Charging smallholder farmers for products and services for a stronger sustainable sourcing strategy
One of the world’s biggest commodity traders, ECOM, is taking sustainable sourcing to a new level: they are continuing their support to smallholder farmers in Southern Sumatra aimed at increasing their productivity and income, even though they stopped sourcing from the region several years ago.
Their business unit Sustainable Management Services (SMS) has historically taken the lead in engaging with smallholder farmers to ensure higher quantity, quality and consistency in ECOM’s supply chains. This engagement typically happens in the form of co-funding interventions that serve farmers according to their needs. For example, they might partner with an input provider to make quality fertilizer available on credit so that farmers can acquire them when they are needed. At IDH we call such ecosystems of partners and interventions a Service Delivery Model.
Normally companies invest in Service Delivery Models in areas they source from, because the investment required is only justified by the commercial returns from trading or processing additional volumes from the region, and perhaps donor funding that is made available.
With the support of IDH, ECOM is now exploring the possibilities of making this service delivery independent of their sourcing activities by designing a model that pays for itself: by charging farmers for the services, SMS can ultimately run these operations free from donor funding and without eating into ECOM’s profit margin. This self-reliance protects the Service Delivery Model from the internal cash-hunting projects which inevitably occur every few years within big corporate organizations.
Increasing farmer income by charging them money sounds contradictory at first. However, if ECOM’s Service Delivery Model can stand the no-sourcing stress-test – in other words: generates sufficient revenues to survive even if sourcing from the region were to stop – we know that the services offered are ones that farmers are willing and able to pay for. What better proof is there that farmers are confident about these services increasing their income?
For more information about ECOM’s Service Delivery Models in Indonesia, take a look at the SDM analysis we collectively performed.