Feature: Making markets work for smallholders?

23 March 2012

Capacity and agency

CAP_44_PAG_05The polarised debate on how markets can work for or against the interests of small-scale farmers, presents major challenges for practitioners. This article aims to rebalance our thinking about smallholders and markets.

Half a billion small-scale farmers in developing and emerging economies produce a significant proportion of the world’s food – estimated at over 90% in sub-Saharan Africa, and 50% in India. With a global population expected to increase to 9 billion by 2050, there is renewed interest in small-scale agriculture – particularly so in the context of climate uncertainty. Governments want to stabilise national food security and balance economic growth between town and country to prevent social upheaval. Agri-businesses want to secure their supplies and develop new markets.

Much of this renewed interest in small-scale producers has focused on connecting producers to markets – what is often called the ‘market-based approach’. This approach positions small-scale producers as entrepreneurs. Making business links with poorer producers is promoted through a number of essentially interchangeable concepts: inclusive business, business at the base of the pyramid, growing inclusive markets and shared value.

Donors and the development community at large have embraced market-based approaches to development. Their expectation is that through inclusion in markets and value chains, small-scale producers can survive and even prosper in the face of major changes in agriculture and food markets ushered in by globalisation and modernisation. Some of the world’s biggest companies, including Walmart and Unilever, have announced ambitious goals to bring small-scale farmers into their supply networks.

There is much to be welcomed in this approach, which has contributed to new ways of interacting with producers as entrepreneurs rather than as ‘the poor’. But there is also a view that asserts that the adaptive capacity of the rural poor is being undermined by exposing small-scale producers to highly demanding and volatile markets. Its proponents object to what they see as a new wave of top-down interventions in small-scale agriculture, fuelled by promises of business at the ‘base of the pyramid’ or by crisis narratives of food insecurity, rural poverty and resource constraints. They align the interests of small-scale farmers with social movements that resist corporate penetration into agriculture, resist globalisation, and advocate greater democracy and food sovereignty that is built on human rights. This notion has been enshrined in national policy in Venezuela, and to a lesser extent by other countries in the region that have socialist and social democratic governments. The goal has been to revive domestic production by supporting small-scale farmers and shielding them from the power of global capital.

Both sides of this often highly polarised debate can be reflected in the contradictory policies of the same government. Also many development agencies find themselves operating from a rights-based approach at the policy level, while adopting a market-based approach in practice.

In this article, we set out to provide an introduction to this apparent contradiction. The insights come from a series of ‘Provocation debates’ organised by the International Institute for Environment and Development (IIED), the Humanist Institute for Co-operation with Developing Countries (Hivos) and local partners in European cities in 2010 and 2011. We point to the element that is missing in both approaches, namely that of producer agency – that is, the capacity of producers to make informed choices, and to act on those choices. Agency underpins the capacity of producers to deal effectively with external agendas, whether it is the agenda of business promising access to new high-value markets, or of social movements advocating rights-based development.

The market-based approach
The market-based approach to development provides an opportunity to target and empower small-scale producers to access higher value markets. This is especially important when securing rural livelihoods and young people’s interest in agriculture in the face of declining farm size.

It sees the development of small-scale producers as best achieved by bringing organised producers into trade arrangements with inclusive business that is supported by the right policies and market institutions. Producer organisations create mechanisms for aggregation, maintaining quality and substantially reducing the transaction costs for accessing modern inputs and value chains. Such producer organisations make it possible to forge effective links with the local supply base.

Greater involvement by the private sector brings with it technical support for improving productivity and upgrading quality. It also brings access to finance and incentives for rural entrepreneurs. NGOs and business facilitators are increasingly active in this space.

Businesses can reap many benefits from investing in and trading with small producers. They can secure new sources of produce in a supply-constrained world, and can build their political licence to operate in emerging economies. They can also gain a much better understanding of their supply chains, with opportunities to improve integrity and efficiency.

But there are aspects of market-based approaches to smallholder development that can actually undermine the resilience of smallholders. First, intervening to make markets work ‘for’ poor smallholders can perpetuate top-down models of development in which farmers’ decisions are made for them. Indeed, many interventions to build capacity emphasise only the technical aspects of accessing markets rather than their agency – in terms of the capacities of producers to organise themselves more effectively, to make their own choices or to exert control over policies that set market rules.

Second, initiatives have a tendency to reach only richer, more accessible and better organised farmers. Much of the agenda to make markets work for smallholders is built on assumptions that producers will cooperate within formal producer organisations to compete in markets. But the starting point for interventions aimed at smallholders must be an appreciation that the majority of small producers are not formally organised in the market. Poorer households and female producers are even less likely to be involved in producer organisations. And when they do participate, they are often excluded from the decision-making processes or used as outgrowers. Being unorganised puts producers outside many chain-based assumptions about ‘cooperating to compete’, even though producers often use flexible institutional arrangements to improve their bargaining position with traders.

Third, market-based approaches may bring producers into trading relationships under conditions of very unequal negotiating power and very unequal information.

