Building back from business: The role of buyers - Session 3
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The background and guidelines for delivering these PowerPoint presentations can be found in the facilitator’s manual: http://www.fao.org/3/a-i7968e.pdf http://www.fao.org/economic/esa/ Buyers of agricultural products are a major component of inclusive business models. One of the main reasons for failure in value chain projects is the lack of proper consideration of buyers’ needs and requirements. To highlight the importance of working closely with buyers, this session includes a panel interview with diverse type of buyers procuring from smallholders. Buyers will be asked to provide insights on their motivations to work with smallholders, the challenges faced and the support they need. This session will also provide participants with a relaxed setting to allow for open interaction with buyers. © FAO: http://www.fao.org
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Building back from business: The role of buyers - Session 3
- 1. Inclusive business models www.fao.org/economic/esa/ © FAO, 2017 Building back from business The role of buyers SESSION 3
- 2. Inclusive business models 2 The role of buyers Session 3 What is the role of buyers in building inclusive business models ? What are we going to talk about?
- 3. Inclusive business models 3 The role of buyers Session 3 IBM Not all farmers are the same 1-2% Commercial farmers 3-15% Regularly selling to markets 20-30% Occasionally connected to markets and buyers 40-50% Subsistence farmers buy in food and get most cash from off-farm work
- 4. Inclusive business models 4 The role of buyers Session 3 Not all buyers are the same • Types of activities: trading, processing, wholesale, retailing • Size: individuals, small-medium-large enterprises • Origin: local, foreign • Type: public, private • Formal, informal
- 5. Inclusive business models 5 The role of buyers Session 3 Why are buyers interested in buying from smallholders? Business case • No alternative supply • Diversify supply sources • Reduce price variations • Proximity • Brand Social motivation • Support local development • Social entrepreneurs • Working with NGO
- 6. Inclusive business models 6 The role of buyers Session 3 Buyers’ role - Why is it important to engage with them? • Provide market outlets for farmers • Provide jobs in rural areas • Use own resources to procure from farmers • Transfer knowledge on market and product requirements • Smaller buyers pay cash on delivery • Can influence the business enabling environment Addressing buyers problems will help smallholders access markets
- 7. Inclusive business models 7 The role of buyers Session 3 But…. There are challenges when procuring from smallholders
- 8. Inclusive business models 8 The role of buyers Session 3 Challenges - Large companies • Already have a developed business model • Challenges are usually external to the company • Difficulties in sourcing from smallholders – Geographic dispersion of smallholders – High transport and administrative costs – Meeting product requirements, standards, consistent supply • Internal challenges - formal procurement mechanisms not friendly to smallholders (payment delays, bank transfers)
- 9. Inclusive business models 9 The role of buyers Session 3 Challenges - SMEs • External challenges (same as for large companies) • Internal challenges – Perception that costs are lower if business is informal – Access to finance, business and technical services at a reasonable price – Managerial capabilities – financial management – Logistics decisions – transport and operations – Lack of branding & product differentiation – Quality requirements and standards not enforced
- 10. Inclusive business models 10 The role of buyers Session 3 Challenges -Traders and middlemen • Bad image – exploitation of smallholders • Challenges of working in the informal sector – Not legally registered – Food safety and quality standards not enforced – Pricing mechanisms – Access to finance – Limited business capabilities
- 11. Inclusive business models 11 The role of buyers Session 3 From buyers
Editor's Notes
- Buyers of agricultural products are a major component of inclusive business models. One of the main reasons for failure in value chain projects is the lack of proper consideration of buyers’ needs and requirements. To highlight the importance of working closely with buyers, this session includes a panel interview with diverse type of buyers procuring from smallholders. Buyers will be asked to provide insights on their motivations to work with smallholders, the challenges faced and the support they need. Additionally, this session will provide participants a relaxed setting to allow for open interaction with buyers. Outputs Participants will be able to: Understand the role of buyers in developing value chains. List the main challenges buyers face when procuring from smallholders. Reflect on how buyers also may need support to develop a viable business when working with smallholders.
