"Whoever thinks that those who look fragile are also weak from the inside have not met smallholders”.
In ancient times, Israelites (Jews) were primarily farmers, i.e., smallholders, marking their holidays by the agricultural seasons.
As the harvest season concludes, they celebrate the transition from one year to the next. I wish a happy New Year to all Jews and Christian Ethiopians who celebrated this week.
I dedicate this column to small-hold farmers, who are the majority of our food producers, and wish them a brighter New Year and future.
MARKET STRUCTURE
Every market has those three essential components: Producers, Value and supply chains, and Consumers.
Sometimes, Producers can also act as operational Value and Supply chains, as in the case where farmers sell their produce directly to the consumers. However, the fundamental market structure remains.
In previous columns, where we discussed the value and supply chains, we emphasized how broken and sometimes even wholly missing they are in the agro sector of developing economies.
In other columns, we discussed market creation innovation, which can turn smallholders into consumers of agrotech solutions and premium markets into consumers of produce grown by smallholders.
But what about the Producers, i.e., farmers, in the agro sector of developing economies?
Due to smallholders' low socio-economic status, there is little interest in them as Producers per se and more in pulling them out of poverty and hunger.
As leaders, humanitarians, decision-makers, and business people, is it helpful and constructive to think of smallholders and subsistence farmers only in terms of “How should we take care of them?” or “How to manage the problem of poor farmers?”
For decades, we have tried to "manage" poverty, but with little success, which is why, in 2023, there are still 550 million smallholders in poverty.
If “managing” poverty doesn’t work, it is because we tried to manage the wrong thing: poverty. It is time we start managing prosperity, where the focus is on creating and producing added-value products and services!
TYPES OF PRODUCERS
In agriculture, we distinguish between two groups of producers, each having distinguished characteristics -
Professional-industrial-business farmers (i.e., the Professionals) – above all, this group is characterized by farmers having a high income per hectare and or many hectares. In addition, they are typically internally highly organized and have an extensive business network. Usually, they specialize in a few crops. They have access to advanced inputs with the ability to purchase those and access to premium markets, which make them part of the Prosperity cycle. This group constitutes about 5% of global farmers.
Smallholders, subsistence farmers (i.e., the Non-Industrial) – this group is characterized by small cultivated areas and low income per hectare, resulting in a low income per day and person. They often grow many crops and domestic animals (e.g., chickens, goats, and sheep) without specializing in any. They have no access to advanced technologies and services and can’t afford to buy them. They also lack access to premium markets. This group constitutes about 95% of global farmers.
If you live in a developed country, it is most likely that what you eat is produced by Professional farmers, other than cocoa, coffee, and tea, which are most likely produced in developing countries by smallholders whose daily income is less than $1.9 per day.
Today, there is a situation where we purchase most of our food from a small group of farmers, i.e., The Professionals, including those in developing economies.
It would only make sense to ask, “Why don’t we buy from smallholders and subsistence farmers?”
We will get the answer to this by looking at agro-producers, e.g., fruits and vegetables, through the eyes of the purchase manager of a supermarket chain.
His job is simple: to put on the shelves enough produce every day of the year and to ensure it stands up to the supermarket and national standards, pricing, and demand.
Think of a hypothetical situation in which the purchase manager needs to purchase and supply 20 tons of 10 crops daily, e.g., apples, mangos, bananas, tomatoes, cucumbers, etc.
Now, let’s focus on just one crop, e.g., mangos. The manager can get to 20 tons daily by purchasing from 200 smallholders, 100 kg each, or 20 tons from one professional farmer.
This was one crop; now multiply the complexity by ten crops (or more) and add the challenges of dealing with many suppliers, logistic companies, various qualities, and lack of uniformity. Then, there is a complicated purchasing process from each farmer, QA, logistics, documents, etc.
When the purchasing manager can buy from one professional farmer versus 200 smallholders, which option do you think he would choose?
For these reasons, most business people and traders prefer to work with professional farmers in large, organized farms.
If everybody prefers purchasing from professional industrial farmers, does it mean that smallholders cannot compete and are doomed to poverty?
Taking the point of view of the purchase manager, i.e., the value/supply chains, can you find an advantage in working with smallholders compared to professional farmers?
PURCHASING FROM “NON-EXISTING PRODUCERS”
If you are over 40, you can still remember when everything you bought came from big organized importers/traders who worked with big corporations/producers.
In those days, we purchased nothing Made In China.
Then came companies like Amazon, eBay, and AliExpress that allowed us to buy directly from any producer, anywhere, whatever we wanted.
Millions of small and medium-sized enterprises, i.e., producers (SME), could rapidly develop their businesses.
