Linking Smallholders to Modern Markets

Bill Vorley and Abbi Buxton

Picking up flowers at the supermarket is an easy task for the average consumer, but the journey that those flowers take to get on those shelves is complicated. For most smallholder farmers, this means their products will never end up on those shelves. But a new project from the International Institute for Economics and Development is trying to change that.

This article has been adapted from the Linking Smallholders to Modern Markets. You can read it in its entirety here.

19 March 2011 | In 2008, Wilfred Kamami’s family-run business was already challenging the model of Kenyan flower exports from huge commercial farms. Wilmar Agro Limited exports cut flowers from 4,000 smallholder growers to the Dutch auction market. Once a farmer himself, Kamami invests in his growers, by enabling access to bank accounts for each grower, by using transparent pricing and payment models, and through technical support for sustainable production of flowers on mixed smallholder farms.

This inclusive business model was attracting farmers across Kenya, for whom high value cash crops can secure a livelihood on small, subdivided farm holdings. But business growth was limited by the wholesale market. With prices based on supply and demand, more growers and more volumes meant lower prices. Kamami needed to sidestep the Dutch auction’s monopoly and take more direct routes to flower supermarkets in order to expand his business.

IIED set out to support Kamami in finding those routes. In a pilot project for the New Business Models for Sustainable Trading Relationships programme, Wilmar supplied (and continues to supply) flowers from small-scale Kenyan growers directly to UK and US supermarkets. Consultant Steve Homer, a longtime IIED collaborator with substantial commercial experience in selling smallholder products to retailers, was the project’s commercial partner. Homer in turn contracted William van Bragt, who has long worked in the flower industry. Homer, van Bragt and IIED together served a role we call ‘ethical agents’ — enabling collaboration along supply chains and improving poor producers’ lives by injecting knowledge, building relationships and aligning interests, rather than handling the product.

Working with Wilmar, Rainforest Alliance and Walmart’s UK subsidiary, ASDA, the IIED team developed the first smallholder flower bouquets with the Rainforest Alliance sustainability certification.

In 2010, the Kenyan bouquets hit ASDA shelves and consumer shopping bags. But Wilmar soon had problems supplying flowers that consistently met the retailer’s exacting requirements. After 15 weeks, ASDA ended the pilot project.

It was clear that satisfying supermarket buyers is a big jump from supplying the auction market. The bouquet business demanded specific varieties and volumes, in the right ratios, on schedule, all at uniform length and maturity — and with enough smallholder content to get the Rainforest Alliance sticker. The team was learning about the stark transition from supplying the Dutch auctions — a ‘push’ market where the company sends a relatively undifferentiated product at wholesale volumes to meet minimal requirements — to a retail ‘pull’ market that tolerates no deviation from pre-agreed volumes and specifications.

To smooth this transition, Wilmar could use the support of ethical agents to help adapt products and processes for the new ‘pull’ markets while being conscious of the impacts on the business and smallholders. First, IIED and van Bragt renegotiated the Rainforest Alliance certification standard. Now bouquets were allowed to contain fewer smallholder-grown flowers, allowing for substitution when smallholder production was unable to meet the requirements. The team also arranged for Wilmar to sell bunches of single flower varieties, which could be packed in Kenya to add value locally. Drawn by the ASDA pilot, the US retailer Sam’s Club, another Walmart subsidiary, began purchasing these certified ‘consumer bunches’ as well as a limited number of bouquets.

The innovation in products meant that Wilmar’s capabilities could better match their customers’ needs, with smallholder growers supplying the same or greater volumes. The ethical agents worked with Sam’s Club to fine tune the bouquets to the capacity of the supplier, while helping Wilmar strengthen their systems and communications. With the product and process improvements, Wilmar has been supplying 100 Sam’s Club stores since July 2011.

The ethical agents provided support and opened doors at many levels of the supply chain. Their commercial knowledge and connections enabled Homer and van Bragt to create new retail opportunities, build Wilmar’s capacity, negotiate terms of supply, and encourage flexibility from the buyer. Ethical agents — with their network of relationships and ‘insider’ knowledge — were crucial in engaging retailers, cultivating their interest in a new business opportunity that is more than corporate social responsibility. In negotiations over the Rainforest Alliance certification, IIED could credibly communicate how inflexible certification was hurting growers, while van Bragt described expectations at the retail end of the chain. IIED also introduced systems to monitor the fairness of trading relationships along the chain. At the end of the project, the agents could step back knowing a commercially viable supply chain was in place.

Going forward, IIED will apply lessons from this project to a variety of other efforts to link small-scale producers with demanding formal markets — in agriculture, textiles, energy, mining and payments for ecosystem services. Different as these sectors are, understanding the network support and expertise needed to succeed in more demanding or formal markets is key.

In the four years of the project, the IIED team has revised strategies again and again. We moved from bouquets to single varieties; from niche supply of development products to mainstream supply of innovative products; and from ‘off the shelf’ certification to tailored, flexible certification. Had we kept to a rigid plan, we couldn’t have responded to unexpected challenges and opportunities. For any project testing new business models, flexibility is key to success