- Producer-driven models are led by small-scale producer organizations motivated by improving market access through collective action. Buyer-driven models involve larger businesses organizing farmers into suppliers. These models can include contract farming or outgrower schemes, which often include access to inputs, credit and technical advice based on buyers’ needs. Ask participants their perceptions on why buyers are important in building inclusive business models? For an IBM to be sustainable, it is important that buyers are fully committed to the model and actively engaged. It is vital to work closely with buyers as they provide market outlets for farmers, generate jobs, transfer knowledge on product and market requirements and can influence the business enabling environment.
- In the same way as there are many types of farmers with diverse levels of access to productive resources, there are many types of buyers including formal and informal buyers, small/medium/large enterprises and retailers/wholesaler/processing companies. Each type of buyer has also a different set of requirements and challenges. Therefore, it is important to know each buyer in detail in order to provide appropriate support services. Not all the farmers are there same. This pyramid describes different types of producers. Different approaches should be used to support diverse types of farmers. For subsistence farmers at the bottom of the pyramid labour welfare, wages, safety nets and promotion of labour generating sectors and in some cases land reform are the most appropriate alternatives. The IBM targets farmers that regularly sell to markets and those who are capable to do it but are still doing it only on an occasional basis
- It is important to clarify that just like all farmers are not the same there are different types of buyers: Formal/informal, small/medium/large, retailers/wholesaler, processing company. Depending on the type of buyer there are different needs and requirements.
- Understanding the needs and constraints of the buyer is a critical entry point for supporting local business models. Interacting and addressing the needs of buyers can help move them from passive or potential buyers to becoming active business partners for smallholder suppliers. The buyers of agricultural produce from smallholders vary. They include small and large traders, small agro-processors, farmer organizations that sell on to larger buyers or traders, and large agricultural companies through outgrower schemes. If there are no outgrower schemes or projects that support linkages with larger buyers, smallholders typically sell to small traders and agroprocessors. Small and medium agro-enterprises (SMAEs) play an important role in the rural economy. They link farmers to markets, provide non-farm employment opportunities and add value to agricultural produce. However, they receive far less attention from the public agricultural and development sectors compared with smallholders (FAO, 2012a). Typically, the regulation of SMAEs in developing countries tends to be weak, probably because they fall between the policy mandates of the ministries of agriculture and trade. For instance, legal and administrative red tape can make it difficult for SMAEs to do business with farmer organizations, which larger firms can circumvent. When buyers – both large and small – procure from smallholders, they face a number of risks, including food safety issues, lack of consistency and contract delays because of side-selling. They also have to use their own resources to provide the technical and financial assistance it takes to bring smallholders’ produce up to a standard that satisfies the market.
- There is a need to learn more from buyers in order to develop inclusive business models What types of changes have they made in their procurement systems to include smallholders? What types of regulatory changes need to take place to expand business with smallholders? What support do buyers need from the public sector to expand business with smallholders? These types of questions are the ones we will be asking to our panelists. Item 2. Panel session with buyers (1h 30min) Considerations: Invite buyers that fit the specific objectives of the training and projects in the country. Often it will be most interesting to invite a variety of buyers such as retailers, processors, exporters and institutional buyers - including both large and small companies covering a variety of commodities. Include informal buyers on the panel if possible. Try to create the space to reflect on how projects need to work with buyers in the formal and informal sectors and on how strategies for each may differ. Usually buyers in the informal sector also need support so it is more politically accepted than working with a large company. Item 4. It is advisable to make full use of the presence of the buyers. There are several alternative options for the second part of the afternoon. Option 1: Continue the discussion with the panelists in plenary. If the discussion is interesting and participants do not show any signs of getting bored, there is no reason to cut the discussion off. Open-up the floor to participants and let them ask the questions and engage directly with buyers. Option 2: Divide the participants in groups and assign one buyer to each group. Ask each group to discuss risks, challenges and benefits of sourcing from smallholders with the buyer. Option 3: Role play. Some participants are asked to volunteer to play the role of representatives of a group of smallholders that have a contract with one of the buyers. An outline of a possible role play situation is presented in Annex 3. Alternatively, roles can be inverted with the buyers playing the group of smallholders and the participants playing the buyers. This would force the participants to think as a buyer and would give the opportunity to create challenges for the buyers that they regularly face. Option 4: If buyers have to leave early, the time could be used to re-discuss some of the icebreaker statements in light of what was learned from the buyers (see annex in module 1). bbb