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“Some moderation would be wise”

by Claire Schaffnit-Chatterjee
Shoppers in a Shanghai supermarket

Shoppers in a Shanghai supermarket

Closer cooperation between smallholders and retail chains would benefit all parties involved as well as consumers, argues Claire Schaffnit-Chatterjee of Deutsche Bank Research. At the same time, she does not consider Western nations’ consumption patterns worth copying. She explained matters to Hans Dembowski in an interview. Interview with Claire Schaffnit-Chatterjee

Why does it make sense for smallholder farmers in the developing world to become integrated into the supply chains of supermarkets?
First of all, their incomes will be more stable and more reliable as their market access improves dramatically. Most likely, their incomes will rise too, which will in turn have an impact on their future success. Indeed, once they make enough profit, they may have money left, after providing for their family’s needs, to invest in assets like seed, machinery and technology, all of which can boost their output. This really is a virtuous circle, with more investment leading to higher incomes, which in turn allows for more investment.

What must smallholders do to get supermarket chains interested in their produce?
They have to be able to respond to market demand, so they must have a reliable output of the right products and those products must meet specific quality standards. Generally speaking, this means that the farmers need the right skills and assets, including management skills.

Can they keep on growing and breeding traditional land races or do they have to switch to high-yielding varieties?
This is a complex issue, it is impossible to answer with a simple yes or no. Some traditional varieties are certainly suitable for retail supply chains, others may not be. Supermarkets do need products that are standardised to a certain extent and land races often do not meet the required standards of uniformity and stability. At the same time, traditional crops are not necessarily inferior, they can be more resilient in local conditions and may have superior yields. Crop diversity also helps to reduce the impact of some diseases and it increases the variety of produce available to consumers.

Does it make a difference whether farmers produce grains or fruit and vegetables?
Grains are easier to store, and standards for fruit and vegetables are probably harder to meet, so yes, it does make a difference. Smallholders, so far, are almost entirely excluded from high-value export markets, mostly due to the high cost of compliance with the standards required for exporting. These standards are even higher for organic or Fair Trade products, which means tougher challenges but also better prices for those farmers who are able to comply.

Given that smallholder products often seem to be sub-standard, why should supermarkets bother to source from them?
I do not think we can generalise that smallholder products are sub-standards. Supermarkets, moreover, need to ensure that they have enough supply to satisfy their customers’ needs. Demand for food is growing internationally, and it will keep growing as human populations and incomes grow. Smallholders have a great potential for producing more. We are really looking at a win-win-win situation. The smallholders, the agribusiness and the consumers potentially all benefit from smallholders’ integration into the global food value chains. Ultimately, this is really an issue of ensuring global food security. Smallholders are key to ensuring food security. Food retailers and processors will also benefit from their partnership with farmers from a traceability point of view: there is pressure from food safety regulators and consumers to increase transparency in production lines. More transparency is also requested about working conditions at the production site, both from environmental and social points of view. Knowing the farmers will help retailers to address such demands.

But why do civil-society activists often oppose the strategy of integrating smallholders into supply chain?
Well, there are some real risks of farmers becoming victims of powerful business interests. There are very many consumers, and very many smallholders, but there are not that many companies in the middle of the food supply chain. Abuse of such power is possible. Government agencies and non-governmental organisations, however, can make sure that such abuse does not happen. This is an issue of competition policies on the one hand, but also one of market transparency. Farmers need reliable price information, for instance, and certainly it will often make sense for them to get organised as cooperatives in pursuit of their common interests. Donor agencies can also help to make sure that smallholders don’t get a “bad deal”. Ultimately, supermarkets tend to take better care of hygiene than traditional farmers’ markets, so formalisation of farm-related businesses serves consumers too.

The agro-industry and civil-society organisations have been quarrelling over agriculture for decades. Would you take sides?
Well, I think both approaches have their merit. In retrospect, it is clear that the Green Revolution was an amazing success in boosting global aggregate food production, which kept pace with rapid population growth. On the other hand, it was accompanied by major drawbacks such as environmental degradation and pollution as well as diminishing returns – after a while, the yields stop increasing. Moreover, the benefits of the Green Revolution were not equally shared: we cannot say that all farmers in all regions benefited, especially smallholders in developing countries often did not. At the other end of the spectrum, some people actually argue that organic farming could feed the world, although it is hard to prove. I think humanity needs the business as well as the NGO approach.

What must the retail chains do to integrate smallholders into their supply chains?
First and foremost, they have to help the farmers meet retail needs in terms of both quality and quantity. In most cases, this will imply training and advice on technical issues. Sometimes it will also imply providing them with seed, fertiliser and pesticides. Big retailers may also support the farmers in growing organic crops if they wish to cater to this growing market segment. Farmers’ access to credit is another area in which retail chains can make a difference, and so is storage and transport infrastructure. These kinds of engagement, of course, serve the interests of the farmers too. Their risk of being squeezed out from the supply chain diminishes the more retail chains invest in their farms and skills.

The Economist recently wrote that roughly 50 % of the harvests in developing countries are wasted due to poor transport and storage infrastructure. Is that true?
Wastage is a huge challenge, and at the global level, more than 40 % of food is wasted between field and household. Additionally, 30 % of the food consumers buy in Western societies is never eaten but gets thrown away. Reducing wastage of all kinds would of course be an important step towards ensuring global food security. In rich nations this will mostly require smarter consumer behaviour, and in poor nations the major challenge is indeed better storage and transport infrastructure. Not only private sector companies are needed to rise to this challenge. Government agencies, local authorities and civil society organisations can make a difference too.

Is there something developing countries should learn from Western consumption patterns?
For several reasons, I think they’d better not follow rich world’s example of excessive meat consumption, from the points of view of both health and environment. We don’t really need as much meat as we think; Western habits have become destructive. It is unhealthy to eat too much meat. Meat production, also relies massively on natural resources, including land, feed and water. Additionally, this segment of food production causes especially high greenhouse gas emissions. As societies in Asia and other continents become wealthier and increasingly urbanise, their per-capita meat consumption will certainly rise, but some moderation would be wise.