Value and Profits Through Small-Holder Sourcing: Area 1- Sales and New Market Opportunities
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