There are approximately 500 million smallholder farms in low and middle-income countries. These farmers and their families make up over two billion people in total that rely on small scale farming for their primary source of food and income. Many of these farmers produce high quality green coffee and cacao which is then processed and sold to consumers in Europe, North America and Australia, yet they receive only a fraction of the retail price. In fact, a recent World Economic Forum report estimates that a coffee producer receives just 2.5 percent of the retail price, or 0.07 cents out of $2.80. This suggests that there are “bad actors” in the supply chain with large profit margins taking advantage of these farmers. The reality though, is that there is a considerable amount of cost and risk involved in getting this produce from the farmer to the consumer. It is estimated that 14%of all food produced is lost between the moment of harvest to when it reaches the retailer (FAO). Additionally, volatile prices and unreliable supply increase supply chain costs.
Technologies such as blockchain, IoT devices and affordable smartphones are now making it possible to implement full traceability, and there are good reasons for everyone in the supply chain to take notice.
The low prices that smallholder farmers receive are the result from more than one factor. A lack of ability to segment produce by quality, risk of spoilage absorbed by buyers due to time delays, improper storage and undetected pests or diseases, all play a role. Farmers are unable to provide proof of measures taken to guard against pests, improve quality or meet certain standards. These challenges are difficult to overcome due to low levels of technology adoption and a lack of existing reliable ways to record these details. For the same reasons, many farmers are rejected when applying for finance to invest in their businesses. Financial institutions are unable to verify farmer identities or revenue earning capacity, meaning that farmers are deemed a much high credit risk than they actually are.
Increasing technology adoption among smallholder farmers and cooperatives facilitates the recording of information in an automated way. This would immediately open the door for farmers to access finance, receive fairer prices and create far easier pathways to certification, for even the smallest of producers, with organizations such as Fairtrade or IFOAM. This Ted talk by Markus Mutz gives one great example of how traceability can improve the process of achieving produce certification. However, increasing the use of technology among small scale producers to facilitate traceability is no easy task. The GSMA’s State of Mobile Internet Connectivity 2020 report highlights the key issues preventing technology adoption among this population segment:
At AgUnity, we have seen this to be true in all of our pilot projects across Africa, Asia and the Caribbean. Despite the fact that many of the farmers we work with are living off only a few dollars per day, they have consistently demonstrated a willingness to investin technology solutions that improve communication and trust between themselves and the buyers of their produce.
The motivation for farmers to increase technology adoption and traceability is not only financial, but also for greater visibility and control over who they are supplying. Currently, many smallholder farmers have very little knowledge of where their produces goes and who it is handled by downstream in the supply chain. Changing this would create an important shift in how commodity traders and retailers need to operate in order to be successful in the future. No longer would they only need to convince consumers that they are ethical, they would also need to convince the farmers.
“The most valuable thing in commodity trading is trust, and trust gets created through transparency” (David Griswold, the CEO of coffee trading company Sustainable Harvest on the 5thWave podcast). As mentioned before, processors and traders that buy produce from smallholder farmers and cooperatives absorb huge amounts of risk. They operate across borders, with different currencies and are held accountable for quality and sourcing enough supply to match demand. They often do all of this with limited transparency of how and where the produce was grown.
To quantify this, approximately one third of all food produced is wasted, with almost half of that (14% of total produce) being lost from post-harvest to before it reaches the retailer. Contributing factors include an inability to pinpoint the cause of quality issues, mis-communication (or lack of ability to communicate) about when produce is ready and mis-handling of produce (eg. lack of temperature-controlled storage). Traceability and improved communication can go a long way to solving these issues, significantly reducing supply chain costs and the agricultural sectors impact on the environment. Additionally, a more profitable smallholder farmer is good for the buyer, as that means they are more likely to invest in their business and continue producing high quality produce over the long term.
Consumer demand for information about the food they are buying has dramatically increased in recent years. This means that retailers who can build a reputation for delivering trustworthy information about their produce origins will attract more customers. The International Food Information Council (IFIC) have identified this trend and predicted that information relating to the origins of a product is becoming equally as important as price and taste for the consumer. Imagine the customer engagement with a brand if, at the scan of a QR code, they could find out exactly what portion of the retail price their producer received, where it was grown, the name of the farmer that produced it, and even, have the ability to reward the farmer for their hard work. Selling certified products and promoting consumer engagement with produce origins are examples of how even smaller retailers can support improvements in traceability and fairer trading practices. Retailers that elect to sell certified produce often experience increased trust from consumers, higher produce quality and more resilient supply chains.
Even prior to the COVID-19 pandemic, it was recognised that we are behind schedule to achieve the UN’s SDGs by 2030. Facilitating traceability of produce - all the way back to the smallholder farm - can have a direct impact on many of these goals, including No Poverty (Goal 1), Zero Hunger (Goal 2) and Reduced Inequalities (Goal 10). Everyone plays a role in the agricultural supply chain and everyone stands to benefit from increased traceability. Whether you’re a farmer, consumer or somewhere in between, making choices that reward those leading the charge on traceability is a vote for economic and environmental sustainability. The technology now exists, it’s just a matter of collaboration and motivation to implement full traceability.