Lastly, there are risks that high-value export markets and cash crops are being emphasised at the expense of domestic markets and staple crops, and at the expense of household and regional food security. Smallholders might be better off supplying the much larger domestic wholesale and informal markets. Because of urbanisation and economic growth, domestic markets are an increasingly attractive option – though elites and cartels continue to prevent markets from working in a pro-poor manner. In one of the Provocation debates on the approach of making markets work for the poor, Roger Blein (Bureau Issala, France) observed how a focus on value chains and export markets has been associated with disinvestment in staple food sectors, even though staples are the most important products for small producers and for the food security of the poorest of the poor.

Rights-based approaches
Rights-based development is frequently described as an important counterbalance to market-based development. It positions small-scale producers as rights holders. Olivier de Schutter, United Nations Rapporteur on the Right to Food (see guest column), described in the Provocation debate on rights-based versus market-based development, how a rights framework can shape the institutions that make markets more inclusive and resilient. For De Schutter, such a framework means focusing on the most vulnerable in society and clearly defining the entitlements of each individual. It means emphasising accountability and accessing remedies when rights have been violated. It means promoting non-discrimination and participation. And it means that the state should protect farmers from being exploited by companies, including scrutinising contractual arrangements to ensure that farmers are not deceived by buyers.

But rights-based approaches may be no less top-down and imposed than market interventions. And rights may not prevent problems of power, such as influencing policy and legislative processes.

In the same Provocation debate, Diana Mitlin recounted how, in the urban environment at least, organisations of the poor are deeply suspicious of rights-based approaches, because powerful interest groups influence how the state sets rights-based frameworks and allocates resources. Grassroots groups are even more suspicious when international organisations adopt this discourse, because their experience is that those organisations are strong on discourse and weak on implementation. Mitlin’s opinion is that, for the poor, the challenge is not so much getting rights into public policy, but building strong local organisations that can participate in developing solutions, and can contest trends that work against the interests of the poor.

Organisation and large-scale mobilisation has been the traditional route for farmers to influence national policy. The Provocation debates that took place in The Hague, the Netherlands, discussed how concerted action by farmers in Nicaragua gave rise to innovative national policies that promote agro-ecological production by small-scale farmers.

Although political mobilisation can successfully influence government policies, it can also perpetuate the existing patriarchal structures that privilege only a certain section of agrarian society. Small producers and women producers often have to compete with the powerful lobby of large producers for representation on policy platforms and in negotiations. And even when states recognise and create political space for small-scale farmers, those farmers are not always able to articulate their needs or fill that space.

Furthermore, political empowerment can fail to pay sufficient attention to the economic needs of smallholders. In one of the Provocation debates, Diego Muñoz of
Mainumby Ñakurutú in Bolivia described how producers in Bolivia were mobilised as a powerful political force in parallel with the growth of social movements – but without the state recognising the position of farmers as entrepreneurs and acknowledging their real market problems. He questioned whether populist policies were any better at recognising the position of farmers as economic agents.

The capacity to make effective choices
Where does that leave us, and what does it mean for practitioners and their capacity building efforts?

We call for a reorientation of interventions, to recognise the importance of producer agency. By agency, we mean the capacity of producers – as individuals and as organisations – to make informed choices in the face of external agendas and powerful actors, and the capacity to act on those choices. Poor decisions can leave producers and their communities less resilient and less food secure.

By using an approach that increases the reflexive capacity to evaluate choices and risks – rather than an approach that equates market access with development – smallholders might arrive at very different conclusions from those reached by outside experts. For example, when the realities of smallholder production and the full cost of upgrading to modern markets are taken into consideration, modern markets and value chains may be seen to be far less ‘high value’ than is commonly depicted.

We have also underlined the importance of understanding small producers as both economic and political actors. Economic agency, when defined narrowly as cooperating to compete in value chains, misses the whole agenda of shaping the market institutions and modalities that make markets work better, or not as well, for the poor — especially for the majority who are not organised. This is territory that lies firmly between the two prevailing approaches. Without political action, policies will focus only on the ‘viable’ sectors. Even the institutions of fair trade, which have been both market mechanisms and political vehicles for small-scale producers, were described in one of the Provocations as being ‘in need of urgent defence against market pressures that are weakening its political role’.

For practitioners, this agenda is quite a challenge. For it is often practitioners who introduce the agenda of making markets work for small-scale producers. And the agenda is growing ever more complex, with expectations that modern value chains, certified products, carbon markets and payments for ecosystem services will all ‘work’ for the poor, and that the poor will be ‘empowered’ in the marketplace. Producer agency includes the capacity to deal with practitioners.

For further information, visit www.iied.org/provocations

Bill Vorley International Institute for Environment and Development (IIED)
Ethel del Pozo-Vergnes International Institute for Environment and Development (IIED)
Carol Gribnau Humanist Institute for Co-operation with Developing Countries (Hivos)
Bishwadeep Ghose Hivos-India
Diego Muñoz Mainumby, Bolivia
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