The ones that primarily benefited from those novel trading models were the SMEs and global consumers, not the big corporates producing and buying, which already had existing channels to do so.
From their smartphones, my kids order goods from shops/producers all over the globe, and one to 30 days later, they get it.
Intuitively, we understand that it is better for us the way things are now versus how they were in the 60s and the 70s when you had access only to a few grand brands sold in your city/village shops.
Now let's look at this situation not from the producer or buyer perspective but from the value chain, the trader, e.g., Amazon.
Amazon could suggest its customers purchase products produced only by US American Corporate producers. That would make the lives of the Amazon team much easier.
Instead, Amazon embarked on a journey to enable any producer, anywhere in the world, regardless of what they produce (other than fresh agro products), to sell their products using a sophisticated value chain from the producer warehouse or dedicated shop to the consumer.
Amazon turned thousands of small and medium enterprises (SMEs) into global giants; Amazon and Amazon-like companies energized millions of businesses in China and East Asia that took advantage of the novel business channels.
Amazon-like companies turned those local “non-existing producers” into a global borderless economic superpower, jump-starting the economy in many developing economies, e.g., China, and creating hundreds of millions of jobs for better salaries.
Today, those “non-existing producers” are spread all over the world.
In contrast, Corporate America-like companies depend on a few key suppliers to efficiently produce components for their factories, which leaves them vulnerable to producers and supply chain issues.
For instance, during the COVID-19 pandemic, semiconductor factory closures and slow logistics caused a shortage of ships, impacting the automotive industry's production.
Meanwhile, a value chain and consumer markets working with an Amazon-like platform, which works with millions of SMEs (i.e., producers) spread globally, are nearly immune from such extreme "unexpected" events now becoming the new norm.
If you need more time to think, consider Toyota's profits following the earthquake and tsunami versus Amazon's profits during the COVID-19 pandemic.
99% profit drop - the impact on Toyota (and its customers) following the 2011 Japan earthquake and tsunami.
200% profit increase - the impact of the global COVID-19 pandemic on Amazon’s profits.
Does any of this apply to agriculture?
Who are the equivalent of “Corporate America” and SMEs in the agro sector?
Is agriculture impacted by “unexpected” natural disasters, wars, etc.?
If I am the purchase manager of a supermarket chain, should I order all my produce from a few giant industrial producers, or should I "spread" my risk?
What would you advise me?
THE ‘NON-EXISTING’ AGRO PRODUCERS
What once were millions of poor small and medium enterprises (SMEs) in developing economies that are a burden on the local weak economies of countries like China, Vietnam, and the Philippines have turned to the economic engine of those economies thanks to Amazon-like companies helping to introduce their products and services to the entire world.
Many of those SMEs, once had little chance to survive, are now prosperous businesses.
They have turned from unwanted and unseen poor producers to a global engine.
Are there lessons we can take from the goods and services industries to the agro-industry?
In the agro sector, the parallel to the “Corporate America” companies are the professional, large-scale producers, while smallholders/subsistence farmers are the parallel to SMEs.
Now that we know that Amazon-like companies managed to turn producers that nobody cared about, i.e., "non-existing," into a global power while making themselves prosperous, we should ask again –
WHY WOULD A PURCHASE MANAGER OF A BIG FOOD CHAIN LIKE TO WORK WITH SMALLHOLDERS/SUBSISTANCE FARMERS?
Surprisingly, the answer to that question presents significant advantages in favor of working with smallholders once we take a strategic decision to pursue this route and we are ready to step out of our comfort zone –
PROFIT – If Amazon managed to profit from SMEs, why wouldn’t a food chain profit from smallholders?
UNEXPECTED EVENTS ARE THE NEW NORM – With the increasing of events with global impact on food production and food value/supply chains, e.g., the Ukraine war, pandemics, floods, and cold/heat waves that destroy crops in substantial areas, it became essential to diversify the sources of supply and the number of producers.
RISK MANAGEMENT – A big professional agro-business is as sensitive to "unexpected" events of wars, climate, natural disasters, pandemics, etc., as a smallholder. However, sourcing from one mega-farm is more risky than working with 1000 farms in 10 countries/regions. In other words, a mega-farm is gambling on all or nothing (e.g., see the Toyota case following the tsunami).
APPLYING WITH UN ESG – In the IAASTD report, financed by the Global Bank for the UN, 400 scientists and development experts concluded that high-input chemical methods are unsustainable. They suggested switching to agroecological methods based on small-scale farms with diverse crops to feed the world better. Source: LinkedIn post, IAASTD report
QUALITY – while professional farmers would struggle to wean themselves from using chemicals, smallholders will quickly make the change. Thus, consumers can have produce of higher quality and probably will be glad to pay for the upgrade.
