, on April 16, not before creating a ripple effect that will continue to affect the lives of the poor worldwide.

C.K. Prahalad the father of the BOP strategy

Prahalad first introduced the BOP strategy in a publication with Stuart Hart in “Strategies for the Bottom of the Pyramid: Creating Sustainable Development”.  In the essay, Prahalad and Hart argued that the 4 billion people living on less than 3 dollars a day constituted a significant market demographic, the Base Of the (economic) Pyramid (BOP) whose needs were unserved by the global marketplace.  The pooled aggregate demand of this demographic, Prahalad suggested, could be profitably harnessed by private companies who could overcome their prejudices about BOP and consider them as potential consumers. Prahalad outlined that the global poor were

• Virtually untapped markets opportunities. Private companies can make profit by selling to the poor.
• had is no concurrence
• had significant growth potential (both in population size and in income generation) The private sector can play a leading role in this process of selling to the poor

The BOP strategy is about integrating BOP into the formal market connecting profit to social value.

Most influential Business thinker

“I don’t like to think inside the box, I like to create my own box.”  -C.K Prahalad

Prahalad’s ideas of development through inclusive markets were an innovation and he was lionized in developing countries especially in his native India where his ideas have been successfully put into practice. He was also a reference to corporate philanthropists like Bill Gates and had a seat on the United Nations commission on private sector and development.

Apart from this, Prahalad was considered one of the world’s top 10 management thinkers for his work in corporate strategy and more recently in innovation. In 1987 he worked with Yves. Doz on the way multinational companies operate in the modern era (in The Multinational Mission). In the early 1990s he developed the now unexceptional concept of “core competencies” with Gary Hamel (in Competing for the Future, 1994). With Venkat Ramaswamy, in 2004, he explained how the new world of interconnected business was transforming the way companies had to deal with their customers, a process they called “co-creation” (in The future of Competition).

C.K. Literature

Publications often rated or ranked Prahalad among the top business gurus of our times, even as he traveled the world dispensing his unique brand of poverty and wealth wisdom.

“Strategic Intent” (1989) Harvard Business Review CK Prahalad and G. Hamel.

“The Core Competence of the Corporation” (1990) Harvard Business Review CK Prahalad and G. Hamel.

“Competing for the Future” (1996) CK Prahalad and G. Hamel.

“The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profit” (2004) CK Prahalad

“The Future of Competition” (2004) CK Prahalad and V. Ramaswamy

“The New Age of Innovation” (2008) C.K. Prahalad and M.S.Krishnan.

Additional thoughts and memorial posts about CK Prahalad can be found at:

Nextbillion.net

Financial times

New York times

As I mentioned in a previous post, we spent time this spring at a few different conferences, analyzing some new trends that will shape the futures of small farmers worldwide.   Of course we know that credit and financing- or lack there of-  limits the ability for small farmers to grow their businesses, make invesments in farm operations, achieve the quality and quanity requirements of major markets, and earn a viable income.

Triple bottom line investing, or impact investing, is an investment strategy (quickly becoming an industry in and of itself) that’s  merging the desire for return on investment with measurable social and environmental impact objectives (have a look at a past post here).

We were happy to read a New York Times article this week highlight this growing trend and giving some solid background information on its evolution – enjoy!

Other resources:

Global Impact Investing Network

Global Reporting Initiative

Nextbillion.net

When push comes to shove the real motivator for change in our agriculture system revolves around two little words: food prices.  In developed countries low food prices have contributed to oversupply and overproduction; in developing nations, that means small farmers are unable to compete and natural resources are exchanged for fast-cash.   Be it organic, fair trade, rainforest certified, small-farmer inclusive; business models that are accounting for these environmental and social impacts are feeling the pinch when compared to their conventional counterparts.

In developing countries, the price of basic commodities are often more volatile and price volatility has a direct relationship with hunger levels.   In 2008 we saw the effects of skyrocketing prices in Africa and Asia as some of the world’s poorest struggled to feed themselves during devastating price spikes.

The giant elephant in the room is begging us to start having some serious discussions about the price of food and how it’s contributing to hunger, climate change, poverty, and environmental degradation.  How do we build better price mechanisms into the system?

Having some insight into the market forces that contribute to the final price of food gives us better insight into what or what is not being calculated.  Recently, some good discussions about how prices are set are occurring over at the web.  A great collection of BBC postings on the cost of food in January, and great series on food prices by Boris over at planetretail.com.  At planetretail.com, the series is exploring:

• the fairly drastic ups and downs in food price inflation that have come about in the period from 2007 to today;

• aspects driving changes in global food commodity prices, such as population growth, urbanization, the rise of new middle classes in emerging markets, agricultural productivity, environmental pollution, global warming, and shifts in the financial markets;

• how changing food commodity prices trickle through supply chains to finally arrive at supermarkets and consumers;

• what the social and developmental implications are of volatile food prices in both developed and emerging markets; and

• what the long-term outlook could be for food price inflation beyond the current period of economic recovery and far into the next decade.

Enjoy!

We’ve been in and out of the office and out of the country for the past few weeks on various projects and participating in a few different conferences.  This week we’ll be posting some key take a ways we gleaned from our participation in both the Sustainable Food Lab 2010 Member Summit in Heredia, Costa Rica and the Aspen Network of Development Entrepreneurs (ANDE) Latin America Regional Conference in Granada, Nicaragua.

