February 18, 2015

By Gerelyn Terzo

The private sector and non-profit organizations have directed their attention and capital toward the smallholder farmer community of late, evidenced by the emergence of investment and grant funds targeting rural family farms in the developing world. Danone, Mars, Incorporated, The MasterCard Foundation and The Howard G. Buffett Foundation are among those forming business models to bridge the gap between smallholder farmers and food security.

Food manufacturer Mars, Incorporated, and healthy foods maker Danone have partnered in The Livelihoods Fund for Family Farming (Livelihoods 3F), which will invest euro120 million (US$136 million) over a decade for projects across Africa, Asia and Latin America. The fund, which is designed to help some 200,000 smallholder farmers and 2 million people ramp up crop sustainability, is open to other investors, both public and private.

“The fund will focus on those countries where we source our materials,” Mars Chief Sustainability Officer, Barry Parkin, told Global AgInvesting.

Toronto-based The MasterCard Foundation, which is independent from MasterCard Worldwide, in recent weeks announced a US$50 million fund for smallholders as an extension of its financial inclusion arm. The Fund for Rural Prosperity, a challenge fund comprised of innovation and scaling competitions – the former of which is currently under way — is designed to get financial products and services to smallholder farmers in rural Africa.

Smallholders

The focus on smallholder farmers is urgent. Some 500 million family farmers are responsible for producing 70 percent of food supply around the globe.  And smallholders run more than 80 percent of those family farms, according to the International Fund for Agricultural Development, a United Nations subsidiary.

Yet the ability of smallholders to emerge out of poverty and into food security has been stifled by a host of issues, not the least of which include antiquated irrigation techniques and inadequate financial options.

Bernard Giraud, President of Paris, France-based Livelihoods Venture, the management company for Livelihoods 3F, explained the role of smallholders along the supply chain. “Smallholder farmers are very important to companies that need raw ingredients sourced from agriculture and whose business consists of processing cocoa, coffee, milk and many other [products], including vanilla and different plants for perfume.”

What smallholders possess in natural resources, however, they lack in financial resources. “[Smallholder farmers] could be getting a lot more yield from the ground than they currently are if they had better access to fertilizer, tools and training,” said Roger Morier, The MasterCard Foundation Senior Communications Manager for Financial Inclusion. “If they had a series of better inputs, they could produce more.”

Enter the private sector and non-profits, which are stepping in to help smallholders. A common thread among the investors is the ushering in of capital to the smallholder farmer community to create a more sustainable future for farmers in the developing world.

Private Sector Role  

Livelihoods 3F is a product of Mars and Danone, the fund’s lead investors. The fund is designed to help companies learn how to sustainably source the materials they need from smallholder farmers.

“We are two of the world’s leading food manufacturers,” said Mars’ Parkin. “Sourcing, and moreover sustainable sourcing, is critical for both of our companies. By joining forces with a diverse coalition of actors, we will create real scale.”

Livelihoods Venture will be responsible for gathering the investment partners and expertise and identifying projects to fund. Investments will favor affordability over expensivetechnologies in irrigation to have the most direct impact on smallholders. “We must implement techniques that are accessible, affordable and efficient,” said Giraud.

The return on the investment, noted Parkin, will be recouped through a coalition of private and public third-party companies and other organizations that will purchase the goods and positive impacts generated by the projects.

For food companies like Mars and Danone, it’s a natural fit. Mars buys raw materials from some 750,000 smallholder farmers. “[M]any of the crops that we need to make our products come only from smallholder farmers. As a result, there is a clear objective and mutual benefit in supporting their success in order to enable our growth,” said Parkin.

Meanwhile, of the 150,000 fresh milk suppliers to Danone, 80 percent are family farmers.

Still, when it comes to improving the livelihoods of farming families, neither company expects to go it alone. “When faced with global challenges, no single institution or single individual can come up with solutions on its own, which is why a co-creative approach like Livelihoods is essential to leveraging impact,” said Parkin. Giraud noted the companies are seeing a “growing interest” in the supply chain.

Non-Profit Role

The MasterCard Foundation works in education and financial inclusion, the latter of which involves supporting organizations that offer ways to enable poor people access to financial products and services, micro loans, grants and other financial solutions primarily in Africa.

The Fund for Rural Prosperity will fund new ideas that demonstrate ways to expand financial access in Sub-Saharan Africa. The grants, which will fund up to 70 percent of the cost of a project, will be distributed over the course of three years in a series of competitions starting in 2015.

“Lots of [smallholders] need and want to save money. Right now some are, almost literally, keeping it under the mattress,” said Morier. “It would be in their interest to have money saved in a secure way and earn a return on it.”

More than 400 companies and individuals have registered, and applicant representation is expected across banks, micro-finance institutions, insurance companies and strategics in the agriculture value chain, Morier said. The ideas must be implementable in sub-Saharan Africa.

Meanwhile, The Howard G. Buffett Foundation’s Sequoia Farm Foundation initiative will invest US$500 million toward agriculture production in Rwanda, the largest investment of its kind into the African nation, according to Agriculture State Minister Tony Nsanganira in reports. The capital, which is part of a 10-year plan outlined by the foundation, will go toward local farmers and education.

Long-term Impact

Initiatives by Mars and Danone as well as The MasterCard Foundation and Buffett remain in the early stages. Nevertheless, the expectations are robust.

“Our aim is to have 1 million people in Sub-Saharan Africa whose lives will be improved and who will have access to financial services that they didn’t have before,” said Morier.

Mars’ Parkin similarly offered his long-term view: “If we can strengthen the output from smallholder farmers, it follows that reliance on imports may well decrease. And that can only be a good thing for African smallholder farmers in the long term.”