QUANTITY – Imagine that your consumers’ demands double for mangos from 50K to 100K tons annually. If your supplier owns a 1,000-hectare farm, he will need to double the farm, which will take years and cost tens of millions of dollars. But, if you work with smallholders, you reach out to a few more and extend your network of suppliers, and you can have any quantity you like without any delay.
FLEXIBILITY – The ability to (easily) change the source of your suppliers (location and period of the supply), their number (quantity), and the agro methods they use (quality) provide maximal flexibility to a purchase manager.
BRAND AND REPUTATION – Food chains invest enormous amounts in telling their customers a story about how much they care about Mother Earth, farmers, the environment, the well-being of the producers, and the health of their customers. Working with smallholders who grow according to agroecological methods is the branding they want and the reputation they seek. They can do it by telling the story smallholders live every day.
BEING FIRST – All food chains will eventually source from smallholders, so why be second if you can be the first and capitalize on it?
What other reasons can you think of to work with smallholders?
MY EUREKA MOMENT
I must confess that for many years, I viewed smallholders as a "social case", people who reached, from a business perspective, a dead end with no hope of helping themselves or benefiting others.
This is why, even when I began working in India and Africa, I preferred working with professional farmers, believing they should show the way to others.
However, in 2021, while I was in Senegal, I had my leap of faith when I switched 100% of my efforts to working with small-hold mango growers.
What happened next was no less than a miracle in my eyes; farmers happily cooperated, marketable yields doubled, quality was the best I had ever witnessed, the use of pesticides dropped to zero, pest control issues were negligible, exports doubled, and so did farmers’ income.
The Senegalese national-scale pilot was followed by a massive demand from the farmers to continue and grow the pilot project.
At the end of 2021, nothing was ready to turn this unexpected, massively successful project into a full-scale business operation (I didn’t even have the Dream Valley company at the time).
But I got the lesson I needed and, for the first time, fully captured the enormous unseen and unused potential hidden in smallholder producers, those I, like others, view as “non-existing producers”.
As a result of this experience, I founded the Dream Valley company, dedicated to bringing to the world any quantity required of premium produce from smallholders, the “non-existing producers” of the developing economies.
I do what I preach and preach what I believe in. In short, I walk the talk.
There is a lot of work to do, and though it is better late than never, we are decades behind schedule.
There are 550 million smallholders in the world, spread on all continents. I need your help to make a meaningful impact in this decade, this year.
Dream Valley practices a different model than Amazon, for what was suitable for goods manufacturers doesn't fit farmers producing and selling fresh produce.
While the model is different, the impact will be just as significant, and some say bigger.
Hey, if you want to go your way and don't want to join the Dream Valley team and me, it's okay; there are 550 million smallholders, so focus on a group of smallholders and rock 'n roll.
Did you learn something from this column? Do you agree/disagree? I would appreciate it if you wrote to me and let me know.
Do you want to change the rural community's development trajectory in your country or elsewhere? Are you unsatisfied with a running rural project or want to plan a new one? Message me +972-54-2523425
TAKEAWAY MESSAGES
Ø PRODUCERS CREATING INNOVATION, like market-creating innovations, results in a blue ocean of business opportunities.
Ø SMALL-HOLD FARMERS (SHFs) are parallel to SMEs in other industries.
Ø SMALLHOLDERS CAN GENERATE economic growth in developing economies like SMEs do.
Ø DUE TO THEIR LARGE NUMBERS and global presence, when correctly managed, smallholders offer unique advantages to retailers and supermarkets: increased profits for buyers, more suppliers, diversification, increased resilience in the face of unexpected events, agroecology quality, ability to rapidly increase quantities (adding more farmers), sustainable sourcing, rebranding the produce and retailer/supermarket.
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*** Mental and Economic Freedom Are Interconnected. ***
See you soon,
Nimrod
Dr. Nimrod Israely is the CEO and Founder of Dream Valley and Biofeed companies and the Chairman and Co-founder of the IBMA conference. +972-54-2523425 (WhatsApp), or email nisraely@biofeed.co.il
P.S.
If you missed it, here is a link to last week's blog, “The Recipe For Economic Prosperity and Getting Rich From Selling To “Non-Existent Consumers.”
P.P.S.
Dream Valley is a field-proven disruptive business model based on the successful Israeli model.
To learn more and become a Dream Valley partner, contact me at nisraely@biofeed.co.il, +972-542523425 (WhatsApp/Text)
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Change Begins With A Decision
That The Existing Reality Is A Choice
and Not A Decree of Fate