The Best of Times, the Worst of Times
At one level, the global agribusiness sector appears to be in the midst of major changes—changes in product characteristics, distribution, consumption, crop production techniques, industry consolidation, and economies of scale along a more-tightly aligned value chain.
At a different level – that of smallholder farmers worldwide – very little has changed. Notwithstanding efforts by many people of good will, smallholder farmers in remote regions of emerging economies still suffer from relatively low yields and profits. So many of them remain trapped in a subsistence reality, what I call “sustainable poverty.” By and large, the work of the subsidized public programs and NGOs has failed to create a sustainable model that enables prosperous businesses for these indigent farmers. And “fair trade” has not proven to be the answer either; in many cases, it’s become a stamp of poverty, not a path out of it.
Here’s the good news: consumers, including coffee drinkers, are more frequently demanding sustainable products. Across a range of products, consumers are increasingly relying on credence attributes (e.g. production method, health benefit, social trust, environmental benefit, etc.) and experience attributes (e.g. quality). In the last 5-10 years the food industry has “scientifically challenged” the consumers – premium buyers are looking for some “sustainability” proposition, without necessary understanding of the significance of what this multidimensional concept entails. This trend bodes well for smallholder farmers, if only entrepreneurs are able to develop innovative approaches that include poor farmers in the available prosperity.
Cosmetic interventions have not achieved the objective, and in my view, never will. The foundation of the coffee value chain, still so closely entangled with problems of rural poverty, gender inequality and environmental degradation, desperately needs a profound transformation; one that espouses innovation, cooperation, transparency, and sustainability. A transformation that upholds the beauty and dignity of the small family farm network that has existed for millennia.
A New and Innovative Model: Shared-X
There is hope in the form of a new model – the Shared-X model – which lifts smallholder farmer yields, market prices, and profitability by integrating the smallholder farmer into a professionally managed, neighboring mid-sized farm growing the same crop. “Shared-X” stands for a shared experience. That is to say, the mid-size farm management team proactively engages with the neighboring smallholder farmers, and shares best agronomic know-how and marketing practices.
Under the Shared-X model, the mid-size farm management team sells the specialty coffee produced by its networked smallholder farmers side-by-side its own. In combination with the improved product yields and quality enjoyed by the smallholder farmers, the smallholder farmer achieves a newfound level of prosperity.
Needless to say, none of this is possible if the mid-size farm team does not have the requisite management skill, market access, commercial experience, as well as a combination of local and international technical expertise.
Strengthening farmer associations while at the same time establishing a strong production/commercialization collaboration between small and mid-sized specialty coffee farmers will accelerate the sector’s competitiveness and show progressive economic results all around. As we move forward, let’s all bear in mind the ancillary benefits the successful scaling of the Shared-X model will have in the form of social cohesion and democratic practices, as well as the inevitable positive multiplier effect in the larger community.
Shared-X Competitive Edge
The Shared-X model is distinctive in the following three ways:
Alignment of Interests – What’s good for the mid-size farmer is good for the neighboring smallholder farmer. They’re growing the same crop in the same region. The mid-size farmer is motivated to optimize the performance of his own farm. If he’s willing to share his know-how with his neighbors, they in turn stand an excellent chance of incremental high quality yields that assure better prices. Further, by aggregating their supply, this collaborative approach achieves stronger economies of scale through proportionately smaller fix costs. Today, small farmers are exposed to the perverse incentives of suppliers of goods and service providers (e.g., microcredit businesses, input sellers, middleman), adversely affecting the very first link in the value chain.
Proven Model – Shared-X has demonstrated successfully its model, on real mid-size and smallholder farms, over the past three years. During this period, the model has boosted smallholder farmers independent of pricing and environmental conditions, including rust outbreaks. Specifically, the Shared-X model has been proven in Peru, where small landholder specialty coffee farms joined in a co-op called COPACEYBA, established in the central upper rainforest of the Chanchamayo province. At present, co-op yields average above 35 bags/ha (3 times the national average), and cupping scores average 84 points in the SCAA rating scale.
Moving the Needle – The Shared-X model emphasizes the specialty coffee profitability variables that have the largest impact on smallholder growers’ net revenues. 90% of the variation in cost of production of specialty coffee in a farm is explained by yields. To tackle yields special activities for soil management, fertilization/nutrition, pest and disease control, shade management, pruning, and good harvesting and postharvest practices need to be addressed. On the market side, two elements of the model are to secure fixed-price sales contracts to mitigate price volatility risk, and establish reliable product tracing capability to assure credence attributes.
The Vision: Shared Prosperity
The Shared-X model makes the coffee market, for the first time, relevant for impact investors. The Shared-X business model reliably produces high quality crops, in a fashion in which the smallholder farmers’ stories can be told to consumers, thus directly answering market demand for triple bottom line goods: financial, social and environmental.
The Shared-X model provides smallholder farmers a chance to escape the vicious cycle of sustainable poverty by instituting a “shared value” ideal and affixing a prosperous face to the coffee inside the cup.