How to link producer organizations to market players
Rikolto and Subway’s experience
On March 12th, we hosted a webinar “A Fair Price for Fresh Food” with Rikolto and Subway on lessons learned from a market access project with farmers in Nicaragua. The lessons learned from this project can serve as a roadmap for practitioners who wish to link producer organizations with market players like Subway. You can watch the replay here. Below are the main takeaways from the webinar.
Many farmers in emerging markets have difficulty accessing the market. Because of the seemingly insurmountable barrier to entry (e.g. certification, distance, transport, etc), farmers find themselves selling in less attractive, more informal, markets at a much lower price. Also, due to price volatility, when farmers do sell at local markets, they sometimes sell at a loss. Naturally, this has a ripple effect from the farmer to the family and to the community. At the same time, because of the global population growth, urbanization, and market liberalization, there are more opportunities for farmers than ever before. However, to seize these opportunities, farmers need to become more market-oriented and competitive and this translates into the need to develop their management skills and competencies.
As urban growth in emerging markets accelerates, so do business opportunities. For companies like Subway, the customer base can be attractive, companies struggle with finding producer organizations who are professional enough to understand and comply with the quality, volume, and sustainability requirements. The lack of transparency into the agricultural value chain puts companies who source produce and commodities at risk.
This opportunity is what compelled, Rikolto (an international NGO with more than 40 years’ experience in partnering with producer organizations and food chain stakeholders) to pilot a project with Subway to create a solution to overcome barriers for farmers to reach the market (and the other way around). Further, the lessons learned on the project are being used to inform national-level sector improvements.
Subway GAP for Emerging Markets
One of the biggest challenges in emerging countries is Food Safety. Traditionally poor growing conditions in emerging countries have made it necessary for Subway to seek alliances with institutions such as Rikolto, and to hire personnel dedicated to developing small growers’ technical and food safety capacities. Subway needs all suppliers to meet Global GAP or GFSI standards. This is initially impossible for some growers. Therefore, Subway developed Subway GAP for emerging markets to have acceptable initial standards for growers to later transition to Global GAP. (Read about Subway in Emerging markets more here).
Seeing the situation of the cooperatives the project worked with and the needs of the market, Rikolto decided that taking an approach that began with Professionalism was important. To this end, the project adopted the SCOPE insight methodology which is based on internationally accepted norms and prevailing management practices. The SCOPE assessment tools measure THE most important aspects of professionalism for agribusinesses and when used to inform project design and technical assistance, the results are impressive. Therefore in 2016, a baseline assessment provided the necessary guidance for Rikolto to build their technical assistance program. For example, the farmer’s organizations used the assessment data to 1.- hire a manager, 2.- automate its accounting system, 3.- improve safety in all its processes and 4.- focus on market linkages.
A Unique Inclusive Business Model
Rikolto implemented an inclusive business model with a long-term perspective that fulfilled the needs of both farmers and buyers alike. By establishing a long-term collaboration, Rikolto solved the structural problems that producer organizations and buyers are facing. (For example, when buyers pay farmers in advance, we can solve farmers’ lack of access to working capital. Co-investment of a buyer in the training of farmers or in better storage capacity can help to overcome quality issues). Thanks to this long-run perspective, farmers and buyers can plan more carefully, resulting in stronger businesses.
Private and Public Investments
The project first focused on establishing collection centers and training on Subway’s GAP. With investments from Rikolto in seeds, irrigation, and materials for safety, the project was underway. A baseline for farmer professionalism was established and it revealed that the farmers were as de-skilled as many of their other counterparts in Latin America.
There is a direct relationship between offering a higher quality product with faster speed to market (because of fewer intermediaries) and what the producer can charge for that product. Subway’s goal for this partnership was to be able to offer our consumers the freshest possible produce that meets Subway’s high-quality standards. Towards that end, Subway works with the producer organizations to help them improve their processes and yields. It is also not an exclusive relationship; producer organizations can sell to others as well. This relationship results in a partnership that benefits everyone: Subway’s customers enjoy a fresher, higher quality product with traceability back to a specific plot of land; Subway is assured a sustainable, high-quality supply; the producer organization is able to earn a higher and more reliable income. And the farming families and rural communities who rely on those incomes improve their standard of living.
By using a methodology which outlines eight dimensions and many other subdimensions, the project could use resources wisely and make improvements in key areas.
For the farmers, learning how to operate their businesses more professionally is a big advantage for them as well as learning how to produce the quality demanded by the market. While their relationship with Subway allows them a higher price for their goods, the skills they have will ensure resilience and sustainability in the long run. For Subway, helping the cooperatives become obtain international standards, allows Subway a low-risk supply chain and allows them to enter a new market.
Lastly, farmer cooperatives need assistance in helping them become legal entities and brokering relationships. This is a longer-term vision that Rikolto helped the cooperatives achieve.