Opinion

Low farm gate prices: are processors and retailers the only culprits?

Erinch Sahan

Fairer prices and wages through more farmer-owned enterprises

Across the developing world, millions of farmers are trapped in poverty and hunger. Most of the 795 million people who are undernourished in the world live in rural areas, with livelihoods connected to agriculture. Low prices and declining share of value going to farmers are important drivers.

The share of value captured by farmers must be radically increased

In the global cocoa value chain, only 3.5–6 percent of the value of a chocolate bar reaches cocoa farmers. This is a sharp decline from the 1980s, where there was less market concentration in the cocoa supply chain and farmers received 18 percent of the value created in the chain. This trend seems to be repeated across commodities.

For farmers to earn a living income, and farm workers a living wage, the prices paid and value accrued to producers must increase. As articulated by the then Fairtrade CEO, Harriet Lamb, in 2015: ‘farmers need a dramatic increase in prices, at the scale of doubling of prices for cocoa at the farm gate alongside better access to credit, fairer trading conditions, support in managing risk and more investment in productivity – all so that farmers can have a living income.

We are yet to see a major food company publicly commit to paying prices for their agricultural commodities that would allow farmers to earn a living income, workers to earn a living wage and much more value channelled to agricultural production. So instead, we need to see a structural shift in the models of business in the food system, so more value can flow to farmers.

Rethinking business models to share more value with farmers

Farmer-owned enterprises are a part of the answer. They allow farmers to have greater negotiating power and to potentially capture profits from more capital-intensive value addition activities. Examples of thriving farmer-owned enterprises of all scales include giant dairy cooperatives like Amul (owned by 3.6 million Indian small-scale dairy producers) and farmer-owned chocolate and coffee brands, like Divine Chocolate and Cafe Direct. Such models are structured to generate fairer and more sustainable agricultural supply chains.

Policy-makers have a key role to play if we are to see a greater prevalence of farmer ownership in the food system. Market and economic governance that promotes such models of enterprises will ultimately determine if there is a shift in the kind of business structures that dominate the food system. Tax policy, public procurement and programmes of enterprise support (such as credit guarantee schemes) are all levers that can help farmer-owned enterprises to grow and thrive. The private sector can also help bring about this shift, through greater sourcing from enterprises owned by farmers, workers and communities. On the finance side, impact investors can also play a key role in helping such models grow.

Farmer ownership is not a silver-bullet. But well-governed farmer-owned enterprises should be part of a vision of giving greater power, voice and value to farmers. 

The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint international institution of the African, Caribbean and Pacific (ACP) Group of States and the European Union (EU). CTA operates under the framework of the Cotonou Agreement and is funded by the EU.