How smallholder farmers and their buyers can both make money
Editor’s note: this post originally appeared on The Stanford Graduate School of Business’ Center for Social Innovation blog on August, 29 2012. Nena Sanderson is currently working in Acumen’s Nairobi office on the Agriculture Portfolio team.
I have admired Acumen Fund for years, since I first read The Blue Sweater by Jacqueline Novogratz, GSB ’91 and Acumen’s founder and CEO. I have also been dying to return to East Africa after working in Rwanda before business school. When I got the chance to join Acumen as an intern in Nairobi, I couldn’t have been more excited.
The summer has not disappointed. I have been continually impressed by the passion, thoughtfulness, and insight my colleagues exhibit in and out of the office, and I am inspired by the impact Acumen’s portfolio companies are making in East Africa.
Acumen is a social venture capital fund that invests in businesses that deliver critical goods and services to people earning less than $4 per day. I am working in Acumen’s agriculture portfolio. Over the past few weeks, I’ve been helping one of Acumen’s investees determine how to maximize social impact for the smallholder farmers they work with through field visits, expert interviews, and close collaboration with the investee’s management team.
This experience has demonstrated for me the power of the social enterprise model in agriculture supply chains. The social enterprise I’m working with is in many ways a traditional agro-processor. The company purchases a crop from farmers, processes it, packages it, and exports it to international buyers. In this sector, as in many agricultural sectors, though, the traditional models are broken. There are two types of players in the sector: private exporters and cooperatives. Private exporters are often unconcerned with the welfare of the farmers they source from, so they pay the minimum possible price. Cooperatives supposedly serve the interest of farmers, but are often inefficient or mismanaged, so not much profit is left for the farmer after waste and corruption. In both of these systems, farmers often receive less than 10% of the end-price of the product they grow, and many remain trapped in a poverty cycle. With insufficient income or incentives to invest in their crops, farmers rarely bother with productivity-improving fertilizer or pest management, and the quantity and quality of their crop falls short of its potential year after year.
This social enterprise seeks to chart a third model that combines the efficiency of private exporters with a cooperative-like commitment to improving the lives of its farmers. This model offers more social impact, and it also makes business sense. By paying farmers a premium for a higher quality crop, the company will provide them an incentive to really invest in their farms for the first time. By paying this premium during a critical time when farmers are often cash-poor and need to purchase inputs for the upcoming year, the social enterprise will improve buying power for inputs. Through this model, the company hopes to create a virtuous cycle of improved farmer income, crop quality, and company income. For the entrepreneur I worked with this summer, this would represent a real win, not only for the company, but for the agricultural communities that they source from.
More in my next post about the successes and challenges of designing this program.