‘Inclusive’ business models in agriculture: What are the stakes?

1. ‘Inclusive’ business models in agriculture: What are the stakes? Sylvia Kay Transnational Institute (TNI) FATE Forum 6 December, Brussels

2. Investment and the smallholder The new orthodoxy: “All stakeholders now agree that there is a need to invest again in agriculture and to support food production by small-scale producers. But how and by whom, to do what?” (FATE Forum)

3. ‘Inclusive’ Business Models • ‘Inclusive’ business models refer to a range of investment models which link agri-businesses with local producers. • A variety of types*: • Contract farming (different types) • Management contracts • Tenant farming and sharecropping • Joint ventures • Farmer-owned businesses • Upstream and downstream business links • Each of these will vary with regards to its particular governance strategy, degree of benefit sharing, and its underlying configuration of land, capital, and labour. *Source: Vermeulen, S. and L. Cotula (2010). Making the Most of Agricultural Investment: A Survey of Business Models that Provide Opportunities for Smallholders. Rome and London, FAO and IIED.

4. Contract farming Source: UNCTAD (2009). World Investment Report 2009: Transnational Corporations, Agricultural Production and Development. New York and Geneva, United Nations

5. From ‘Farm to Fork’: The Value Chain Approach Source: UNCTAD (2009). World Investment Report 2009: Transnational Corporations, Agricultural Production and Development. New York and Geneva, United Nations

6. Consumers Input industry Producers Consumers Food retail industry Food process industry Research TNCs Extension service Producers A battle for the capture of added value

7. Against this backdrop, the proclaimed benefits of ‘inclusive’ business models must be closely interrogated. In particular three issues stand out: Inclusion thresholds Risk vs reward Impact on land based social relations These issues give way to a much more complicated series of questions: Who commands labour? How is market access negotiated? On what terms do smallholders participate in global value chains? This is the essence of the concept of ‘adverse incorporation’ (Du Toit & Hickey 2007).* ‘Adverse incorporation’? * Source: Du Toit, A. and S. Hickey (2007). Adverse Incorporation, Social Exclusion and Chronic Poverty. CPRC Working Paper 81. Manchester and Bellville, University of Manchester and PLAAS.

8. Producer Power? Aggregating producer power by forming cooperatives or other arrangements is one strategy for smallholders to negotiate more favourable terms. Other inclusive business models may offer producers greater leverage e.g. joint ventures, especially when they are embedded within alternative trading structures e.g. Fair Trade schemes. Yet fundamental power asymmetries – while reduced – still remain.

9. Conclusions ‘Inclusive’ business models may appear to be smallholder based but this masks the dominant role of corporate capital in structuring the arrangement. This carries with it important considerations regarding: • The role of state regulation • A focus on a ‘bundle of rights’ • An accounting of multiple forms of capital and value