Review paper: Smallholder integration into commercial value chains through agricultural traders and local food security

Region: East and West Africa
Sector: Agriculture

Background

This study, contracted by Finnfund and conducted by E2 Research, aims at describing the conditions for successful and sustainable business partnerships between smallholder farmers and other value chain enterprises in developing countries.

Finnfund investee companies in the agricultural sector often rely on smallholder producers in their sourcing, especially trading companies. This cooperation is believed to be commercially beneficial for both the companies and the smallholders. Big companies can diversify their sourcing and thus reduce risks and the smallholder producers have easy access to markets, and in some cases also to agricultural inputs. To ensure quality production and improved yields, the companies often offer the smallholders e.g., access to agricultural inputs and/or training and advice. However, there are also challenges in the cooperation between smallholders and large companies.

Aim of the study

The overarching aim of this desk review was to answer questions on agribusiness endeavours mostly in East and West Africa, with a specific focus on supply chains and partnerships between big companies and smallholders. Additionally, the impacts of cash crop production and company partnerships on smallholder households’, women’s and communities’ livelihoods and food security were elucidated.

The research questions were as follows:

1. What are the typical structures of smallholder reliant supply chains and type of business partnerships between big companies and smallholders?
2. What are the important benefits, obstacles, and risks, as well as their mitigation strategies both from company and smallholder perspective?
3. What are the common impacts of commercial cash crop production and company partnerships on smallholder households’ livelihood and food security?
4. What are the impacts of smallholder reliant value chains on local food security in producer communities (at local level) and at national level?

Key findings

The review focuses on smallholder farmers and agribusiness company partnerships. These types of partnerships are hailed as potentially win-win situations where both the smallholder as well as the company benefit, or even as win-win-win situations where the surrounding society or community is included as a winner.

After a thorough review, the researchers have found evidence that this indeed may be the case; there is potential for a win-win outcome, but it requires that the partnerships are well designed and takes into consideration numerous factors that are context specific. The review also concludes several recommendations.

How and when?

This study was conducted as a desk study by reviewing and analysing the existing literature and research about the subject. The focus was on peer-reviewed material, but other sources, such as studies, reviews, and project and program reports were utilized when applicable.

The study was conducted between December 2021 and February 2022 by Atte Penttilä, Anni Savikurki and Marjatta Selänniemi.

Read the study: Review paper: Smallholder integration into commercial value chains through agricultural traders and local food security (pdf)

More information

Blog: Placing contract farming in the service of development, food security, and equality – Finnfund
Investing in sustainable agriculture – Impact investing – Finnfund
Development impact assessment – Finnfund