The Changing Role of Research

Even with the global climate change conference in Copenhagen several months behind us, the international research community still feels the painful sting of a large body of research that failed to mobilize shifts in policy and practice.   In the private sector, however, the current is moving much faster than it is on the global policy front, but the need to make research both relevant and applicable, remains a significant challenge.  For agriculture, an industry intertwined with climate change, dwindling natural resources, poverty, and economic development, the need for science to mobilize corporations to shift procurement practices and cultivation methods towards sustainability and pro-poor inclusion remains critical.

Indeed, the private sector has an uncanny ability to attract the brightest of minds but the merging of environmental goals, social goals, and business growth is a relatively new concept. The mainstream business community still believes these goals to be mutually exclusive.  As researchers working in this field continue to see the connections between people, profits, and the environment, communicating the science for maximum impact has and continues to take on an entirely new importance.  This, sad to say, is not something that the research community has been good at in the past.

Learning a New Language

It is true that poor dissemination of findings, broken or non-existent learning alliances and clear irrelevance has crippled impact-making potential- despite clear scientific data and findings.  At the heart, it is a problem of language and perception.

Within our theme here at CIAT, Linking Farmers to Markets, we approach private sector development as a crucial component to understanding how economic growth can reduce poverty rates for the rural poor in the tropics.   To be relevant and applicable to the business community, we are compelled to understand the integration of small farmers and greater food-chain sustainability in the language of business.  Towards this end, our research on new business models for sustainable trading relationships and value chain analysis for small farmer inclusion means making a clear connection between good business sense and key development objectives.   Voicing how and where the research findings may impact business growth and the logic behind their implied relevance.

For those of us at CIAT, a  key take-away at SFL Member Summit was a renewed commitment to re-frame our Linking Farmers to Market research for the private sector as a combination of the following:

• A tool for innovation
• A tool for risk management
• A tool for business strategy

For sustainability managers and those involved in linking sustainable sourcing methods- including small farmer integration into global supply chains like our research here in the Linking Farmers to Markets theme at CIAT – these  provide critical categories for communicating our research to the private sector and achieving pro-poor development goals.

A Tool for Innovation:

Shifts towards supply chain transparency, through food safety regulations and increasing consumer interest in production methods and product provenance, continue to drive businesses to implement sourcing strategies to grow sales, leverage investment,  reduce costs and streamline efficiency.   Relevant research will help companies:

1) Builds strategies  to captures new markets – in a way that makes financial sense but delivers measurable development impact

2) Integrates innovations that support small farmer inclusion, generates new products and production methods, new packaging technologies, new sourcing technologies, transportation and logistical improvements.

3) Educates and supports farmers in establishing new levels of quality, obtaining  higher-value certification, or renewing and managing important and increasingly scarce/expensive resources like soil, carbon, water, etc.

A Tool for Risk Management

There is a clear distinction between in-house company research units and international centers who not only understand the connections between risk management and sustainability, but frame the discussion as critical to risk mitigation with high level decision-makers within the company.   Linking sustainable agriculture and supply chain sustainability in terms of risk management makes research relevant for private sector development for two critical reasons (among others, noted in a past post):

1. It targets upper management. The cost may relate to a tarnished brand identity or public disapproval, impending public policy, or production-related costs due to the escalating price of water, soil management, climate change shifts in land production,

2. It highlights a risk and exposes vulnerability. Though linking sustainability and corresponding sourcing and supply chain strategies, sustainability is urgent and critical to future financial success.

A Tool for Business Strategy – on the public and private side

Clearly risk management and innovation are critical parts of corporate business strategy, but the above named tools for communicating research is compelling for other key actors involved in shifting business strategy.

On the private sector side, CSR managers, sourcing managers, buyers, and supply chain managers are charged with incorporating sustainability in day-to-day operations.  Equipping these actors to push for change internally by generating research that is supportive to their objectives to meet sustainability goals will maintaining or expanding business growth, is critical.  This means moving beyond pushing for PR campaigns, retail advertising, and public appeal, and integration into real operational practices, long term business strategy shifts and, in some cases, the development of novel business models to drive growth.

For NGO’s and development agencies, the research community can assist these organizations by giving them insight into establishing key partnerships, by highlighting risk/opportunity areas where NGO’s can provide targeted support.  By offering key support services (see a past post) to help transition businesses towards more sustainable and pro-poor focused supply chains, NGO’s can build more effective partnerships with lasting impact.

Breaking Down the Language Barriers

Breaking down the language barrier between research and the private sector will expedite change by appealing to business development goals and empowering the public sector to be better partners.   Translating the value of sustainability into the language of business speaks simultaneously to risk management and the positive development of emerging markets (through product innovation and positioning) ,  can yield significant economic development goals and contribute to poverty reduction.   400 million small-holder farmers and their families are waiting.

CIAT’s Linking Farmers’ to Markets project participated in the ANDE Latin American Conference on small and growing businesses in Nicaragua March 23-26, 2010.  At the conference  investment funds, technical assistance providers, development agencies, and others actively engaged in discussions about how to best to support small and growing business (SGB) within Latin America, propagate best practices, and further development objectives while obtaining business growth and investment returns.

Below is Katie’s conference presentation the New Business Models , outlining how development organizations are leading efforts to reduce poverty and support agribusiness SGBs in developing countries.