Sector-wide approaches to inclusive business

29 policymakers who could tweak development schemes to include them Box 3.8. Whereas a traditional intermediary adds value by handling the product aggregating, grading, transporting, processing andor marketing, for example and takes a large cut from the value chain, an ethical agent can add value by offering business expertise, introducing contacts and aligning business models along the chain to better share the value among participants. A Nicaraguan case from Falguni Guharay in the Learning Network offers another example of small-scale farmers entering a demanding organic value chain that delivers higher prices. But in this case, the chain’s strict requirements are being met largely at the expense of producer agency. Starting in 2007, cocoa growers in the Bosawas area were organised to produce organic cocoa for the German chocolate company Ritter Sport, which initiated the project together with Germany’s development agency GIZ and the Nicaraguan NGO ADDAC. The farmers succeeded in growing more cocoa of higher quality, and saw prices spike. But Ritter Sport is the only company buying this quality cocoa and offering these prices — meaning that producers have gained no negotiating power in the value chain. And the company has changed the local supply chain from beginning to end; collection, processing and post-harvest management systems have all been reshaped to Ritter Sport’s speciications. Guharay described this value chain as resembling ‘a benevolent feudal relationship’. Whether a value-chain initiative offers more or less scope for small producers to exercise agency, it will often make up only one part of farmers’ chosen portfolio of activities. In the big picture, it is important not to overlook what farmers are doing simultaneously to root themselves in other markets. In the case of palm sugar growers in Indonesia, for example, the same producers who formed a cooperative to gain organic certiication and connect with an international buyer were also marketing an array of other crops, either individually with traditional middlemen or through different farmer groups or traditional middlemen. This is also true for many larger and older cooperatives, such the national coffee growers’ organisation in Peru.

3.2.3 Sector-wide approaches to inclusive business

Most inclusive business schemes aim to build individual value chains integrating a narrow subset of small producers. For practitioners, businesspeople and policy experts who back this approach, the expectation is that islands of market success will grow and proliferate. But isolated value chains not only exclude most farmers, but fragment collective action. To improve conditions for the majority of small farmers, the idea of upgrading small-scale producers chain by chain may need to give way to more effective action across an entire agricultural product sector. In Colombia, the non-proit national federation of coffee growers FNC has worked to raise the whole sector’s economic and social performance. FNC represents the majority of the 560,000 coffee-growing families in the country, nearly two-thirds of whom farm less than 1.5 hectares. Quality control managed by the FNC has meant that Colombian coffee has consistently received a price premium on world markets. A key element in the FNC’s approach is The National Coffee Fund, a tax on coffee production managed by FNC on behalf of the government. The fund is used to stabilise producer incomes and invest in social and infrastructure programmes in coffee-growing communities. The positive impact on coffee-growing communities in comparison to other countries, in terms of income, public services, literacy and political stability, is recorded in a number of studies Bentley and Baker 2000; Deshpandé 2004. Rather than creating islands of inclusion, this sector-wide approach raises all boats through federating producer interests and institution-building. 3.3 Importance of regional, national and local markets under globalisation In a globalising world, it is not necessarily global markets that are most dynamic or most lucrative. Just as informal trade can be more widespread, vibrant and rewarding to small-scale farmers than formal trade, these producers often ind advantages in local and national markets, or regional 30 markets in other nearby countries, that they can’t get with further-lung exports. Local markets have always been central to small producers’ livelihoods, but governments and development institutions are also starting to recognise their importance. In fact, the potential of many nearby markets, both within and across borders, is only rising with economic growth and urbanisation.

3.3.1 Opportunities in regional, national and local trade