A Fairtrade Foundation report published today highlights the irreplaceable role of smallholder farmers in global food production, and calls on international business to reassess how it treats the most vulnerable in its supply chain.
The report, “Powering up smallholder farmers to make food fair”, draws on the Fairtrade Foundation’s experience of working with smallholders over 20 years across five main agricultural commodities: coffee, cocoa, tea, sugar and bananas.
Despite smallholders growing 70% of the world’s food – in cocoa, as much as 90% – half of the world’s hungriest people are the smallholder farmers themselves. This, says Michael Gidney, CEO of the Fairtrade Foundation, is a scandal.
“Our global food system is dangerously out of control … out of control for consumers, out of control for farmers and out of control in the way food is traded and distributed … [we need to] find better solutions to the insanity of our broken food system.”
Much of this insanity is levelled at international corporations giving smallholders a raw deal. “The global market in most commodities is highly concentrated, with a small number of transnational corporations dominating the trade and securing most of the value from international supply chains”, states the report.
“Meanwhile smallholders are generally marginalised and receive low returns for their produce. Whether world market prices for commodities like coffee and cocoa are high or low, in general, small farmers receive only a fraction of the final retail price.
“The truth is that there remain too many international supply chains in which companies have little or no traceability back to their primary producers, including smallholder farmers, and no significant programmes to invest in farmer organisation strengthening and sustainable agricultural practices.”
Breaking this down by commodity, the situation is even more stark. In coffee, three main traders – Neumann Gruppe, Volcafe-ED&F Man and ECOM – control almost half the European coffee trade; five companies involved in roasting and marketing control around 85% of the European market; and three companies – Nestlé, Kraft and DeMasterBlender/Douwe Egberts – account for around 42% of global coffee sales. It is a similar picture across sugar, cocoa, bananas and tea (one company alone, Unilever, buys 12% of the world’s black tea).
“By largely setting the rules for prices, costs and standards in the supply chains they govern, companies can determine through their ‘buyer power’ where most costs fall and where most risks are borne”, argues the report.
“Usually costs and risks are passed down onto the weakest participants who are the farmers and labourers at the bottom. The squeeze on farmers can result in short term or precarious contracts and poverty wages, poor health and safety practices, and cuts in benefits, like maternity, sickness and pensions, for those fortunate enough to be on some sort of a contract.”
Meanwhile, coffee smallholders receive only 7-10% of the retail price of coffee in supermarkets, while smallholder tea growers are likely to receive less than 3% of the retail value of tea, and often less than 1%.
“A handful of powerful corporations secure most of the profit from those supply chains”, says the report.
“Even when world commodity prices are high, large transnational corporations and financial investors tend to capture most of the gains.”
Not to mention land-grabbing, the collusion between government and private corporations to take land away from smallholders. In Africa, an area the size of Kenya has been acquired for agriculture by foreign investors.
However, best practice in the private sector is also recognised. Ice-cream maker Ben & Jerry’s – a wholly owned subsidiary of Unilever – is committed to sourcing all its ingredients covered by Fairtrade standards as Fairtrade certified. The role of government is also highlighted.
A pledge made by African governments in 2003 (the Maputo Declaration) to spend 10% of their budgets on agriculture within 10 years has been met by only eight African countries so far, and remains at 5% on average in developing nations. In developed countries, highly subsidised domestic agriculture serves to “depress world food prices and, by encouraging overproduction [results in] in dumping in developing countries, undermining local producers … between 2001 and 2010, bn was doled out by the United States, the European Union, China and India to its cotton growers.”
The Fairtrade Foundation also dismisses recent suggestions that global food shortages can only be met by large-scale agribusiness, not smallholders: “Although some donors and government decision-makers still hold the view that more large-scale plantations are needed to ‘modernise’ agriculture, there is considerable evidence that smallholder farmers can not only be more productive but also reduce poverty more than large farms … In Brazil, smallholders hold only a quarter of the land but produce 87% of the cassava, 70% of the beans and 50% of the poultry.”
Output per unit area in small farms is also higher compared with larger farms, in part due to smallholder production methods being more suitable for labour-intensive produce, such as vegetables.
To create fundamental change for the smallholder farmers on whom international corporations depend for supply, and developing nations depend for economic growth, the report offers five key recommendations:
1. Increase farmers’ voice, influence and organisation.
2. Ensure fair share of value chains.
3. Fair access to finance and affordable credit.
4. Future-proofed farming with sustainable agriculture and climate resilience.
5. Increase the focus of government funding.
Key to all of these is a long-standing Fairtrade Foundation policy that it operates with all Fairtrade farmers: a guaranteed minimum price. This buffers smallholders from the vagaries of volatile markets (coffee prices for example rose by 27% in 2010 and 43% in 2011 before falling by 18% in 2012), and also offers proof of future income that enables smallholders access to finance and credit. More corporations can do the same with their suppliers, in particular by working with co-operatives.
“Despite being part of potentially lucrative international supply chains, smallholders producing commodity cash crops remain dis-empowered.”
Addressing this, says the Fairtrade Foundation – based on 20 years of working with these issues globally – is key to both future food security and helping people out of poverty.
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