Sustainable Supply Chains

SUMMARY

40% of the world makes their living through agriculture, a figure that rises to 80% in some parts of Africa and Asia.

The agricultural sector as a whole is critical to solving major obstacles to sustainable development such as poverty, urbanisation, climate change and food security – with these problems becoming ever more pressing as the world’s population rises.

Shell Foundation worked on the mechanics of global supply chains as a means of improving the sustainability of the agricultural sector from 2002 to 2015. Based on the learnings from a series of long-term partnerships between 2005 and 2008 with retailers such as Marks and Spencer, Woolworths South Africa and C&A, we developed a new type of social enterprise to link retailers to farmers by creating strong partnerships across the supply chain.

These “supply chain connectors” can achieve financial independence, operate at a global scale and offer specific benefits at both ends of the chain:

             
 

For retailers

They help to mitigate risk, secure supply of sustainable products, deliver efficiency gains and reach new customers by creating transparent and direct relationships.

     

For farmers

They help remove barriers to entry into international markets, secure predictable and long-term contracts, increase yields, reduce input costs and create jobs by helping them develop their ability to farm sustainably and manage retailer expectations.

 
             

Shell Foundation co-created two specialist social enterprises – CottonConnect (2009) and The Better Trading Company (2007) – to demonstrate the potential impact of the model. These intermediary service providers delivered commercial benefit to retailers while improving the lives of hundreds of thousands of smallholder farmers across Asia and Africa.

CHALLENGE

Agriculture is critical to sustainable development. The livelihoods of nearly 2.8 billion people across the world depend on the sector, rising to up to 80% in parts of Africa and Asia – the majority living below the poverty line.

z-farmers-benefit.jpg13.5% of global greenhouse gas emissions are attributable to agriculture. Meanwhile, a fast-growing middle class in emerging markets places huge demands on the sector causing concerns over land, energy and water use.

     
 

Farmers in emerging markets face huge challenges.

  • A reliance on middle-men and lack of formal contracts mean they often sell well below market value.
  • Heavy spending on pesticides damages both health (with over 100 million people suffering from over-exposure each year) and soil quality.
  • Floods or drought can ruin an entire harvest, creating a huge debt burden that farmers simply cannot afford.
 

 

A reliance on middle-men and lack of formal contracts mean they often sell well below market value. Heavy spending on pesticides damages both health (with over 100 million people suffering from over-exposure each year) and soil quality. Floods or drought can ruin an entire harvest, creating a huge debt burden that farmers simply cannot afford.

Global supply chains are complex and lack transparency
Supplying goods for national and international markets can present a life-changing opportunity for developing world producers. Retailer demand for high-quality crops with ethical and green credentials exists – however producers typically lack the agricultural skills, business expertise and seed funding to meet the high demands of the export market. These factors combine to present a formidable barrier to entry.

A Global Challenge

At a macro level, global supply chains are complex and lack transparency, involving a range of farmers, aggregators, traders, processors, manufacturers, import agents and high street retailers. This makes it difficult for retailers to reliably source the sustainably-farmed products that they and their customers want.

As a result, developing world producers (and the people that depend on them) miss out on a huge source of potential income, improved productivity and the socio-economic and health benefits that sustainable farming can deliver.

SOLUTION

Sustainable farming creates a range of economic, social and environmental benefits that improve the livelihoods of rural communities – and there is a clear demand for these crops from international retailers.

Our Journey

It is possible to create new value chains that alleviate poverty and deliver commercial returns to retailers
Working with a number of major retailers including Marks and Spencer, Woolworths South Africa and C&A between 2005 and 2008, we showed that it was possible to create new value chains that both alleviate poverty at the farm level and deliver commercial returns to retailers. This work benefited thousands of smallholder horticultural and cotton farmers in Africa and Asia – but we learned that this required a specialist skill set and the formation of long-term partnerships across the supply chain that did not exist.

Retailers required bespoke support to trace their supply chains, mitigate risk, source sustainable products and reach new customers. Simultaneously, farmers needed capacity-building support to meet retailers’ quality standards and to secure long-term contracts – and to improve farming methods to boost yield, reduce input costs (including pesticide and water usage) and maximise social benefit.

Supply Chain Connectors – a new type of business

The costs of implementing these programmes were simply too high for one retailer to bear alone. In response we created a new type of intermediary service provider to bridge the gap between low-income producers and retailers.

These social enterprises went on to work across Asia and Africa, unlocking long-term value from farmer to retailer, by creating the commercial incentives needed to deliver social and environmental impact through sustainable farming. They included: 

             
 

CottonConnect

Established in 2009, is a social business working with retailers and brands to help them create more sustainable cotton supply chains.

     

The Better Trading Company

Established in 2007, nurturing horticultural and agricultural entrepreneurs in southern and east Africa and brokers supply contracts with leading retailers in international markets.

 
             

BUILDING MARKETS

CottonConnect and The Better Trading Company have proven that “Supply Chain Connectors” can deliver major social and environmental change by working across retail supply chains – and that retailers are willing to pay for their services to improve their sustainability.

e-TABASCO-CHILLIES-GROWING.jpgWhile clearly there is no one-size-fits-all solution, we believe these models can be adapted or even blended to suit a broad range of crops (from commodity crops to niche horticultural products) and structures (from smallholders to commercial farms) in agricultural supply chains.

Shell Foundation supported several pilots with key retail partners to explore how the models could be adapted. In 2011, together with independent sustainability consultant Forum for the Future, Shell Foundation launched a comprehensive review to see if any of the models could have applicability in other supply chains and to identify these sectors.

Together we established a series of tests to determine if a Supply Chain Connector would be well suited to a particular agricultural sector. For example, the commodity model illustrated by CottonConnect could be applied to other products with long supply chains with a lack of transparency, many smallholders, high risk sustainability issues and difficulty implementing standards at scale (e.g. cocoa, tea, palm oil).

The high value crop model illustrated by The Better Trading Company might be attractive for brands needing traceability and a “story of origin” for one of their key products.

We also identified several sectors outside of agriculture that faced similar challenges, such as mining or electronics where supply chains are long and the sustainability issues are predominantly found at the start of the chain.

     
  Forum for the Future have since engaged key enablers of scale – entrepreneurs (through business schools), organisations that could support them (industry bodies or donors) and potential early adopters (retailers and brands) to share these findings.

In 2012, SF published a review of the key learnings from our decade experience working to address supply chain sustainability,
Transforming Agricultural Supply Chains
.
 
     

IMPACT

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